5 Things that a COUPLE be mindful of when FILING TAXES

by Mounica Kota | Mar 13, 2019 | Deduction & Credits, Tax credits, Tax exemption, tax filing, Tax Planning, Tax Preparation

5 Things that a COUPLE be mindful of when FILING TAXES?

The decision to marry someone usually revolves around love and compatibility. Finance is an aspect that we don’t know usually bring into the equation. However, Filing Taxes is an aspect that ought to get additional attention, since it comes with tax implications.

You can be a smart couple and save thousands of dollars in a financial year by taking a few key decisions related to taxes. Here are the top 5 things that you need to be mindful of when filing taxes.

Filing Status

Of the many decisions that a new couple has must take, the first one comes down to choosing between the following filing types:

Married filing jointly
Married filing separately

Needless to say, each type has its pros and cons. Let’s assess the benefits of filing jointly first.

On filing together, couples can enjoy lower tax rates since their income is combined and then the taxes are calculated.
It brings in a sense of responsibility as well since both the individuals must sign the filing.
You get access to a wider range of benefits as per the tax codes.

However, there are a few scenarios and conditions where you would want to file separately. Such as:

If a spouse is involved with business and the other partner does not want to be involved with the same.
In the event that a spouse is expecting refunds, filing separately will not jeopardize the refunds as well.

Possibly Lower Taxes

As already mentioned in the above, couples filing jointly can benefit from lower tax rates due to the combination of income. Couples with varying income levels can benefit from it. However, the benefits just do not end with lower taxes. You can opt for several tax credits as well. Here is a couple of them.

Lifetime learning credit
Adoption expense credit

If one spouse itemizes their tax filing, the tax code considers the standard deduction of the other spouse as $0. This ensures that the couple together itemizes and does not miss out on deductions.

Gift Taxes Exemption

Another advantage of filing for taxes jointly comes in the form of gift taxes exclusion or exemption. Here is how it works.

Currently, the annual federal exclusion for gift taxes is $14,000 per spouse.
If you are filing jointly, you can combine this exclusion.
You can use this clause to strategically move assets to loved ones or between both of you.

Cap LessMarital Deduction

This is one of the most understated benefits of filing taxes together as a couple. Though none of the couple’s plans for this, it is good to have feature. Surviving spouses have access to the unlimited marital deduction which allows them to transfer assets to their name. This might not seem that significant early on but gains a lot of momentum as the year’s pass.

Tax Credit

The child tax credit is one of the most alluring credit systems for married couples who want to file jointly. Here are the benefits.

The IRS allows couples to reduce their net taxable income by $1,000 for every qualifying child.
Factors such as relationship, age, dependent status, residence, citizenship and support decide whether your child is qualifying or not.
You can claim the benefits if your child is less than 17 years old, lives with you for more than half of the year and is related to you either by blood, adoption or marriage.

Given the fact that in 2015, 141.2 million taxpayers declared earnings to the tune of $10.14 trillion as adjusted gross income, resulting in taxes worth $1.45 trillion, it is essential that you are aware of the above.

Tips for NRI’s to become compliant with FATCA and the IRS

by Mounica Kota | Mar 10, 2019 | Blog, Deduction & Credits, FATCA, IRS

Tips for NRI’s to become compliant with FATCA and the IRS

The first step towards becoming compliant to any norm is to be aware of what it is. FATCA or Foreign Account Tax Compliance Act came into existence some years ago to counter tax evasion by taxpayers.
As per the tax code, any individual who is a resident of the USA is a green card holder or a citizen of the USA, must pay taxes. To extend it further, taxpayers need to declare their global income and pay appropriate taxes on the same.
There are quite a few high-profile tax evasions in the past, which forced the IRS to take corrective measures.

Approaches of FATCA

There are two primary approaches that FATCA takes. Firstly, it expects US taxpayers to provide details of their foreign income. If they own any kind of assets outside the USA, they must report them to the IRS. By filing Form 8938, you can provide all the necessary details to the IRS.
The second approach involves foreign financial institutions providing information regarding assets of individuals. The institutions need to provide information regarding financial accounts, the assets or accounts that individuals hold in different countries.

How to get FATCA Compliance

You must do the following steps to be compliant with FATCA.
– A simple declaration that mentions your PAN details.
– The country of your birth.
– The country of your current residence.
– Your nationality.
– Your current occupation.
– Your annual income.
– And whether or not you are a politically exposed individual or not.
– For individuals who have paid taxes in any part of India, they need to provide a tax identification number.

What should be reported

The following are certain conditions in which an NRI needs to report their earnings as per FATCA to the IRS. Financial institutions also need to report the same to the IRS as well.
– If the total value of the income is less than $50,000 at the end of the fiscal year, there is no need to report the same. However, if the amount has exceeded $75,000 at any point in the year, the amount must be reported to the IRS.
– The above threshold is for individuals staying in the USA. For the ones who stay outside of the USA, the threshold values are even higher.
– The threshold levels differ for single tax filers and married tax filers as well.
– This declaration of income includes mutual funds and other financial accounts.
Outcomes of Non-compliance
The consequences of non-compliance of FATCA differs depending on the account types. You might have to face any of the following, depending on the kind of holdings.

– Bank Account

The IRS had offered a deadline of 30thApril 2017 to present a self-signed certificate. In the event of failure of presenting the same, the accounts would be frozen.
In simple words, the financial institution would forbid the account holder from making any financial transactions.

– Mutual Fund Investors

A similar deadline was introduced for mutual fund accounts as well. As is the case with the bank accounts, the mutual fund accounts would also be blocked if they are non-compliant with FATCA. Being blocked doesn’t allow individuals to do any sort of transactions on the accounts.

– NPS

NPS account holders also need to get the FATCA compliance done. The lack of which will deem their accounts blocked.
You need to download the form and self-sign it and send the same to NSDL-CRA to get the certification done.
The IRS is quite serious when it comes to tax evasion. If your financial accounts aren’t already FATCA compliant, it is high time you get them done.

5 Tax Benefits you should avail when you are MOVING for JOB / BUSINESS Purposes

by Mounica Kota | Feb 8, 2019 | Deduction & Credits, New Business

5 Tax Benefits you should avail when you are MOVING for JOB / BUSINESS Purposes?

Changing jobs is a part and parcel of life. One can either look for better job opportunities or could be unfortunately part of corporate downsizing. In either case, there could be quite a few tax implications and impacts on your Tax benefits.

Being aware of them will help you overcome such situations gracefully. Here are the top tax benefits that you should not forget while switching jobs or businesses.

Withholding Tax

A vast majority of employees have a lot of taxes deducted from their paycheck. In fact, the number stands at about 100 million people receiving a fat refund cheque. With a new job, you have the option to set it right.

With your new employer, it is time to revisit your W4 form.
Allowances section in the form determines the amount of taxes that you will have to pay or the amount that is withheld from your income.

Moving Expenses

Changing jobs at times might lead to a change of location as well. If you have undergone a similar experience, you can claim the amount. Here is all that you should be aware of.

The expenses should be reasonable and associated with transportation of personal and household items to the new location.
In the event that you are unable to move immediately, you can claim expenses related to storage unit up to 30 days.
The claim can include your as well as other members of the family’s travel expenses.
Should you decide to drive to the new location, you can include fuel costs, parking bills, tolls, etc.
If the distance is far and you end up using trains or flights, you can claim them as well.
You can claim for these expenses in your current year using IRS’s Form 3903 and attach it with your tax returns.

Expenses related to Job Hunting

The IRS always allowed for job hunting-related expenses. Here are a few facts that you should be aware of.

But prior to 2018, the same deductible as a miscellaneous expense, provided you itemize it under Schedule A.
The expenses had to be in excess of 2% of your adjusted gross income.
You can now claim itemized deductions for job hunting even if the outcome was not favorable.
It is important that the line of work remains the same while doing the job search.
The usual expenses covered include any fees paid to employment services or agency, travel-related expenses or costs for mailing or printing out resumes.

Selling your house

There is a feeble possibility that you might plan to sell your house owing to a change in job location. In such cases, capital gains taxes will come into the picture. The following points will aid you.

Capital gains up to $250,000 on the sale of a house or $500,000 if married filing jointly, is non-taxable, provided you have stayed in the house for at least two years.
The gains reduce to half if you have stayed for one year only. The corrected tax-free gains would remain $125,000 for individuals and $250,000 for married filing jointly status.

Retirement Savings

Changing jobs usually means a lot of confusion and chaos related to retirement savings. Employees usually take this opportunity to withdraw their 401(k) money. You must keep in mind that withdrawing the amount before you turn 55 would result in a 10% penalty. It is recommended to transfer the amount rather than withdrawing.

The above are some tax benefits that you should not overlook while moving job or business.

Deductions of IRA and self-employed retirement plan contributions, alimony, and student loan interest

by Mounica Kota | Jan 19, 2019 | Deduction & Credits, IRA, Student loan interest, Taxtips

deductions of IRA and self-employed retirement plan contributions, alimony, and student loan interest, are adjustments to income or what we call above-the-line deductions. These deductions, to the extent permitted by law, provide a dollar deduction for every dollar claimed. Deductions IRA that fall into the itemized category must exceed the standard deduction for your filing status before any benefit can be derived. In addition, medical deductions are reduced by 7.5% of your adjusted gross income (AGI) in 2018, and most cash charitable deductions are limited to a maximum of 60% of your AGI. Under the tax reform, the deduction for state and local taxes has been capped at $10,000. As we all (hopefully) know, there are some basic steps investors can take to withdraw funds from a traditional IRA without incurring a 10% penalty. Let’s start with the obvious, like waiting until after 59 ½ years old to withdraw funds. Withdrawing annual allowed contributions before your taxes are due will also avoid the penalty, and the same goes for withdrawing excess contributions. If you discover that you’ve contributed more than allowed (due to income limits or error) you are free to remove the excess and any associated growth before the tax return is due for the year. Additionally, taking your required minimum distributions will keep the 10% penalty at bay. Technically this is covered by waiting to withdraw after age 59 ½ but sometimes required minimum distribution is required of a person who has inherited an IRA, regardless of age.

Hire your children as employees to save tax!

by Mounica Kota | Nov 13, 2018 | Deduction & Credits

Hire your children as

employees to save tax!

Tax benefits of Hiring your Kids to work for your Business: If you hire your children as employees to save tax, you can deduct the salaries you pay them. If your child is under 18, you don’t even need to pay Payroll taxes – that is payments such as FUTA and FICA that are required for other employees.

Do you know? you can claim up-to $5000 for child and dependent care benefits!

by Mounica Kota | Nov 13, 2018 | Deduction & Credits

Do you know? you can claim up-to $5000 for child and dependent care benefits!

A child and dependent care benefits is available if the taxpayer requires care for a child or disabled dependent in order to be gainfully employed. The credit percentage is between 20% and 35% depending on the AGI of the taxpayer. For the taxpayer with AGI over $45,000, the credit is the minimum of 20%. Up to $5,000 of benefits under an employer dependent care assistance plan can be excluded from and employee’s taxable wage. A taxpayer may claim the child and dependent care credit for a child who lives with the taxpayer for more than half the year, even if the taxpayer does not provide more than half the cost of maintaining the household.

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