Buying a property in India? Here’s all you need to know about taxation norms

Buying a property in India? Here’s all you need to know about taxation norms

by | Jan 17, 2020 | capital gains, Tax Break, tax deductions, Tax implications, Tax Liabilities, Tax Planning, taxes

Buying a property in India? Here’s all you need to know about taxation norms

Whether you have bought a property in India or are planning to buy one, here all you need to know about taxation norms, it is quintessential that you are aware of the tax implications. This will help you plan your taxes and make the most of the available tax breaks. And most importantly, it will keep you away from surprises which might burn a hole in your pockets.

Property Taxes in India

In simple terms, any taxes that you must pay for your property would be tagged as property taxes. Primarily there are two types of property taxes in India,

  • Maintenance Taxes
  • Sales Taxes

Buying Property in India

Before you can proceed with buying a property in India, you must be aware of the eligibility criteria. There are no restrictions when it comes to buying a property for resident Indians. Indian nationals or people with Indian origin can buy property in India even if they live abroad. However, you cannot buy a property if you have moved to Iran, Nepal, Bangladesh, Bhutan, Afghanistan, Pakistan or Sri Lanka.

If you are neither a resident of India nor Indian, you cannot buy a property in the country. To be a legal resident, you must have spent at least 183 days in a financial year.

Who Must Pay Property Taxes?

A buyer of the property would end up paying most of the taxes in the form of sales tax. And if you are selling a property, you would be entitled to pay any capital gains taxes. And the owner of a property is responsible for paying out any maintenance taxes applicable.

Types Of Property Taxes

Here are the different types of property taxes that one must bear during ownership.

  1. Sales Tax

The sales tax comes into the picture while both buying or selling a property. And the tax collected is used for the following purposes.

  • Registration charges
    • The buyer of the property must pay the registration charges in front of a registration officer. The registration charges are set by the respective states and are usually at 1%.
  • TDS
    • TDS or Tax Deducted at Source comes into the picture when the property transactions qualify to be ofhigher value. The TDS must be paid by the buyer of the property and is applicable for transactions that exceed INR 50 lakhs. The buyer must deduct the TDS from the total transaction value and submit the same to the income tax department.
  • Service Tax for properties that are under construction
    • For properties that are under construction, you might have to pay service taxes. The central government is responsible for these taxes and not the local authorities. The charges are usually 3.75% to 4.5% of the total property value.
  • Capital gains tax
    • If you sell a property and make profits in the transaction, you are liable to pay capital gains tax on the same. Properties held for 2 years, long term capital gains are applicable and the properties which are held for a lesser duration, qualify for short term capital gains tax. Currently, the short term capital gains tax is at 15% and long term capital gains tax is at 20%.
  • Stamp duty
    • The Stamp duty charges are paid to the state government and depend on a variety of factors such as the location of the property, the property, its age, etc. The stamp duty charges vary depending on the state and can range between 35 to 10%.

Being aware of the above property tax types will help you plan your taxes and take appropriate actions so that you are not caught off guard.

Reference:

https://transferwise.com/au/blog/property-tax-in-india

https://www.nkrealtors.com/blog/save-taxes-on-the-sale-of-property-in-india/

https://economictimes.indiatimes.com/nris/tax-implications-for-nris-on-purchasing-property-in-india/articleshow/42085833.cms

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.

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.