Step-by-step guideline on what to do if you cannot afford to pay your taxes

by Mounica Kota | Aug 15, 2020 | IRS, tax deadline, Tax Extension, tax return

Step-by-step guideline on what to do if you cannot afford to pay your taxes

The IRS had extended the tax return filing and payment deadline until 15^th July 2020 for the Americans to alleviate the financial crisis faced by millions of Americans due to the pandemic COVID-19. However, the pandemic has led to the unemployment of millions and millions of Americans. So, even with the extension in the return filing and tax payment deadlines, it is quite difficult for some Americans to pay their taxes on time.

The IRS has a simple reminder for the taxpayers who cannot pay their entire amount of federal taxes which they owe. They should file their tax returns on time and pay as much as possible. By this, the interest and penalties of taxpayers would reduce and there would not be much accumulation of interest to pay back.

If a taxpayer plans to pay his taxes as much as he can afford, then the IRS has some convenient methods to do this i.e. by IRS Direct Pay Method, Electronic Federal Tax Payment System (EFTPS), Electronic Funds Withdrawal, Debit or Credit card, or by Check/Money Order, etc.

However, for those taxpayers who feel payment of taxes are unaffordable at the moment; they can follow a detailed plan.

Step1 – File by the new 15^th July deadline even if it feels difficult to afford the payment on time

As said earlier, due to the pandemic COVID-19 the deadline to pay the Federal taxes has been pushed to 15^th July 2020. However, with this extra time, taxpayers should not wait much more to file their taxes. Taxpayers must consult tax professionals for filling the forms. By this, the credits and deductions to lower the bill can be found out easily.

Many taxpayers might consider the option of the deadline extension. However, the extension would provide more time for filing the tax returns but not for

paying the taxes. Even if there is an extension, the tax payment must be done on time. So, an extension should only be filed by the taxpayers if due to some reason the taxpayer is not able to file the tax returns on time.

Step2 – Pay as much as possible by the tax deadline

This is also recommended by the IRS that the taxpayers should wait till the deadline, try to arrange for the tax amount, and pay off as much as possible. Some taxpayers even prefer discarding some of their unwanted materials in exchange for cash which can be utilized in payment of their taxes which are due.

Taxpayers can contact the IRS on the toll-free number to discuss alternate payment options. IRS might help the defaulter taxpayers with other payment options like a short-term extension to pay the taxes, an

agreement for installment, an offer in compromise, or by temporary delay in the collection by reporting that the taxpayer’s account is currently not collectible until the taxpayers can afford to make the payment.

Step3 – Keep paying the taxes you owe even after filing

Even after Tax Day, taxpayers would have a period of around 1 month or 2 months before the IRS would contact them about the rest of the tax payment. During this available time of 1month or 2 months, taxpayers should try to pay out as much as possible to reduce the balance left out.

In case the taxpayers are not able to make their complete payment by this time, the IRS would suggest options for making the rest of the payments in monthly installments.

Step4 – Rectify the problem

You should approach a tax professional and try to work with him or his team to ensure that you are not stuck with the problem of unaffordability related to tax payments. This can be feasible either by setting aside profits from a side business or by the adjustment of withholdings from your paychecks.

Your issues can be best identified and rectified by the tax professionals so that these issues are avoided in the future.

Conclusion

Hence, you can follow these steps and try to pay off as much tax as you can. Avoiding the aggregation of penalties is important to avoid any further financial and economic hardships.

References

How to start a business as an NRI in the US if you owe taxes?

by Mounica Kota | Aug 6, 2020 | business incorporation, NRI, owe taxes, tax considerations

How to start a business as an NRI in the US if you owe taxes?

As an NRI, if you are planning to launch your own business but you owe taxes and are not sure about how to proceed then you might find yourself in a confusing situation. In this scenario, it depends if your situation would be affecting your ability to start or launch a business. Your tax debt may not prevent you from starting a business; however, it can affect your goodwill and even your ability in obtaining loans for your business.

Possibilities of business incorporation

Even if you owe taxes to the IRS, you would still be able to incorporate your own business. Generally, corporations and the LLC business structures would allow you to separate and also protect your assets. If you are planning to launch your own business, you must have a very clear distinction between the business and yourself as an individual. By the process of incorporating or forming an LLC, it is implied that you are eligible to run your business without any fear of your personal assets being seized due to your business debts.

If you consider the scenario from a tax standpoint, it is much easier to pay off or rather manage taxes if your expenses for business re kept separated from your personal expenses. Corporations and LLCs can deduct eligible expenses like salaries and supplies; however, it would become more complicated if your personal expenses and business expenses are mixed up. You must work very closely with a tax advisor or tax professional to help you in the proper set up of your company.

Financing of your business when you owe taxes

When you apply for the financing of your business, your business loan application could be affected by your personal credit. Usually, financers would evaluate in detail your personal credit and financial history before granting you a business loan.
If you have a high amount of tax debt or you have not paid your taxes then your credit score might decrease steeply.
If there is a tax lien against you then it would remain on your credit report for a long time even when you have paid the tax.

4. If you think your tax debt can create an issue for the financing options available for your business, you can consider the below-mentioned financing options.

Short term loans – You can obtain a short term loan if your business has a sustainable cash flow. This kind of loan places greater emphasis on the revenue of the company rather than on your credit score.

Term loans – For term loans, you would need good personal credit. Moreover, these loans would give you a lump sum money which you would have to repay with a fixed interest rate.

Accounts Receivable Financing – If you are waiting on your unpaid invoices to pay your business expenses, this type of loan is the best option for you.

SBA Loans – SBA loans are highly sought as their lower interest rates are added up with longer repayment terms.

Resolve your unpaid taxes

If you owe back taxes to the IRS, then the IRS has the authority to collect the taxes by seizing your property through a tax levy. By a tax levy, the IRS is allowed to seize your bank account balances, your wages, real estate, automobiles, retirement accounts, and any other assets. However, you can still work and earn.

You will have to discuss your unpaid taxes with the IRS. If you have negotiated with the IRS and decided that you would be paying your debts using an installment agreement, then you would be able to start your own business. However, you must keep in mind that if you try to hide your assets from the IRS’s levy by using your business as a front then it is illegal.

Some other tax considerations

From the perspective of business structures, there are four types of business structures and each one would be having a different influence on business taxes.

a.Sole proprietorship – If you are setting up your business as a sole proprietorship, your business would not be separate from you as an individual from a legal perspective. By this, your business would not have to pay business income tax as you would have to report your self-employment income only.

b.LLC – LLC means Limited Liability Company and by this, your company would get its own identity and status different from your personal identity. You can receive more protection and financial benefits. Your LLC would not have to pay business income tax and you would only pay personal income tax.

c.S-Corp – It is also a business structure that is not liable for business income taxes and all the business earnings would pass through the owner.

d.C-Corporation – C-Corporations might be a publicly-traded company or a small company, this business structure requires you to pay business income taxes.

Conclusion

Hence, even if you owe taxes to the IRS it does not mean that you will not be able to set up a business of your own. You should not ignore your tax obligations, connect with experienced tax professionals for tax resolution services, and get ready to pursue your dreams of starting your own business.

References

How to save taxes with a Virtual Wedding in pandemic times?

by Mounica Kota | Jul 8, 2020 | Married Life, Tax Deduction Ideas, Virtual Wedding, Wedding Favours

How to save taxes with a Virtual Wedding in pandemic times?

As the pandemic COVID-19 continues to spread across the United States affecting millions of people, there has also been a complete shutdown for many businesses including the wedding industry. Many couples who had planned for a wedding during this year have either canceled it or have postponed it. However, many couples have resorted to other alternative means of solemnizing their wedding i.e. by Virtual wedding. How to save taxes with a Virtual Wedding in pandemic times.

With social distancing being the necessity of the current times, many couples have also resorted to performing their weddings by using modern-day technologies. Weddings via Zoom or through other modes of video conferencing are the current trend now. So, are you also thinking of having a Virtual wedding? You would be able to save a considerable amount of money on expenses like food, venue, etc. and would also have opportunities to save tax.

Tax deduction ideas for virtual wedding

In case you got married in 2019 or you are planning for a virtual wedding this year, these tax deduction ideas will be of great help to you.

Your wedding gown

You might think that what would be the tax deduction on the purchase of the wedding gown which you have been dreaming of. However, the best part is that you can be able to donate your beautiful wedding gown and claim a tax deduction in the form of a charitable contribution. It is also feasible that the price of your wedding dress can help you in obtaining an appraisal. In case, the wedding dress costs more than $5000 then the wedding gown must also be appraised.

If you are donating your wedding gown, then you should preserve the receipts and documentation to help claim your tax deduction. There cannot be a feeling better than the feeling of content which you would experience in donating your precious wedding gown. You would feel so happy that the gown which had a special place in your heart has come to someone else’s aid or help. You must ensure that when you are donating your wedding gown, you must donate it to a 501(c) (3) qualified organization i.e. a non-profit organization.

Wedding gift registry

As your wedding date approaches, you are sure to prepare a traditional gift wish list. If you are planning for a wedding this year you can create a charity registry as well along with the traditional gift wish list. The charity registry can be created easily by registration on myregistry.com and you can motivate your guests to make donations for a good cause. These donations can be used to claim tax deductions so, your guests would be happy to donate and even celebrate with you. There would be a noble cause for which your guests would be contributing and it is sure to make them feel good.

You should be well aware that there are two basic requirements to be met if you intend to claim tax deductions for the charitable donations that you are making.

You should ensure that you must have enough tax deductions so that you can obtain the benefit from claiming the itemized deductions.
Moreover, as said earlier the donations must be made for a nonprofit organization to be able to claim the tax deductions.

Wedding favors

Due to the pandemic COVID-19, weddings and social gatherings are not permissible; so, a virtual wedding would is the best alternative solution for the current situation. However, wedding favors in times of virtual wedding can sound to be quite impractical. But, you can plan for making a good donation on behalf of all those who attended your special day. This would help in serving two major purposes i.e. – a donation can be of great help to the needy and it would also help you in achieving a tax deduction.

Conclusion

Hence, in these distressful times, cancellation of wedding or postponement of wedding for an infinite period can be even more distressful. A plan for a virtual wedding can be your mood lifter and implementing certain charity plans associated with your wedding can make it sound even more interesting. Your charity receipts and acknowledgments should be intact for a tax deduction which can increase your tax refunds and boost your funds for your married life.

New to the US? Here are the taxes paying options that you should be aware of.

by Mounica Kota | Feb 10, 2020 | Tax Installments, Tax Payment Methods, taxes

New to the US? Here are the taxes paying options that you should be aware of.

In the US, taxes must be paid on time failing which you might have to pay heavy penalties. You must always try to make the tax payment in full and on time. There are various methods by which the tax payment can be done.

a.Electronic mode of payment

You can pay your tax directly from your bank account through the electronic mode of payment. This electronic mode of payment can include making your payment through your phone, any other mobile device or by the use of cards.

When you are making your tax payment with the help of either your debit card or credit card, you can use any of the three processors which co-ordinate with the IRS i.e. World Pay US, Link2GocCorporation or Official payments. The service fee which is charged by these processors is tax-deductible. You can make an electronic payment using the IRS2Go app as well. By visiting the Payment page, the payment can be done instantly and even payment can be scheduled in advance. By using a phone or other mobile device you can make the payment for the Electronic Federal Tax Payment System. After your payment, you can receive instant confirmation about the payment.

b.IRS Direct Pay

This is a secure service that you can use for making your tax payment for Form 1040 and estimated taxes. This payment is done directly from your bank account without any charges being levied on you. It is easier for you to check the status of your payment and even receive notifications about your payment. It is also possible to cancel your payment or make changes in the payment for 2 business days before your scheduled payment date arrives.

c.By cash

You can also make your tax payment by cash at participating retail outlets like 7-Eleven. There is a service tax charged for this and it takes 5-7 business days for processing of the payment.

d.By cheque, money order or cashier’s cheque

You can enclose your cheque, money order or your cashier’s cheque along with a copy of your tax return. You have made this payable to the United States Treasury and also provide name, address, TIN, Tax year, Notice number, etc.

In case you are not able to make the full tax payment immediately, you can avail the provision of additional time i.e. up to 120 days and make the payment in full. There are no additional charges levied for this but there is an interest that gets accumulated till the entire amount is paid off. This facility can be availed by the help of the Online Payment Agreement (OPA) or by using toll-free numbers.

e.Pay tax in installments

In case, you are not able to make your full tax payment by the due date or within 120 days then you can opt for a Monthly Installment Plan for making your tax payment. You can request making tax payment in installments by using the OPA application, Installment Agreement Request or Form 9465. You can make your monthly installment payments by using several payment options like

Payment by debit card or credit card
Payment by cheque or money order
Payment by the Electronic Federal Tax Payment System (EFTPS)
Payment through cash with the help of a retail partner
Payment is done by direct debit from the bank account
Payment is done by deduction from payroll

When you are selecting the tax payment to be done by direct debit from a bank account or deduction from payroll, the process is automated and there would be no chances of missing the default payment date.

Usually, if you are selecting a payment plan then IRS would charge additional fees from you for this purpose but if you belong to the low-income taxpayer group then this fee would be reduced or waived based on specific conditions.

Conclusion

Hence, with the various forms of convenient tax-paying options available in the US; filing of tax returns would not be difficult even if you are new to the US.

Reference

https://www.irs.gov/taxtopics/tc202

https://www.usatoday.com/story/money/2019/04/11/how-pay-taxes-installments-and-other-tax-payment-options/3434002002/

All about filing your taxes in the US: The When, the Where and the How

by Mounica Kota | Feb 1, 2020 | tax filing, tax form, tax returns

All about filing your taxes in the US: The When, the Where and the How

In the US, filing your taxes on time is considered quite important. If you are not filing your taxes on time, then you might have to pay heavy penalties. For avoiding paying heavy penalties, you must know in detail some essential aspects related to taxes.

The major aspects which are related to taxes in the US are

When to file the tax returns?
Where to file the tax returns?
How to file the tax returns?

Let us know about each aspect in details.

a. When to file the tax returns?

In case you are a tax filer as per the calendar year, then the end of a particular tax year for you is on 31st December. In this case, you have to finish your process of tax filing by 15th December of each year. Suppose, you are using a fiscal year i.e. tax year which is ending on the last day of any month but not December then you will have to file your tax returns by the 15th day of the fourth month after your fiscal year has been closed. In case of the tax return for the year 2019, the tax payment due date is 15th April 2020.

If you are filing your tax returns by the help of mail, then you will have to ensure that the mailing address to which you are sending the document is correct and the documents are deposited on time. In case of filing a tax return by electronic means, you should ensure that the date and time in your time zone must be accurate as it determines whether your tax filing has been done on time or not.

In case, you are not able to file your tax returns by the due date then you will have to request an extension in the time needed to file the taxes. You can use Form 4868 to obtain an extension of 6 months automatically. For this, you will have to pay interest and also there might be a penalty charged on you for non-payment of tax by the due date.

b.Where to file the returns?

If you are filing your tax return electronically, then you should not be worried about the area where it will be sent. In case, you are filing your tax return by physical means or by paper then you will have to send it to the correct address which is mentioned in the form that you are filling.

If you have a balance to be paid at the time of filing your tax return, then you can make the payment by IRS Direct Pay. In case you are filing your return by paper, then you will fill Form 1040-V and send your cheque or money order along with the form.

The cheque or money order which you are going to send must be prepared as payable to “United States Treasury”.
You should not staple your tax return, Form 1040-V and payment together. They should be left loose and placed in an envelope.
On the front side of your payment, you should include your name, address, TIN, tax year and the category of form which you are including.
It is advisable not to send cash along with your return.

c.How to file the tax returns?

You can file your tax returns either by electronic means or you can mail your tax returns in paper form. Mostly, it is advisable to file your tax returns by electronic means as it is convenient and even a faster process. When you are mailing your tax return, it will take around six weeks to eight weeks for processing. In case, you are preparing your tax returns by using professional software then there might be the need to pay additional fees to file the return.

If filing tax returns by paper form, you should use the Form 1040 or Form 1040-SR. Along with these forms, you also need to attach some other documents like a copy of Form W-2, Form W-2c which is a corrected form Form-W2, Form-W2G and Form 1099-R if a federal income tax was withheld, etc.

For electronic filing, you will have to use the e-file method. For this, you can use self-select PIN which will act as your digital signature when you are using tax preparation software. The self-select PIN will allow you to make your electronic signature while filing your Income Tax Return by selecting a five-digit PIN.

Conclusion

So, you must know in detail about these important aspects associated with filing your tax returns in the US. This basic information makes it easier for you to file your tax returns accurately on time thus avoiding heavy penalties.