Help the NRI in the US for global income tax filing

Help the NRI in the US for global income tax filing

by | Mar 12, 2019 | global income tax, NRI, tax filing, Tax Planning, Tax Preparation, taxes

Help the NRI in the US for global income tax filing

The deadline for filing your taxes is approaching fast. For the current assessment year, the deadline is the 15th of April.The deadline of filing your taxes for 2018. The entire income tax filing and return process can be a bit overwhelming for some.

However, if you are aware of the different steps and take a more structured approach, it won’t seem as daunting as it does now. Here are some simple steps and tips to help you get through the tax season.

Global Income

Irrespective of whether you are a US resident or citizen (includes NRI, OCI or PIO), you are liable to pay taxes on your global income.

Salary

US Citizens who earn a part of their income in India are liable to pay the taxes in the USA. If you earn a salary in both the countries, you will have to pay taxes for the country where your current residence is at.

However, if you had earned your salary before moving to the USA and have paid the liable taxes, you can take tax credits and adjust the taxes with your US income. You can use the Form 1040 to declare your salary and Form 1116 for any tax credits.

Freelancing or contracts

For consultants who are working in the USA and earn money in India from their respective company, must pay taxes as well. It doesn’t matter if you have a bank account in India or the USA, you are liable to pay taxes. Such income must be reported in Schedule C of Form 1040.

Rent

For NRIs who have rental properties back home, the income generated from it will be taxed in the USA. But the question arises should you pay taxes in India as well? This is where the DTAA or the Double Taxation Avoidance Agreement comes into the picture. As per the agreement, you will have to pay taxes in India for the income generated in India by renting your house.

You must report the income from renting properties in your Form 1040 and claim for tax credits. The Schedule E of Form 1040 is where this declaration would go. For availing tax credit, you will have to fill up the Form 1116.

Capital gains

The capital gains are applicable to various assets such as shares, mutual funds, lands, selling of properties etc. Any gains that you make on these assets are under the purview of capital gain taxation. It usually is split into short-term capital gains and long-term capital gains.

When it comes to land, property or any other physical assets, if you hold them for three years and then decide to sell, long-term capital gains would be applicable. Should you decide to sell these assets within 3 years of buying them you will have to pay short-term capital gains.

For mutual funds and shares, the holding duration is lower at 1 year. If you plan to sell shares or redeem any mutual fund units post the completion of a year, you will have to pay long term capital gains on them, if the gains exceed INR 1 lac. For instruments sold before that, short-term capital is applicable.

All these incomes should be declared in Schedule D of your Form 1040. And if you have paid any taxes, you can claim for tax credits by filling up Form 1116.

These are some of the major income sources and their implications on your tax filing and returns. Being aware of them will ensure that you can make the most of tax returns.

5 Things you should know when transferring money from India to USA and USA to India

5 Things you should know when transferring money from India to USA and USA to India

by | Mar 12, 2019 | global income tax, Investment & Income, Tax Planning, Tax Preparation

5 Things you should know when transferring money from India to US and US to India

The chances of you crossing the border relocating to a different place for work or other reasons is much higher than what it was some time back. Be it a vacation, studies, work or travel from work, reasons are plenty. And one of the fundamental things that you would need during these trips is transferring money.

Since two different country and currency is involved, transferring of money is not that straight forward. There are a few things that you should be aware of if you want to transfer money either from India to the USA or vice versa. Here are some of these factors.

  • Exchange Rate

This is one of the leading factors that you should have in mind during transfers between India and the USA.

  • Look for vendors that offer the lowest exchange rates, as it eats into the amount that you wish to transfer.
  • While it is mandatory for transfer companies to mention the exchange rates in the USA, no such rules exist in India.
  • You also would need to look into the hidden charge’s association with the transfer so as to ensure that the maximum amount remains with you.
  • You also have the option to look into live financial charts to know the right time to exchange money.
  • Lastly, there are certain taxes that are applicable to the transactions. So, you need to be conscious of that as well.

  • Transfer Fees

The companies in charge of transferring money charge a small portion as transfer fees. Needless to say, it varies from companies.

  • If you are someone who wants to transfer smaller amounts on a regular basis, opt for a company that charges fees on the total transaction amount.
  • However, for larger transfers, it is recommended to go for companies charging a flat transaction fee.

  • Transfer Limits

When it comes to transferring money, you are bound to come across some limits or the other. The limits can either be imposed by the companies in charge of the transfer or by local laws. Thus, do not forget to look into the limits on offer by different transfer companies.

  • Transfer Duration

Another important factor that might influence your decision to choose a vendor or transfer company is the transfer duration.

  • Wire transfer is one of the oldest and most trusted forms of fund transfer. However, it usually takes about 3-5 working days.
  • Some vendors might offer a quick turnaround time for transfer.
  • The duration to transfer cryptocurrency can be much shorter, in some cases even a few minutes.
  • Depending on the urgency, you can decide which vendor to opt for.

  • Wire Transfer

One of the easiest ways to transfer funds between India and the USA is via wire transfer. Here are some things to consider in a wire transfer.

  • It is a slightly more expensive option compared to other options available.
  • Wire transfer is more convenient when you compare them with bank drafts.
  • On average they take any time between 1 to 5 working days to transfer the fund.

The options are a bit limited when it comes to transferring funds between India and the USA. However, depending on your need and amount, you can choose from either utilizing your existing bank or forex companies for the transfer.

As a general rule of thumb, the transfer fees and charges related to forex companies is lower when pitched against banks. The above should help you handle money transfers between India and the USA in a much more organized way.

5 Tax Benefits that you should claim when you are HOMEOWNER?

5 Tax Benefits that you should claim when you are HOMEOWNER?

by | Mar 12, 2019 | Tax benefits, Tax Payers, Tax Planning, Tax Preparation

5 Tax Benefits that you should claim when you are HOMEOWNER?

Paying taxes is usually a cumbersome process for taxpayers. The simple reason being, the numerous clauses and conditions that one has to keep in mind. However, we have 5 tax benefits these variations at times come to your rescue as well.

If you are a taxpayer who is also a homeowner, there are more than a few ways by which you can save taxes. The following is a list of some tax benefits that you can avail. The combination of deductions and credits will help you save considerably.

Home Improvement Loan

Should you decide to take a loan to improve or enhance your home, there are tax benefits associated with it. Here are a few things that you should be aware of.

  • Interest on home loan improvement loan is completely deductible up to $100,000.
  • Any interest paid on HELOC or home equity line of credit is also eligible for tax credit.
  • People who own a second home, the mortgage is deductible if you have spent at least 14 days or about 10% of rental days in the home.

Property Tax

According to a Congressional Research Service, homeowners in America claimed more than $173 Billion in the year 2001. The amount was close to $30 Billion in 2015 and expectations are the number will go up. Here are some important pointers regarding property tax.

  • The taxes that you pay for your properties are almost always deductible.
  • About 54% of Americans who own a house use this deduction.
  • Clergy and military service members can write off home mortgage interest and estate taxes despite receiving housing allowances.
  • You cannot take off any of the following expenses or charges.
    • Appraisal fees
    • Attorney fees
    • Transfer taxes
    • Cost for a credit report

Renewable Energy Credit

With a wider range of equipment and devices available, you have more options to install renewable energy-based equipment. Here is how you can benefit from it.

  • Installing any renewable energy-based equipment makes you eligible for Renewable Energy Efficiency Property Credit.
  • You can claim as much as a staggering 30% of the total equipment cost and even installation charges through the credit.
  • According to the Solar Energy Industries Association, more than 700,000 homemakers have installed equipment since 2010.

Ground Rent

In certain rare cases in the USA, you can own a house but the land might still belong to the original owner. In such cases, you would rent the ground from the owner so as to use your property on the ground. The IRS understands this and offers the following.

  • You can deduce the “ground rent” from your tax filing.
  • You should be paying rent to the ground owner either monthly or annually.
  • And the lease should be at least for 15 years for you to avail this deduction.
  • But, if you wish to capitalize on the ground rent and make payments so as to buy the lessor’s interests, this clause is not applicable.

Reverse Mortgage

If you are aware of the concept of a reverse mortgage, the IRS has something interesting that might catch your attention. Here is all that you need to know.

  • The IRS does not consider reverse mortgages as income, rather loan advance.
  • The amount that you receive as the reverse mortgage is non-taxable.
  • The interest that is accrued on a reverse mortgage is taxable unless the loan amount is completely paid.
  • Unlike a traditional mortgage, where you can claim interest paid for each year, the same is not applicable in a reverse mortgage.

In the year 2016, as many as 150,272,157 taxpayers filed returns out of which 131,618,295 are estimated to have done them electronically. If you are one of them, the above should help you lower the taxes.

5 Reasons why you should Outsource your Book Keeping and Payroll

5 Reasons why you should Outsource your Book Keeping and Payroll

by | Mar 11, 2019 | Book keeping, payroll, tax deductions, Tax Preparation

5 Reasons why you should OUTSOURCE your Book Keeping and Payroll

For any successful business, it doesn’t take a lot of time to understand and realize that accurate financial records is of paramount importance. And book Keeping isn’t all that easy or straight forward. It requires a good amount of proper skills and a lot of time.

The lack of proper bookkeeping, your business might be prone to a lot of risks, inconsistency in business, might result in falling revenues and so on. You might even run into the risk of internal fraud. Thus, outsourcing your bookkeeping and payroll might be the best possible solution.

Here are some prominent reasons why you should consider it.

Save Time

A company’s management team usually has a lot of tasks on their hand. On top of that, adding the pressure of bookkeeping is not advisable.

  • Bookkeeping can add a lot of unwanted pressure and leave less time for management to work on important issues.
  • Outsourcing will help your company to clean up all that time so that you can utilize the time in more prudent issues and concerns or focus on growth.

Reduce Costs

When you opt for outsourcing your bookkeeping and payroll, cost reduction is one of the significant benefits.

  • In the initial days, it might look like it is increasing the cost but in the long run, it will save a lot of money.
  • Bookkeepers are usually experts and have a lot of knowledge when it comes to tax regulations.
  • Along with services that eliminate the chances of errors you will also benefit from better tax cuts and benefits.
  • Also, you will end up saving money in terms of hiring full-time resources, dedicated office space etc.

Better Tax Management

Bookkeepers are experts in their fields. It should not come as a surprise that they have a lot of grasp on taxation laws and regulations.

  • Hiring them would ensure that you get most of the exemptions and deductions.
  • Thereby enabling you to save more money.
  • Another benefit is error-free tax filing for your company.

Consultation

One of the major benefits of outsourcing your bookkeeping and payroll management is better budgeting.

  • Outsourcing to experts also beings in better forecasting for the future.
  • Unlike internal employees, outsourcing firms will provide you with unbiased reports and opinions in fields like future success, financial analysis, taxation, stability of business and so on.
  • Outsourcing companies might also offer advice and strategic plansto further improve the business.
  • More importantly, book keepers ensure that creditors and vendors are paid on time, which elevates your position in the market.

Better Technology

Having access to the latest technology in book keeping and payroll can be an expensive affair for small scale or medium scale companies.

  • Taking the help of outsourcing will help you have access to the latest technology.
  • It includes better software/database, enhanced procedures, latest operational changes, best practices and so on.
  • And of course, the security levels on offer are quite high along with sufficient privacy and backups for the worst-case scenario.

There are a lot of perks of outsourcing your book keeping and payroll. This can come in handy if you are a growing business entity. After a certain threshold, it will be a bit more difficult to handle all the payments, receipts, settlements, vendors, creditors, maintain records of all and so on.

Outsourcing is a seamless and hassle-free way of handling such situations with breeze and needless to say, the entire endeavor is cost-effective as well. If you haven’t already, consider outsourcing your book keeping and payroll management.

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

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

by | 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.

What is the difference between a Standard Deduction and an Itemized Deduction

What is the difference between a Standard Deduction and an Itemized Deduction

by | Mar 7, 2019 | Standard Deduction, tax deductions, tax filing, Tax Planning, Tax Preparation

What is the difference between a Standard Deduction and an Itemized Deduction? 

While filing your federal taxes, there are several aspects that you need to be cognizant about. Of those many, two terms that will crop up the most are a standard deduction and itemized deduction. Quite a few taxpayers get confused when it comes to these two deductions. So, here are the differences.

Standard Deduction

As the name suggests, it is a fixed dollar value. This reduces the net amount that your tax calculations are based on. The following are the standard deductions for the current year.

  • For taxpayers who are single or are married and filing separately, the deduction stands at $12,000.
  • For taxpayers who are married filing jointly or are qualifying widow(er), the deduction stands at $24,000.
  • For taxpayers who are the head of the household, the deduction stands at $18,000.

The standard deduction limit increases by a considerable margin if you are either visually impaired or above the age of 65 years old. For taxpayers who are either single or the head of the household, the amount increases by $1,550 and it increases by $1,250 if the taxpayer is a qualifying widow(er) or is married.

The numbers suggest that two out of every three tax filings, claim the standard deduction. Here are some other benefits of standard deductions.

  • Standard deductions do not require any sort of records or receipts for various expenses, in the event that you are audited by the IRS.
  • A standard deduction ensures that you can opt for a deduction even if you have no expenses that can qualify for itemized deductions.
  • Standard deduction eliminates the need to itemize expenses such as charity or medical expenses.

Itemized Deduction

As one would come to expect, Itemized deduction also helps you knock off some dollars from your taxable income. For example, if you were in the 22% tax bracket, every $1000 that you list in the itemized deduction would reduce your tax liability by $220.

Itemized deductions on the Schedule A of your Form 1040 would let you benefit from the following.

  • If you had expenses out of your pocket when it comes to dental or medical expenses.
  • If your itemized deductions sum up to be more than what your standard deductions account for.
  • If you made donations to charities that are in the qualified list.
  • If as an employee, you had a large expense that has not been reimbursed.
  • If you had large miscellaneous expenses that have not been reimbursed.
  • If you had a large casualty that is not covered as insurance such as fire, wind, theft etc.
  • If you paid any mortgage interest or real estate taxes, you can claim them as well.

There is a certain limitation when it comes to itemized deductions. If your AGI or adjusted gross income is more than any of the following, the limitations kick in.

  • For a single taxpayer, the limit is $261,500.
  • For taxpayers who are the head of the household, the limit is $287,650.
  • For taxpayers who are married but filing separately, the limit is $156,900.
  • For taxpayers who are married filing jointly or qualifying widow(er), the limit is $313,800.

There are several instances, where opting for itemized deduction is more beneficial. With itemized deductions, you can claim for a larger tax benefit than what you would have done otherwise with standard deductions. As many as 103,301,532 taxpayers opted for Standard Deductions in the previous tax filing year versus 45,610,227 taxpayers who filed for Itemized Deductions. Thus, you can choose either depending on your expenses.