Latest Tax Updates

Tax planning strategies are typically employed to help a business/individual achieve their financial and business goals. There are lots of benefits of tax planning for both individual and business as planning plays an important role in:

Lowering the amount of taxable income, allowing greater control of when taxes get paid etc…

Tax planning is an integral piece of a proper financial plan. The fact is many people do not concentrate on tax planning

Tax planning is the art of arranging your affairs in ways that postpone or avoid taxes. By employing effective tax planning strategies, you can have more money to save and invest or more money to spend.

Taxpayers having income below a certain limit for a specific financial year can benefit from the Earned Income Tax Credit system provided by the United States of America. Under this tax credit system individuals can reduce the tax they owe to the government. In certain cases, they can even ask for a refund if they have paid more than what they owe.

The intent of this credit system is to reduce the burden of taxes on individuals with low income. It also encourages individuals to start working.

A tax credit usually confuses individuals as many of us are not aware which one we qualify for. The Earned Income Tax Credit system is applicable for taxpayers with low to moderate income. The following are some of the facts and details that you should be aware of when it comes to Earned income tax credit or EITC.

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Even though we know the billing date or due date for credit card payment or phone bill payment we at times miss the same. Though we are not being negligent regarding it, we tend to miss them amidst all the work and chaos in life. The same applies to tax filing as well. We all are aware that come spring, we need to file our taxes. But that never ending project, deadlines for meeting customer requirements, the problem at home, or just plain old Forgot can be the most common reasons for missing filing of tax returns.

Fortunately, IRS understands the same and has a provision in place for such situations. Unlike paying bills, the filing of tax can be a bit time consuming. So if it is already mid of April and you suddenly wake up to realize you are nowhere close to filing income tax returns, just don’t worry. All that you need to do is fill up the Form 4868 and file it.

This then enables you for an automatic extension of six months to finish up with the filing of your tax returns.
All that you need to know about Form 4868 and its filing is below.

Filing a Form 4868 provides you with a six month extension for filing your tax returns. Given the fact that the last date for filing tax returns is April 15th, the extended date usually works out to be the 15th of October. However, you might get a few additional days if 15th April is a public holiday or weekend.

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A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.

You can contribute to 401(K) either individually or as part of an organization. 401(K) provided by an employer makes for a great starting platform for a retirement plan. Most of the for-profit organizations provide their employees with 401(K). Teachers and employees of other non-profit organizations have 403(b) instead of it.

401(k) allows you to save up to $18000 of your pre-tax income. And the best part is, if you change your organization, you can carry over the 401(k) to the new employer. As a sole proprietor, you can set up an individual account where you pay for both the employer as well as employee contributions. It is commonly known as solo 401(k).

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Individuals can start contributing $5500 ($6500 if your age is above 50) every year towards their retirement using IRA. You do not have to choose between IRA or 401(k) and can contribute to both. But if you already have a retirement plan, you may not use IRA contributions for deductions, especially if your income is more than $71000 for single filers and $118000 for married joint filing.

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The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon your income. Here are 10 important facts from the IRS about this credit and how it may benefit your family. ... Dependent Test - You must claim the child as a dependent on your federal tax return

Qualification - A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.

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Filing with an ITIN

1. The IRS issues ITINs for federal tax purposes, and ITINs should be used for tax reporting only.

2. ITINs do not authorize a person to work in the U.S. or provide eligibility for Social Security benefits.

3. Tax returns filed with an Individual Taxpayer Identification Number reporting wages paid are required to show the Social Security Number under which the wages were earned. This creates an identification number (ITIN/SSN) mismatch. In the past, returns with this mismatch could only be filed on paper. Due to programming changes the IRS' e-file system can now accept these returns. The taxpayer's correct ITIN should be used as the identifying number at the top of Form 1040. When inputting W-2 information, the SSN should be entered exactly as shown on the Form W-2 issued by the employer. It is now possible to e-file a return with an ITIN/SSN mismatch.

4. If a primary taxpayer, spouse, or both have ITINs, they are ineligible to receive the Earned Income Tax Credit (EITC), even if their dependents have valid SSNs. If the taxpayer and spouse (if filing jointly) have valid SSNs, only dependents with valid SSNs – not ITINs – qualify to receive EITC.

Seeking an ITIN

ITIN applicants must show a federal tax purpose for seeking ITINs. Most will demonstrate a tax purpose by attaching an original federal tax return to Form W-7, Application for Individual Taxpayer Identification Number, and mailing, with their proof of identity and foreign status documents, to the IRS address listed in the Form W-7 instructions.

2. In cases where a current year tax return has already been filed that excluded a spouse or dependent who needs an ITIN, the taxpayer should complete Form 1040X, Amended U.S. Individual Income Tax Return, showing the ITIN applicant’s information, and attach it to Form W-7.

Documents with W-7 for ITIN

IRS streamlined the number of documents the agency accepts as proof of identity and foreign status to obtain an ITIN. There are 13 acceptable documents. Each document must be current and contain an expiration date. IRS will accept documents issued within 12 months of the application if no expiration date is normally available. Documents must also show your name and photograph, and support your claim of foreign status. Below is the list of the only acceptable documents:

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A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit.

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A significant portion of the health care system in the United States is governed by the Social Security Act and its amendments, which regulate federally funded health insurance programs for to the nation's most vulnerable populations.

United States National Health Care Act....United States National Health Care Act. Long title. To provide for comprehensive health insurance coverage for all United States residents, improved health care delivery, and for other purposes.

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If you discover an error after filing your return, you may need to amend your return. The IRS may correct mathematical or clerical errors on a return and may accept returns without certain required forms or schedules.

You can file an amended return if there's a change in your filing status, income, deductions, or credits. Use Form 1040X (PDF), Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040 (PDF), Form 1040A (PDF), Form 1040EZ (PDF), Form 1040NR (PDF), Form 1040NR-EZ (PDF), or to change amounts previously adjusted by the IRS. You can also use Form 1040X to make a claim for a carry back due to a loss or unused credit

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