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.

How to create your investment portfolio with your tax refunds in the US?

How to create your investment portfolio with your tax refunds in the US?

by | Jan 6, 2020 | income tax, Investment & Income, IRA, NRI, Tax Refund

How to create your investment portfolio with your tax refunds in the US?

Investing has become quite an easy task today and with so many options available it is easy for common people to utilize their savings for achieving the dreams and accomplishing long term goals. How to become an investor if there are no savings? This is a thought which can creep into your mind when you think about investing. Without a considerable amount of savings, the investment portfolio seems to be a distant dream. But, in the US you have a simple way out. You can use your tax refund as an option to initiate investing in the stock market.

Stock market scenario

During the year 2012, according to the reports generated by IRS the average tax refund in the US was 2,803 and this amount is enough to start investing with the help of a brokerage account. Investment can be done by a very little less amount itself. Today the market condition is quite good and it is being addressed as a “bull market” which means a market in which the prices of the stocks of companies are rising and people are interested in buying shares. Investments into shares can be a good decision right now as the performance of the stock market is quite good now. In the last 4 years, there has been an average annual return of 17% in the stock market which makes investing a good decision for common people.

This performance of the stock market is much better as compared to that of other investment options such as money market funds, bonds, real estate, certificates of deposit, etc. But, along with the high returns, there is a huge risk associated with the stock market even. The major risk which is associated with the stock market is the fluctuation in the returns. The returns obtained keep on changing rapidly from one day to another or even from one month to another. However, in the long run, if you are interested in achieving long term goals the best investment option is the stock market. With proper risk assessment and risk analysis, the stock market can turn out to be a great investment option.

Use of tax refund for making investment

  1. When you receive your tax refund for a year, you can open an Individual Retirement Account (IRA) with the help of your investment brokerage firm or your bank itself. With the help of the IRA, you can invest and obtain tax benefits. When you are putting money into your IRA, your taxable income reduces and you pay less tax.
  2. When you have opened your own IRA, you can pick mutual funds for making investments. A mutual fund is known as a collection or assortment of bonds, stocks, and cash alternatives. Mutual Fund helps in managing money from different investors and even the small investors can manage their funds with the help of professionals.
  3. There are numerous funds with different objectives that are available and you can easily pick a fund of your choice according to your long term goals. You can select funds for stocks or funds for bonds or even funds for a mixture of both stocks and bonds.
  4. The fund which you wish to select for investment depends on the amount of risk you are willing to take when it comes to your money. We can illustrate this with the help of an example such as stocks involve a higher amount of risk but bonds are less risky than that of stocks. But, stocks provide higher returns as compared to bonds and you will need higher returns for accomplishing your long term financial goals. So, it is your choice to take up the risk with stocks for higher returns or to play safe with bonds.
  5. The amount of risk you can take depends on how much time you have for the accomplishment of your financial goal. If you have a long time left for retirement then you can go ahead and take certain risks.
  6. Using your tax refund as an investment is the beginning; after opening up your IRA account you can opt for investments to be made automatically for making contributions to the IRA account every month.

Hence, with these investment avenues, your finances will change and you would become an investor with long term financial goals. So, you should file your taxes on time and utilize your tax returns as an investment option.

 

 

 

How to start investing in the US being an NRI?

How to start investing in the US being an NRI?

by | Jan 3, 2020 | 401(k), federal income tax, global income tax, Investment & Income, NRI, tax return

How to start investing in the US being an NRI?

For the NRIs in the US, an investment can be the best method to build long term wealth. If you are an NRI and are planning to invest in the US, you don’t need to be wealthy or super-rich; a common man can start investing with a minimum amount of funds but in a wise manner.

Some of the best investment options in the US which can be ideal for NRIs can be listed below.

  1. Index Funds
  2. Target-Date Retirement Funds
  3. Retirement Account

Index Funds

An Index fund is a category of mutual fund which has a portfolio that has been constructed in a way such that it can match the components of a financial market index i.e. the Standard and Poor’s 500 Index (S&P 500). Index funds help the investor in providing wider market exposure, fewer expenses involved in operating and low turnover associated with the portfolio.

By investing in an index fund, an NRI would be involved in a form of passive investing. Here the portfolio manager would not be actively involved in picking up the stocks and making up strategies on how to buy and sell them. Rather, the portfolio manager would build up a portfolio in which the holdings would mirror the securities which are of a specific index. In simple terms, an index fund is a portfolio of stocks or bonds which are designed in such a way that it can be similar to the composition of a financial market index.

Index Funds are a very good choice for diversification. They provide strong long term returns and are an ideal option for buy-and-hold investors. There is a “three-fund portfolio” which can be used to make an investment in every sector in the market.

  1. Total U.S. Stock Market Index Fund consists of large-cap, mid-cap, and small-cap U.S stocks.
  2. Total International Stock Index Fund which comprises of developed and developing international markets.
  3. Total Bond Market Index Fund that includes corporate bonds and Government bonds.

Target-Date retirement fund

The target-date retirement fund is another ideal investment option for NRIs in the US. An investor can choose a fund that is nearer to his planned retirement date. The fund manager should plan and put the money into better and conservative assets as the investor’s retirement date approaches.

Target-date retirement funds can be more expensive when compared to Index funds. But, still, they are cheaper and involve less amount of risk as compared to that of the option of selection of individual stocks for investment.

Retirement Accounts

In the US, federal tax and state income tax is charged on any income which is obtained from an investment.  To reduce bills that are related to tax, NRIs must start contributing towards a 401(k) plan or towards an individual account which is meant for retirement. If an NRI has an individual retirement account, he will pay tax on the cash in the account for only once.

With the help of a 401(k) plan or contributions made towards IRA the taxable income of NRI decreases. The contributions made by the NRI become tax-deferred as taxes are paid on the amount being withdrawn. Roth 401(k) and IRA need to make tax payments in the current year, but the amount of contribution made and the earnings made in life-time grow free. If the employer of an NRI is offering equal contribution, then he can consider making contributions to the 401(k) plan first. Otherwise, it is wiser to contribute to the Retirement Account at lower fees.

The right time to begin investing

The right time to begin investing is from now as more opportunities will be available to earn income from dividends and also to capture the growth in the share price. Moreover, when you are reinvesting your income; your passive income starts compounding.

In the US, investing is the best option to start saving for your retirement. The sooner you start investing the less you are delaying your retirement planning. The rate of interest in banks is almost low and does not generate much compound interest. Also, inflation rates affect the rate of interest in the savings account. So, by investing early you are paving the way for obtaining consistent returns with fewer efforts.

Hence, there are numerous investment avenues available for NRIs in the US. To start investments in the US as an NRI, you do not need too many funds. You can start your investment from today with minimum funds and minimum effort but with strategies and far-sightedness.

 

Are Robo-Advisors Legal?

Are Robo-Advisors Legal?

by | Dec 6, 2019 | Blog, income tax, Investment & Income, tax savings

Are Robo-Advisors Legal?

Millennials are slowly and steadily becoming a demographic that industries are taking more seriously now. As a result, there are several products aimed at Millennials. The advent of Robo-Advisors is one such product. In simple words, Robo-Advisors is a digitized solution that helps an individual build their investment portfolio. To create a portfolio based on your risk appetite and financial goals, it considers several parameters.

What are Robo-Advisors?

Robo-Advisors are digital platforms that offer investors with automated investment options which are algorithm-driven. This requires little to no human supervision. Normally you would have to answer a set of questions, which will help the Robo-Advisors asses your risk appetite, goals and tolerance levels. The Robo-Advisors then use this data to offer advice and even automatically invest in certain assets.

If you are in the search for the best Robo-Advisors, you can expect easy setting up of an account, services related to your account, robust planning, management of your portfolio, education on investment and lower fees.

Pros of Robo-Advisors

There are no boundaries or restrictions which can stop you from investing on your own. However, it comes with its own set of challenges. For instance, you will have to do any rebalances in the assets to make the most of the situation, look into maximizing your returns while minimizing the taxes that you pay. All this can be quite overwhelming if you are new to the investment scene.

Even if you have been investing for some time now, allocating time for such decisions can be a challenge. This is where Robo-Advisors come into the picture. The automated systems will take care of such decisions and actions. A lot of the Robo-Advisors offer online materials in the form of calculators, blogs or videos. Some Robo-Advisors are known to send regular emails to clients and offer assurance even when the market doesn’t seem very positive.

Cons of Robo-Advisors

As an investor, it is crucial that you are aware of the fees that you are paying to different platforms or brokerages. Every dollar that you lose in fees is a dollar that you could have invested. The Robo-Advisors do come at a price. And they are almost always higher than investing either through a brokerage or investing directly. Yet, the fees are less than a dedicated advisor.And you might face some issues building a relationship with your advisor.

Legality of Robo-Advisors

The legal status of Robo-Advisors is the same as human advisors. To conduct business, the Robo-Advisors must first register with the U.S SEC or Securities and Exchange Commission. Thus, they are liable to the same laws that apply to human advisors. Once registered, they get the designation of Registered Investment Advisor.

Since Robo-Advisors are still in their early days, it is natural for investors to be wary of their investments or even proceeding with the idea of hiring a Robo-Advisor. This is where the SIPC or Securities Investor Protection Corporation comes into the picture. The SIPC offers protection of up to $500,000 should your brokerage firm decide to file for bankruptcy.

Secondly, it is important to understand that you are merely investing in different assets via Robo-Advisors. Robo-Advisors would invest in ETFs, Index Funds or even stocks on your behalf. And if they were to go out of business, you can still take over and manage these assets. You can move them to a new brokerage or another Robo-Advisor.

As an investor, it is recommended that you carry out some level of research before availing the services of Robo-Advisors. You can always check for reviews or reach out to friends and family members who have used the services.

Reference:

https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp

https://blog.taxact.com/robo-advisors-are-they-legitimate/

 

 

Most Important Year-End Tips To Increase Your Tax Refunds

Most Important Year-End Tips To Increase Your Tax Refunds

by | Nov 15, 2019 | income tax, Investment & Income, tax deductions, tax filing, Tax Liabilities, Tax Planning, Tax Refund, tax savings, taxes, Taxtips

Most Important Year-End Tips To Increase Your Tax Refunds

A quick look at the calendar and you will realize, this year has come to an end. And even before you realize, the tax season will be close. Instead of rushing during that time, you can take a few simple steps this holiday season to reduce your tax liabilities and increase your tax refunds. Most Important Year-End Tips To Increase Your Tax Refunds.

1.Retirement Planning

Planning for your retirement is a great way to add funds for your retirement and make handsome savings in the form of taxes for the current financial year. You can take the help of either traditional IRA or 401(k) to contribute to your retirement planning. Self-employed individuals can save up to 25% of their income under SEP IRA up to a maximum of $56,000 for the current year.

2.Upskilling

If you have been planning to take some classes to improve your skillset, this might be the best time to enroll. You can start with enrollment and make the payments for the next quarter by the 31st of December. This will help you get some valuable tax credits of up to $2,000 with the help of Lifetime Learning Credit.

3.FSA

Taxpayers who have FSA or Flexible Spending Account, it might be the right time to give your doctor a visit. While there is no hard and fast rule to use the FSA amount but there might not be a lot of benefits in keeping the amount as well. You can only carry forward $500 to the next year. The FSA plans usually allow subscribers to use these funds for up to 2 and a half months in the next year.

4.Charitable Donations

You can make this holiday season a little bit better for the people who are in need. If there are any unused household items or clothes, you can donate them to the less fortunate. Such donations can help you reduce your tax liability, provided you donate to qualified charitable organizations and if you itemize the items. Alternatively, if you volunteer for charitable organizations, you can claim the miles that you drove at 14 cents for each mile driven.

5.Shuffle your Investments

Some investments in your portfolio might not have performed as you expected them to. Investments that have gone down in their value can help you reduce your tax liabilities. You can use the loss to offset the gains that you have received from other investments. However, you must sell the loss-making investments to offset them with the profit-making ones. Should your losses exceed the profits, you can use up to $3,000 against your income.

6.Defer Any bonuses

Taxpayers expecting a year-end bonus for the hard work that they have put in, might find themselves in a spot. The bonus might push you to another tax bracket or increase your tax liability by a healthy margin. If you can, do speak with your boss to deter the bonus to January of next year. This way, you won’t have to taxes for the bonus in the current year.

7.Other Dependent Credit

Taxpayers supporting their grandparents or parents, or other loved ones can benefit from Other Dependent Credit. If they qualify to be non-child dependents, you can claim the Other Dependent Credit. You can claim up to $500 under this category and receive dollar by dollar reduction in your taxes.This tax credit is relatively new and not many taxpayers use it.

Each dollar that you save is a dollar that you earn. Using the above methods, you can save takes on your income and boost your tax returns as well.

End of the year Tax Compliance for NRI’s in the US

End of the year Tax Compliance for NRI’s in the US

by | May 31, 2019 | Investment & Income, Tax Planning, Tax Preparation

End of the year Tax Compliance for NRI’s in the US

Tax compliance it is no secret, that a considerable number of Indians move out to other countries in the search of better opportunities. This obviously means that they are now liable to pay taxes in the new country that they have moved in to. However, this does not detach them from paying taxes back in India, as long as they have some income source of investments. It is essential for NRIs to be tax compliant in India as well. Knowing the residential status is the very first step in this ordeal.

Residential Status

As per the Indian laws, if an individual has stayed less than 60 days for a fiscal year, he/she would be tagged as a non-resident. Individuals who leave the country for opportunities in other countries, the threshold is at 182 days for the specific fiscal year. There is also a category called “resident but not ordinarily resident”. Individuals who have stayed in the country for 729 days or more in the last seven fiscal years before the current fiscal year, are put into this category. It is important to note that tax residents are individuals whose global income is taxed in India. However, non-residents only need to pay taxes on their income or investments in India.

Income Earned

Now that residential status is taken care of, the next step is to determine the income that an individual has earned in a fiscal year. The following are some of the major sources of income and their impact on taxation.
  • Any income generated from rental properties in the country will be taxed in India.
  • Any form of salary earned in the country is taxable for a non-resident.
  • Income generated from consultancy or business opportunities is taxable in India.
  • On the transfer of capital assets, the capital gains are also taxable.

Deductions

Once you have accessed the income that is taxable, the next step is to check if you are eligible for any deductions. Just as resident Indians can opt for deductions, non-residents can also do the same. Some deductions that they are eligible for include investments in Equity Linked Savings Schemes, premiums paid for life insurance, ULIPs, etc. up to INR 1,50,000 for a fiscal year. Similarly, the standard deduction of INR 50,000 is also available.

Compliance

An individual must obtain a Personal Account Number of PAN. This would come into the picture if the non-resident Indian’s income exceeds INR 2,50,000. This is the minimum threshold level for paying taxes.

Filing of Taxes

Should the income in India exceed the defined minimum threshold level, non-residents need to file tax returns. Taxpayers who don’t have to get their books audited need to file their tax returns by the 31st of July. Other taxpayers need to file their taxes by 30th of September. The Income Tax Department offers e-filing for its taxpayers through its official website. You can use the same for convenient and quick tax filing. The Income Tax Department is constantly working towards easier tax compliance. The intent is to expand the taxpayer base. It does not come as a surprise that several new measures are already in place. For instance, a vast majority of the tax filings, return filings and even returns are carried out online. With several plans in motion to reduce the turn around time furthermore. If you are a non-resident Indian, you can benefit from these new measures. You can duly report your income and file for tax returns at the end of a fiscal year to avoid any sort of complications.