3 tax tips for second homeowners for NRIs in the US

3 tax tips for second homeowners for NRIs in the US

by | Jul 12, 2019 | Tax Extension, tax filing, Tax Planning, Tax Preparation, tax rate, Tax Refund, tax savings, taxes

3 tax tips for second homeowners for NRIs in the US

tax tips for second homeowners ,Buying a second home is a big decision and requires a lot of efforts on your end. It could well be that you already have a home and are planning for a holiday home or a weekend getaway or just for investment.However, amidst all this, do not forget that it comes along with a lot of tax considerations as well. Here are three major tax tips that you must consider before you write down that cheque.

Location

It is no secret, that the tax rates of property or house largely depends on the location that you are buying it at. Few states and municipalities have higher tax rates as compared to others. Thus, a quick check of the location that you want to buy the house in would help you save considerably on taxes.

Places such as Hawaii, Louisiana, Delaware and Alabama have the lowest tax rates for real estate in the country. Ranging between 0.28% to 0.53%, they can be great options to buy your second home. And on the other hand, places such as Illinois, New Jersey, Wisconsin have the highest tax rates in the country.

Buying a property outside the country is a different equation altogether. Unlike normal classifications such real estate taxes, you might have to pay a one-time fee.

Future Taxes

Should you pick a place and property smartly, the payoff can be quite satisfying. A good house in a good locality or upcoming locality will fetch you much better prices during selling. However, in hind sight do not forget the additional cost that they bring along with them.

While buying at lower prices and selling at higher prices means a lot of profit for you, being aware of the tax implication is also important. As the property value increases significantly, the taxes that you are eligible to pay would also increase considerably.

There is also a possibility that the White House decides to revisit the property taxes once every few years. If there is an increase in such prices, it would only increase the tax burden on you.

Interest on Mortgage

If you are planning to use the second property as a second home, there are some additional benefits to have had. However, these are possible only if you use the property as a second home and not rent the place out.

In such cases, the interest that you pay on your mortgage is deductible and behaves pretty much like the interest on the first house or property. Before 2018, taxpayers had the option to write off the entire interest amount that they paid if they had secured debts of up to $1.1 million on both the properties combines together. The amount is also valid if you choose to upgrade or improve the house in different ways.

The rules had been tweaked a bit where earlier the limit was set at $750,000. This can be a good and smart way of saving a substantial amount in taxes. It is quite common to rent out your second place. But you cannot avail the above benefits if you choose to do so. If you are looking to saves taxes, this method fares better results.

Whether it is your first property or second, if you have the option to save money on taxes, there isn’t any reason why you should not. The above tips are not only easy to follow but implement as well. If you are an NRI and are planning to buy your second home, these should help you save some money on taxes.

How AOTAX helps you get the best Tax Refunds in 2019?

How AOTAX helps you get the best Tax Refunds in 2019?

by | Jun 28, 2019 | tax deductions, tax filing, Tax Planning, Tax Refund, taxes

How AOTAX helps you get the best Tax Refunds in 2019?

Hoping to pay minimal taxes is no crime. Afterall, why should you pay more taxes than you owe to Uncle Sam? If due to some reasons you have overpaid your taxes, tax refunds will help you get the amount back. There are several ways by which you can boost your tax refunds. And at AOTax, we ensure that you have access to some of the best ways to achieve the same.

Smarter Tax Deductions

Not many tax payers are aware of the fact that the miles that you put on your car for charitable donations or even medical purposes, you can claim them as deductions. While the miles that you drive for medical purposes is subject to the AGI threshold, it is calculated at 18 cents per mile. Similarly, miles accumulated for charitable donations is calculated at 14 cents per mile. If you drive about 50-60 miles a week for charity, that accumulates to $450-500 additional deductions.

Of course, it is a good habit to keep track and record of such transactions. Simple details such as the date, purpose, donations made, or market value of any goods that you have donated, would help you while filing taxes.

IRA and HSA contributions

While a lot of taxpayers are aware of IRA or even HSA contributions, there are a few tricks that you can try. For example, did you know that you can contribute for traditional IRA for the previous year during the current financial year? This means, you can make contributions towards your IRA for 2019, till 15th April 2020. This allows you to claim for deductions for the tax filing of 2019.

If you aren’t already aware, the IRA will reduce your taxable income and thereby the taxes that you owe to the government. If you are 50 years or older, you can make use of catch-up provision to contribute towards IRA. And even though they both quality for deductions, if you qualify you can receive Saver’s credit as well.

Tax Filing Status

Choosing a filing status is one of the first steps to filing your tax returns. And it can affect your tax refund significantly. This is even more significant if you are married. Statistics show that 96% of married couples file their taxes together. Though that is the norm, it isn’t always the most beneficial route selected. Opting for married and filing separately as a status does require some additional effort on your part. However, you can save a considerable amount of money in the form of taxes or even refunds.

For starters, when you opt to file taxes separately, each spouse gets a lower AGI or Adjusted Gross Income. When you file your taxes separately, the Child Tax credit is available for both spouses to avail. Separately calculating taxes will result in higher refunds when it comes to education. At AOTax, we can help you with different calculations and help you get a higher refund as well.

Taxpayers who are not married, can use the filing status as head of the family rather than unmarried. This will allow taxpayers to avail a higher standard deduction as compared to filing as unmarried individuals. Having a dependent parent or child will allow you to benefit from better deductions.

Timing your tax returns properly will also enhance your chances of getting better tax refunds. The easier way to handle such situation is to take help of the expert services at AO Tax. With various services on offer, you can always find help that you are looking for and be stress free about your tax returns.

How to save taxes in 3 ways this summer?

How to save taxes in 3 ways this summer?

by | Jun 14, 2019 | tax deductions, Tax Planning, Tax Preparation, tax savings, taxes

How to save taxes in 3 ways this summer?

We are surrounded with a few mundane tasks that we must carry out, irrespective of we like them or not. Tax planning is a prime example of the same.  though it is mundane and even borderline boring, it must be done. However, there is an upside to it. If you successfully plan your taxes, you can save a considerable amount of money. If that isn’t a good enough reason to plan for your taxes, nothing else will.

But where do you start from and how do you plan your taxes? To make matters easy for you, here are the top 3 tips by which you can save money on taxes this summer. If you do not want to pay extra to Uncle Sam, the following tips are for you.

Health Savings Account (HSA)

If your employer offers any health insurance plan, you can combine your health savings account along with it. In the event that your employer does not offer any health insurance plans, you can buy a health savings account on your own. The money that you put into a health savings account is pre-tax. You can then use the amount for various expenses such as medical bill for procedures, co-payment, deductibles and even certain expenses that are not covered as a part of medical insurance such as dental care or vision.

Your contributions towards HSA has several tax benefits. For starters, it is deducted pre-tax, the amount that you contribute is non-taxable. The amount that you invest then keeps on growing tax-deferred. And lastly, when you do withdraw the amount it is tax-free.

Flexible Savings Account

A flexile savings account is another smart way of handling your taxes. On the surface, it resembles the Health Savings Account to a great extent. The major difference being, that a flexible savings account is sponsored by employers only for healthcare plans. Per year, you can invest as much as $2,250 pre-tax. You can then use the amount for taking care of expenses such as deductibles. And, you do not have to pay anything on the $2,250, no state taxes or no federal taxes.

Unlike the HSA, you do not get the amount directly. And you must spend the amount by the end of the year. If you fail to do so, the amount will revert to your employer. Though, some companies now offer grace periods where you can use the funds. And in some cases, you can carry forward up to $550 for the next year.

Charitable Donations

When it comes to charitable donations, there aren’t a lot of restrictions. If you wish to donate a significant amount of money to charity, you can consider giving away your stocks or even mutual funds. Specifically, the ones that you have had with yourself for at least a year. Should you consider this option seriously, it is recommended to give away the stocks or mutual funds that are in the green or yielding profit. Charitable donations always consider the fair market value on the day of donation and not at which it was bought. This will boost your donations considerably. This will allow you to quietly walk away without having to pay taxes on your profits. To make the most of this method, you would have to itemize your deductions. But if your stocks or mutual funds are in loss, it is better to sell them off, claim the loses and donate separately.

The above methods will help you save money on taxes considerably. Which you can then spend on doing whatever you wish or invest for better returns in the future.

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.
NRI with Green Card in the US, what not to forget while filing your taxes this year

NRI with Green Card in the US, what not to forget while filing your taxes this year

by | May 23, 2019 | Blog, Deduction & Credits, Investment & Income, Tax Extension, Tax Planning, Tax Preparation

NRI with Green Card in the US, what not to forget while filing your taxes this year

The income tax system that currently in motion in the United States of America, requires corporation, trusts, estates and individuals to pay taxes. If you are an NRI, you must also pay taxes to Uncle Sam. Irrespective of whether you are filing your taxes for the very first time or have been doing it for years, here are a few things that you must not forget.

  • Reporting Foreign Assets (Form 8938)

The IRS introduced Form 8938 a few years ago to get additional information regarding foreign assets of their citizens. The Form 8938 or Statement of Specified Foreign Financial Assets should be filed along with their taxes. This form requires taxpayers to disclose additional information regarding their interests and investments in foreign financial assets. With the help of this form, the IRS can identify the non-compliance of its taxpayers. Your financial assets such as pension plans, mutual funds, insurance policies, ULIP plans and bank account balances must be declared as a part of Form 8938. The form is quite exhaustive, to say the least. You can get in touch with the company handling your finances or banker to get these details.

  • Global Income

The IRS outlines its residents and citizens (PIO, OCI or NRI) to pay taxes on their global income and not only the income generated in the US. Anyone who has stayed in the US for at least 31 days in a fiscal year and 183 days in the previous three years, gets the tag of a US resident. If you qualify, you must declare your global income. Global income includes any salary that you receive in India, either for consultation or freelancing. Income in the form of interests or dividends earned on bank deposits or other securities. Income generated from rent received on a property, agricultural income or capital gain on the selling of assets, all qualify. You will be taxed on all of these in the US. While income from agriculture is tax-free, it will be taxed in the US. However, if you have paid taxes in India for any of these incomes, you can claim for the foreign tax credit as per the DTAA.

  • Employee Stock Option Plan

Employee Stock Option Plan or ESOP is something that you must not forget in your tax filing. The IRS considers the granted value of ESOPs when a taxpayer opts for the same. The total ESOP compensation must be added to the gross income. If you had exercised a similar option in India and have paid relevant taxes, you can opt for tax credit while filing your tax return.

  • Form 8621

The IRS requires all its citizens and residents to declare their foreign investments such as mutual funds and private equities in the tax return. These investments come under the purview of the Passive Foreign Investment Company (PFIC). To summarize, according to the PFIC, a taxpayer must declare all such investments and any gains that they earn out of them. These gains must be declared and appropriate taxes paid. In the event that you fail to do so or did not receive any gains from them, the final sale value would be divided for the number of years and calculated. For instance, if you haven’t received any distributions over 5 years and you gain a total of $200, it would be considered as $40 for each year. Being on the top of these will help you from coming under the scrutiny of the IRS. And of course, sets yoo up for a smoother tax filing season.
What is the difference between Form 8938 and FBAR form in terms of reporting of Foreign Financial Assets?

What is the difference between Form 8938 and FBAR form in terms of reporting of Foreign Financial Assets?

by | May 17, 2019 | Blog, Tax Extension, Tax Planning, Tax Preparation

What is the difference between Form 8938 and FBAR form

in terms of reporting of Foreign Financial Assets?

Form 8938,FBAR, FATCA, these are some of the acronyms that might confuse a lot of taxpayers. Especially when it comes to foreign financial assets, which one should a taxpayer choose and why.

Form 8938

The HIRE Act was the triggering factor behind the FATCA or the Foreign Account Tax Compliance Act coming in to effect in 2010. As per this Act, financial institutions are required to report the assets held by US-based account holders or run into the risk of withholding on certain taxes. As per the HIRE Act, US citizen also needs to declare their foreign financial investments. This is where Form 8938 comes into the picture. Taxpayers of the United States of America use Form 8938 to fulfil the FATCA obligations. The form must be submitted along with their annual tax return.

FBAR

The Bank Secrecy Act of 1970 was the deciding factor behind the introduction of Foreign Bank Account Reporting or FBAR. The intention of this Act was to discourage tax evasions by foreign investments. While the Act was ignored for a very large period of time, it has caught up quite a bit in recent years. The Government’s push towards this compliance has been a major factor. Couple that with hefty penalties and more people are filing FBAR forms as compared to previous years. The IRS also has a voluntary disclosure program for individuals who might have to file FBAR.

The Difference

While on the surface it might seem that both the forms are collecting exactly the same information, there are quite a few subtle differences.

FBAR form is for US persons having an interest in foreign financial accounts. Also, they must meet the specified thresholds.

Form 8938 is for specific US persons having an interest in foreign financial assets. Also, they must meet the thresholds mentioned.

  • Unmarried individuals with assets worth $50,000 or more on the last day of the fiscal year or $75,000 or more during anytime in the fiscal year.
  • Married individuals with assets worth $100,000 or more on the last day of the fiscal year or $150,000 or more during anytime in the fiscal year.
  • Reported Materials

For FBAR, individuals need to report the maximum value of their foreign financial accounts.

For Form 8938, individuals need to report the maximum value of their foreign financial assets.

  • Thresholds

The FBAR’s threshold value is $10,000. Thus, if the total financial value of accounts exceeds $10,000 it must be reported.

The threshold value for individuals filing Form 8938 who are living outside the country are:

  • Unmarried individuals with assets worth $200,000 or more on the last day of the fiscal year or $300,000 or more during anytime in the fiscal year.
  • Married individuals with assets worth $400,000 or more on the last day of the fiscal year or $600,000 or more during anytime in the fiscal year.
  • Where to file

FinCEN’s BSA e-filing system is how you should file your FBAR Form and it is all electronic.

Form 8938 must be filed along with your annual federal tax return.

  • Penalties

Failing to file FABR non-willingly results in a fine of $10,000. And the penalty for willful non-filing results in a fine of $100,000 or 50% of the balance in the accounts.

Form 8938 has a penalty of $10,000 for not filing the form. The amount increases by $10,000 for every 30 days passed, to a maximum of $60,000.

You can now decide for yourself, which form you need to file when it comes to Foreign Financial Assets reporting.