What is the process to obtain the US Individual Taxpayer Identification Numbers (ITINs)?

What is the process to obtain the US Individual Taxpayer Identification Numbers (ITINs)?

by | Jan 31, 2020 | federal income tax, IRS, ITIN, SSN, tax filing, Tax Payers, tax return, taxes, W-7 Form

What is the process to obtain the US Individual Taxpayer Identification Numbers (ITINs)?

US Individual Taxpayer Identification Number is an Identification Number which is used by the IRS (Internal Revenue Service) for the administration required in the field of tax laws. ITIN is a nine-digit number that is issued either by the SSA (Social Security Administration) or by the IRS. ITIN is issued by IRS to those individuals who must have a US taxpayer identification number but do not qualify to obtain SSN (Social Security Number)from the SSA.

Why do you need ITIN?

When you are working in the US and earning in the US, but you do not qualify to obtain an SSN, then the ITIN will be helpful during your filing for tax returns.

Let us find out what does an ITIN does.

  1. If you qualify to obtain a tax refund from the IRS, then ITIN will help you in obtaining a refund.
  2. ITIN will help you to file your taxes and help the qualifying dependents to claim the tax benefits.
  3. Moreover, ITIN can help you to apply for a mortgage loan or open a bank account.

Eligibility for obtaining ITIN

 You should be falling into these below-mentioned categories to obtain the ITIN.

  1. You should be a non-resident alien who needs to file a US tax return.
  2. You must be a US resident alien who has to file a US tax return.
  3. You should be a dependent or the spouse of a US citizen or resident alien.
  4. You must be a dependent or spouse of a non-resident alien VISA holder such as H4 VISA.
  5. You should be a non-resident alien who is claiming a tax benefit.
  6. You should be a non-resident alien student, researcher or professor filing a US tax return or for claiming an exception.

Procedure to obtain ITIN

  • For the process of applying for ITIN, you will need the below-mentioned documents.
  1. Form W-7
  2. IRS Application for Individual Tax Identification Number.
  3. Your federal tax return. But, if you are eligible for an exception then you must provide the supporting documents as well for the exception.
  4. Original documentation from the issuing agency for proof of your identity and foreign status.
  • Since, you will be filing your tax returns in the form of an attachment to your ITIN application you should avoid mailing your filled form to the address which is mentioned in Form 1040, Form 1040A or even Form 1040EZ.
  • You can send your Form W-7, tax return, and other documents either to the mailing address mentioned in Form W-7 or submit it at the walk-in offices of the IRS. You can also get your form and documents processed by an agent who has been appointed by the IRS.
  • These Acceptance Agents are those entities such as colleges, financial institutions, accounting organizations, etc. who help the ITIN applicants in obtaining ITIN. These Acceptance Agents would review the application forms and would forward them to IRS for further processing.

Timeline within which ITIN must be applied

When you are ready to file your Federal Income Tax Return, you should also complete your Form W-7. This needs to be done as the return would be needed to be attached to FormW-7.

If you are qualifying for any of the exceptions, then you do not need to file a tax return. You would only submit Form W-7 along with those supporting documents which provide proof for the exception. An applicant is allowed to apply for ITIN during any time of the year but if you need to attach the tax return to Form W-7 and that tax return is filed after the due date then you might have to pay penalties.

When will you receive your ITIN?

 The IRS usually takes a time of around two months to complete the processing of the ITIN form. If your documents and details are correct, then your form would be processed and ITIN would be sent to your mailing address approximately within two months.

However, if even after 2 months you do not receive your ITIN or any other document/correspondence from IRS then you can call IRS at the Toll-free number and enquire about your ITIN application.

Hence, ITIN is very much necessary for tax return and if you are filing your tax return with an expired ITIN then your request would be processed but you will not receive any tax exemptions or credit claims.

Reference

  1. https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin
  2. https://www.hrblock.com/tax-offices/tax-prep/itin-application.html
  3. https://internationalcenter.umich.edu/resources/tax/getting-itin
  4. https://studyinthestates.dhs.gov/what-is-an-itin
  5. https://www.immihelp.com/itin-individual-taxpayer-identification-number/

 

 

 

 

 

 

 

 

Does it make sense to file your taxes early?

Does it make sense to file your taxes early?

by | Jan 20, 2020 | income tax, tax filing, Tax Planning, Tax Preparation, Tax Refund, taxes

Does it make sense to file your taxes early?

Filing taxes can be a bit boring and overwhelming. Apart from your life and work, you need to devote some time and energy to file your taxes early. A lot of taxpayers barely are able to file their taxes on time, let alone before time.

What if there are some strong reasons and benefits for filing your taxes early? Would that pull you into the idea of filing your taxes early? If yes, here are some of the most prominent reasons why you must seriously consider filing your taxes early.

1.To Avoid Missing Out On Tax Benefits

Usually filing your taxes at the end means, that you are running against the clock. In such cases, the chances of missing out on some information are quite possible. A common mistake made by taxpayers filing their taxes in the end if using a wrong SSN or forgetting to mention their SSN, or their dependent children’s SSN or spouse’s SSN. Missing out on SSN is a sure way of missing out on certain tax deductions and tax credits.

2.A quicker Tax Refund

When you consider data from the previous years, you will find out that about 72% of taxpayers receive tax refunds up to $3,000. That is a decent chunk of money that you can use as rainy-day savings or paying off some debt. Filing your taxes earlier allows for a quicker tax refund.

3.Possibly Bigger Refunds

When you file your taxes early, you can benefit from certain life changing milestones. Milestones such as marriage, or the birth of your child, starting your own business, etc. can translate into better tax refunds or deductions. Which ultimately will help you save money. Thus, filing your taxes early can be beneficial.

4.Debt Management

In the event that you are struggling with some of the debts, opting for an early tax filing can save the day for you. The IRS expects to issue tax refunds within 21 days of your filing tax returns. The earlier you file your taxes, you boost the chances of an early refund and thus, it can help you manage some of your debts as well.

5.Leverage Your Time and Money

When you file your taxes early, you are firstly not under any pressure of filing them before the deadline. It enables a smoother filing. Secondly, the chances of mistakes are also minimal, thereby allowing you to spend less time on tax filing. And more importantly, you can expect an earlier refund as well. You can then use these funds either for a quick trip while your friends and colleagues are busy filing their taxes or use them for other purposes.

6.File Taxes Online

Once you have made up your mind to file your taxes early, you can visit online portals to help you file your taxes. There are a lot of trusted portals, which can help you file your taxes within a few minutes. All you need to do is provide some basic information and answer simple questions. The portals can help you extract the most out of your refunds as well. And the best part is, you can do this from the comfort of your home or office or even while you are vacationing. If you need additional help in the form of an Enrolled Agent or a CPA, the portals would be able to help you with that as well.

Apart from the most obvious benefit of peace of mind and no stress during the tax filing season, the above are some of the other benefits of filing your taxes early. If you have never filed your taxes early, now might be the best time to give it a shot and reap its benefits.

Reference

https://blog.turbotax.intuit.com/tax-refunds/6-reasons-it-pays-to-file-your-taxes-early-19100/

Who is considered to be an individual investor in the US?

Who is considered to be an individual investor in the US?

by | Jan 15, 2020 | 401(k), global income tax, IRA, tax filing, Tax Planning, Tax Refund, tax savings, taxes

Who is considered to be an individual investor in the US?

In the US, the direct impact of investment falls on the taxes of individuals. If you are investing, it would have a different implication on your taxes. Nowadays, with the various taxes, related software filing up for tax as an investor is not too tedious and difficult in the US.

Let us find out the various ways by which an individual would be considered as an individual investor in the US.

Buying or selling of a security

One of the simplest methods by which it can be determined that you are an individual investor or not is either you have bought or sold any security throughout the year. Here security can mean stocks, bonds, index funds, cryptocurrencies or even mutual funds.

However, by simply buying some stocks the way you fill your taxes for the year is not going to change. The company whose stocks or bonds you have purchased must give you a dividend and you must be able to sell them, otherwise, there would be no impact on the way you fill your taxes. In case, the company whose stocks or bonds you have purchased gives you a dividend you need to report it as income. Now, again if you sell that particular stock either for a gain or a loss you will have to report about this particular transaction on your taxes.

By investing in mutual funds or index funds, you will obtain 1099-DIV and 1099-B which will cover all the activities they have generated. In case, you have made any investments with the help of a retirement plan such as 401(k) or a Roth IRA it is going to have a separate impact on the way you will fill your taxes.

Savings App           

On the purchase of stocks, you may not find it too relevant to consider yourself as an investor but there is numerous savings app available nowadays which help in saving more and turn you to be an investor. There is some savings app which will help in rounding up your purchases and thus save your money.

For instance, when you are purchasing by using the debit card of a particular company they will round up your transaction into the next dollar and your extra money would be invested on your behalf. Suppose, you have purchased food and beverages for a particular amount, it is rounded up and the extra amount is invested in a portfolio of exchange-traded funds. So, even if you are investing using these petty amounts you are an investor.

Type of investor

The type or category of investors you belong to is important when it comes to filing your tax for that particular year. A day trader or a pattern day trader is someone who can trade four times or even five times during a five-day period. The number of day trade is usually higher than 6% of the total trading activity taking place during that period. Moreover, a person can also be termed as a day trader if he is classified as a day trader by the broker and this happens in the case of distinct capital and margin requirements.

However, filing of taxes is going to be challenging even if you are a casual investor or a day trader. This is due to the heavy paperwork that is involved in the process of tax filing. But, if you have maintained your records then with electronic methods; tax filing should not pose as a threat for you.

Category of transactions                              

This is another simple method by which you can determine whether you are an individual investor or not. This is to think about the type of transactions you have done during the entire year.

For instance, you have sold some shares of stock and that will generate some gain or loss. This gain or loss will have to be reflected while filing the taxes. So, this clearly states you are an individual investor.

Hence, when you answer a few simple questions and analyze them it is easy for you to determine if you are an individual investor or not. While filing your taxes, you report about your transactions in Form 8949 whereas Schedule D covers the profits and losses.

What to do if you haven’t filed your taxes in the US?

What to do if you haven’t filed your taxes in the US?

by | Jan 11, 2020 | global income tax, Tax Exception, tax filing, Tax Liabilities, Tax Payers, Tax Planning, Tax Refund, tax return, tax savings, taxes

What to do if you haven’t filed your taxes in the US?

There can be an array of reasons for taxpayers not to file their taxes in the US. For starters, an individual might not have filed their taxes because they cannot pay their taxes. Or the more common reason is that individuals get consumed with life and work and cannot get things aligned to be able to file their taxes on time.

Irrespective of what your reason maybe, it is essential that you file your taxes at the earliest. Simply because non-filing of taxes is a serious issue for the IRS. There are three straightforward outcomes when it comes to filing your taxes. Firstly, you do not owe any taxes to the government. Secondly, the government owes you tax refunds and thirdly, you owe taxes to the government.

While the first and second scenarios are still easy to live by, the third one can take a hefty toll on you. In the event that you owe taxes to the government, you are liable to pay fines and penalties on the top of the taxes that you are liable to pay. And things can get ugly, quite fast.

File your Tax Returns

For individuals who have not yet filed their taxes, they must start immediately. The first question that will come to your mind is, for how many years should I file my taxes. As per the IRS guidelines, you must file your taxes for at least 6 years to establish a good understanding with the IRS.

If there are any changes to the same, the IRS management will have to approve of the same. Depending on the situation, the IRS management can ask you for tax returns exceeding 6 years as well. Here are some of the common reasons for the same.

  • If there are relatively larger tax bills on your past filings. The absence of any withholdings for large wages, property taxes or Form 1099-Misc is red flags for the same.
  • The IRS would most probably do additional scrutiny if any businesses are involved since the possibility of non-compliance is higher.

Tips For Filing your Taxes

Citizens who have not filed their taxes and wish to do so, here are some tips that will help you get through.

  • It is essential to get a confirmation whether the IRS needs 6 years of taxes or beyond. You can either call the IRS to find out the same or reach out to a tax consultant for the same.
  • One more reason to file your taxes at the earliest is that the IRS will not pay older tax refunds. As per the IRS guidelines, it will pay refunds up to a maximum of 3 years from the date of filing. Thus, you might lose any refunds even if they are valid.
  • There is a good possibility that you might have to pay hefty fines on your taxes. The failure to pay and failure to file penalties can accrue up to 47.5% of your liable taxes.
  • The IRS usually starts a process called the substitute for return, if the due date exceeds three years. When you file your taxes, the IRS will compare your returns with the SFR (substitute for return). And this can be time consuming, sometimes these cases might take up to four months.
  • In the event you cannot pay your liable taxes, it is recommended that you reach out to the IRS and ask for an agreement. Depending on your needs, there are several typesof agreements that you can opt for.

Irrespective of your reasons, if you haven’t filed your returns, you must initiate the same at the earliest to minimize its impacts.

Reference:

https://www.hrblock.com/tax-center/irs/audits-and-tax-notices/get-back-track-irs-havent-filed-one-returns/

https://twocents.lifehacker.com/what-to-do-if-you-havent-filed-your-taxes-in-years-1803756859

https://www.irs.gov/taxtopics/tc153

Is it possible to maximize your tax refunds?

Is it possible to maximize your tax refunds?

by | Jan 9, 2020 | 401(k), Deduction & Credits, Investment & Income, IRA, tax deductions, tax filing, tax return, taxes

Is it possible to maximize your tax refunds?

Mostly, we think that when we have filed for our tax return and finally obtained our tax return brings an end to the entire procedure for the current year. There is nothing more to worry about or think about tax and tax returns throughout the year. However, even after receiving your tax return for the current year you can think about maximizing your tax refunds.

If you are interested in learning about how to maximize your tax refunds for the next year, then you can follow some simple tips. Let us have a look at these tips which can increase your tax refunds in the next year.

1.Deduction of education-related costs

There are numerous costs related to education that are deductible. In case you are the owner of a business or you are employed in an organization, you can try and deduct those education costs which are needed for improving your skills at the workplace. If you have an income that is less than $80,000 then you might be able to take up tuition and the fee deduction would amount up to $4,000 for the tuition, fees, and books.  For instance, if you and your family members are together pursuing a degree then you can take up an American Opportunity Tax Credit which is a maximum annual credit of $2,500 for each student provided your income is less than $90,000 and is less than $180,000 for married couples who would be filing tax jointly.

2.Deduction of expenses incurred in job-hunting

There are various costs associated with job hunting which can be reduced such as deduction of the cost incurred during travel for jobs, meals and telephone calls associated with job search, preparation of a resume, career counseling, payment made to employment agencies, etc. These expenses account for almost 2% of your annual income even if you are not going to change your job anytime soon in the future.  But, if it is your search or hunt for your first job then the expenses are unavoidable.

3.Take deductions available for business owners

When you are the owner of a business, you should keep a track of the business expenses and avail deductions that are available. Expenses like business dinners, mileage of the car, use of a computer, appointments, etc. can be used to increase your deductions available. You can also motivate your children to work in your business along with you. You can pay those wages for their jobs and as a result, they will not have to pay different varieties of taxes like other employees working with you.

1.Making investments in future

You should start investing in various plans such as 401(k), IRA, tax-advantaged avenues, employee stock purchase plans, etc. You should start contributing to these avenues as much as you can. If you are making smaller contributions now it would be helpful rather than making huge contributions at a time which is quite nearer to your retirement. By doing this now, you are saving now and also taking an initiative towards boosting your wealth also. This extra compounding will help increase your corpus for retirement.

2.Your own home

 Your tax refund can have a remarkable increase in the mortgage interest and property tax deductions. When you are purchasing your house, you must check the settlement statement of your house properly and find out the deductible items.  In your closing statement, you can find out different deductible items such as property taxes, prepaid interest, points, etc. When you are acquiring your own house, those points that are paid are deductible during that year. If there are any points paid for the refinancing of the loan, then they should be written off over the loan’s length. Again if you are refinancing, you must not forget to write off the remaining points from the previous loan.

3.Charity

 Charity can also get you some tax deductions such as donating clothes, household goods, linen, sports items, etc. Donation of books and magazines made to the library can also get you tax deductions. You can make a note of the donated items and can deduct these at the time of tax filing.

Hence, tax refunds can be maximized by carefully keeping a note of the various deductibles that are available and those that have been availed by you. You can, later on, use these to maximize tax returns at the time of tax filing.