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.

Phase out limits for Adoption credit

by Mounica Kota | Feb 5, 2019 | Tax Planning, Tax Preparation

Phase out limits for Adoption credit

Qualified expenses generally include adoption credit fees, court costs, attorney fees, and travel expenses that are reasonable, necessary and directly related to the child’s adoption, and they may be for both domestic and foreign adoptions; however, expenses related to adopting a spouse’s child are not eligible for this credit. When adopting a child with special needs, the full credit is allowed, whether or not any qualified expenses were incurred. The credit is phased out for higher-income taxpayers. For 2018, the AGI (computed without foreign-income exclusions) phase-out threshold is $207,140, and the credit is completely phased out at the AGI of $247,140. Unlike most phaseouts, this one is the same regardless of filing status. However, taxpayers filing as married filing separately cannot claim the credit.

Annual Gift Tax Limitations

by Mounica Kota | Jan 23, 2019 | tax limitations, Tax Payers, tax savings, Taxtips

Sec. 529 plan is tax-free accumulation, so the sooner the account is established and funded, the better. A special provision of Sec. 529 allows those who are concerned with the annual gift tax limitations, currently $15,000, to contribute five years’ worth of contributions ($75,000) up front. These limitations apply to each contributor, but if there are multiple contributors, such as parents, grandparents, aunts and uncles, huge amounts can be contributed up front and provide the greatest long-term growth. While it is no secret that resident Indians have to pay taxes for a fiscal year. However, all NRI investors must also pay taxes for a fiscal year if applicable. Irrespective of whether they earned the money directly or indirectly, if they are liable, they must pay taxes on the same. As long as the income is generated in India. Any income that is generated as a part of their investments or assets or business interests, is liable to taxes. The presence of tax laws means that there are different avenues to save money from tax liabilities as well. If you are an NRI and are looking for tax-related tips, here are some that you might find to be quite useful.

Self-Employment Tax

by Mounica Kota | Jan 21, 2019 | self employment tax, Taxtips

The most beneficial deductions are business deductions that offset both income tax and, depending upon the circumstances, self-employment tax. For 2018, the self-employment tax rate is 12.4% of the first $128,400 of net self-employment income plus 2.9% for the Medicare tax, with no cap. Some high-income taxpayers may pay an additional 0.9% Medicare tax. For self-employed businesses with less than $128,400 of net income, the self-employment tax rate is 15.3%. Thus, for small businesses with profits of less than $128,400, the benefit derived from deductions generally will include the taxpayer’s tax bracket plus 15.3%. For example, for a taxpayer in the 24% tax bracket, the benefit could be as much as 39.3% (24% + 15.3%) of the deduction. If the deduction were $2,000, the tax savings could be as much as $806 or more, when the taxpayer’s state income tax bracket is included. It might so happen that one fine day you decide to pack your bags and come back home. When you do, there are a few things that you must take special care of. For starters, your investments and tax implications. In general, the tax laws for NRIs returning to the country are fairly generous. However, you must not be complacent. A bit of careful planning will ensure that you do not run into any surprises when you come to India, as far as your overseas income and investment are concerned. Tax Resident Status Your tax liability on the income largely depends on your residential status. The FEMA (Foreign Exchange Management Act) and the Income Tax Act govern all these tax rules and regulations. The FEMA keeps a track of all the transactions taking place outside the country for Indian residents. These transactions include foreign bank accounts, money transfers, remittances, lending, gifting, etc. Any investment in real estate or mutual funds is also taken care of by the FEMA. The income tax act on the other hand, looks after the tax liability arising out of such investments. As per the FEMA guidelines, an NRI is someone who currently stays out of India but either is a citizen of India or a person of Indian origin. They must meet either of the following conditions to become a PIO or a person of Indian origin.

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.

Maximize Business Expenses

by Mounica Kota | Jan 19, 2019 | Investment & Income, New Business, Taxtips

Maximize Business Expenses

Maximize Business Expenses: Beginning in 2018, business owners are able to write off most business purchases using the very liberal 100% bonus depreciation and the Sec. 179 expensing allowance. The property must be placed in service during the tax year for which the deduction is being claimed.

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.
Do you choose the right structure for your business? How your business is structured can have a significant impact on the taxes that you pay. For example LLC’s, S-corporations are Pass-through entities which means your profit will be taxed at the ordinary tax rate, while shareholders of C Corp are taxed at corporate tax rate and then again when they report the distribution on their tax return, as a result, the income is “Taxed Twice”