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.

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.

Understanding the New 2019 Federal Income Tax Brackets And Rates

Understanding the New 2019 Federal Income Tax Brackets And Rates

by | Mar 4, 2019 | federal income tax, Standard Deduction, Tax benefits, Tax Planning, Tax Preparation

Understanding the New 2019 Federal Income Tax Brackets And Rates

Understanding the new 2019 federal income tax brackets and rates.The income tax filing season for 2018 is just around the corner. However, the IRS has gone one step ahead and published the modifications for the year 2019. The modifications include changes to the Federal Income Tax brackets and enhancement of limits for certain tax credits. The intent of these modifications is to make them inflation proof.

There are some chances that you might get confused, but don’t be. During the tax filing season, you would be primarily focusing on income tax related activities for the year 2018. The current modifications implemented by the IRS will be applicable from the 1st of January. Which means, that you do not immediately have to worry about them. Your first focus should be to complete the tax returns for 2018 in a smooth manner.

Once you are done with filing your taxes for 2018, you can shift your focus to 2019. Since there are some modifications, you might have to make some changes with respect to tax estimations if you are self-employed or to your withholding taxes.

What is the need for changes?

There is a term called indexing in the tax code, which calls for regular modifications to the tax brackets. Every year the IRS adjusts the tax brackets so as to account for inflation. A good example of the same would be, if the inflation for the previous year was 2%, the enhanced tax brackets would be approximately 2%.

If you were to consider numbers, the following example would be a better representation. Take for an example that the taxable income for a bracket starts at $50,000. If the country were to witness inflation of 2% in the previous year, the IRS would adjust the same tax bracket to $51,000. The IRS usually rounds off the numbers. The IRS would usually round off the numbers in increments of $25, $50 or $100 depending on the needs.

The whole intent of these modifications is to get rid of a concept called bracket creep. According to bracket creep, you will end up getting into a higher tax bracket with raises in your pay. Even though the pay would be just enough to beat the inflation, you will end up paying higher taxes. Indexing ensures that you stay in the same tax bracket after accounting for inflation.

Till the year 2017, indexing would use the data from CPI or customer price index to adjust the inflations. However, the recently passed Tax Cuts and Jobs Act of 2017ensures that the C-CPI is considered for the indexing. C-CPI stands for Chained Consumer Price Index.

The indexing is not only applicable to tax brackets but also to other tax numbers such as alternative minimum tax and standard deduction etc.

Updated Tax Bracket

Following is the detailed tax bracket for the year 2019. With the help of indexing, the brackets have approximately gone up by 2%.

  • 10% tax bracket

    • For someone who is single and earns up to $9,700.
    • For someone who is married filing jointly or any qualifying widow earning up to $19,400.
    • For someone who is married filing separately earning up to $9,700.
    • For someone who is the head of the household and earns up to $13,850.

  • 12% tax bracket

    • For someone who is single and earns between $9,701 and $39,475.
    • For someone who is married filing jointly or any qualifying widow earning between $19,401 and $78,950.
    • For someone who is married filing separately earning between $9,701 and $39,475.
    • For someone who is the head of the household and earns between $13,851 and $52,850.

  • 22% tax bracket

    • For someone who is single and earns between $39,476 and $84,200.
    • For someone who is married filing jointly or any qualifying widow earning between $78,951 and $168,400.
    • For someone who is married filing separately earning between $39,476 and $84,200.
    • For someone who is the head of the household and earns between $52,851 and $84,200.

  • 24% tax bracket

    • For someone who is single and earns between $84,201 and $160,725.
    • For someone who is married filing jointly or any qualifying widow earning between $168,401 and $321,450.
    • For someone who is married filing separately earning between $84,201 and $160,725.
    • For someone who is the head of the household and earns between $84,201 and $160,700.

  • 32% tax bracket

    • For someone who is single and earns between $160,726 and $204,100.
    • For someone who is married filing jointly or any qualifying widow earning between $321,451 and $408,200.
    • For someone who is married filing separately earning between $160,726 and $204,100.
    • For someone who is the head of the household and earns between $160,701 and $204,100.

  • 35% tax bracket

    • For someone who is single and earns between $204,101 and $510,300.
    • For someone who is married filing jointly or any qualifying widow earning between $408,201 and $612,350.
    • For someone who is married filing separately earning between $204,101 and $306,175.
    • For someone who is the head of the household and earns between $204,101 and $510,300.

  • 37% tax bracket

    • For someone who is single and earns above $510,301.
    • For someone who is married filing jointly or any qualifying widow earning above$612,351.
    • For someone who is married filing separately earning above $306,176.
    • For someone who is the head of the household and earns above $510,301.

Capital Gains

The taxation for capital gains works differently than income taxes. While there are about 7 tax brackets for income, there are merely 3 tax brackets when it comes to capital gains. And they range between 0 to 20%. People with considerable income from capital gains enjoy these benefits.

Since the capital gains tax is lower income tax, it is favorable for investors. The following is the updated tax brackets for capital gains.

  • 0% tax rate

    • For someone who is single, and the earning is less than $39,375.
    • For someone who is married filing jointly, and the earning is less than $78,750.
    • For someone who is the head of a household and the earning is less than $52,750.

  • 15% tax rate

    • For someone who is single, and the earning is between $39,376 and $434,550.
    • For someone who is married filing jointly, and the earning is between $78,751 and $488,850.
    • For someone who is the head of a household and the earning is less than $52,751 and $461,700.

  • 20% tax rate

    • For someone who is single, and the earning is above $434,551.
    • For someone who is married filing jointly, and the earning is above $488,851.
    • For someone who is the head of a household and the earning is above $461,701.

Standard Deductions

As per the new tax laws, personal exemptions have been completely eliminated. Until 2017, you could claim up to $4,050 for yourself, spouse or dependent children, it no longer is valid.

The standard deductions have replaced it and they are roughly twice the amount. The following is updated standard deduction.

Status of Filing Fiscal Year 2018 Fiscal Year 2019
Single $12,000 $12,200
Married filing jointly $24,000 $24,400
Head of the household $18,000 $18,350

Other Changes

Alternative Minimum Tax

The alternative minimum tax or AMT came into existence in the 1960s to levy taxes on individuals who took a lot of tax breaks. In the event that these individuals were to exceed a certain limit, the second set of taxes would be applicable if their income were to be calculated normally.

As per the tax code, there is an income exemption for AMT. Any amount below this would not be applicable. As is the case with all other figures, the AMT is also indexed for inflation. Following are the updated numbers.

  • For single taxpayers, the exemption amount stands at $71,700 and the phaseout begins at $510,300.
  • For taxpayers who are married and filing jointly, the exemption amount stands at $111,700 and the phaseout begins at $1,020,600.

Contributions Towards Retirement

For the year 2019, the base contribution levels are being increased by $500. Yet, the catchup contributions for individuals above 50 remains the same. This is how the retirement contributions will look like.

  • IRA contributions stand at $6,000 versus $5,500 for the previous year. There is also a provision of $1,000 as catch-up if you are older than 50 years.
  • For employer-sponsored plans, such as 401(k), 403(b), 457 etc. the amount is $19,000 which is an increase over the current $18,500. And you can opt for a $6,000 catchup if you are older than 50 years.

There are certain other modifications as well. Such as the lifetime gift and estate tax exemption will see an increase to $11.4 million from the current $11.18 million. The annual gift exclusion of $15,000 remains as it is.

Even though they might seem small, these modifications ensure that you are not impacted by the inflation. If you are currently occupied with the 2018 tax filing, it is better to return at a later date and revisit the clauses.

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES

by | Feb 28, 2019 | income tax, Tax benefits, Tax credits, Tax Planning, Tax Preparation

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES? 

Tax Benefits ,A considerable amount of your money can get into medical related expenses when it comes to taking care of parents or relatives. Here are the five Tax Benefits

According to Caring.com, a company that specialized in Bankrate, about 40% of caregivers spend about $5,000 a year on caregiving. Similarly, about 25% of people spend more than $10,000 per year on caregiving.

Though it is not the primary concern paying for caregiving expenses can help you avail some tax benefits. One of the key points that you need to be aware of is that your elderly parents are declared as dependents.

Here are some of the benefits that you can claim if you take care of your dependent parents or relatives.

  • Medical Expenses

Having elderly parents can result in quite a considerable sum of money being spent on medical expenses. You have the option of claiming them as Itemized Deductions in Schedule A of your income tax.

  • Itemized Deduction comes in handy if you have exceeded the standard deduction limit.
  • The total medical related expenses must be more than 7.5% of your total adjusted gross income for a fiscal year.
  • The expenses include hospital care, visit(s) to doctors, cost of prescription drugs and so on.
  • January 2019 onwards, you will be able to claim only unreimbursed medical expenses if they exceed 10% of your adjusted gross income.

  • Income Simulation

The IRS has set a few criteria that your parents must meet before you can declare them as dependents on your tax returns. Here are some of them.

  • Your parents should not have an income that exceeds the exemption amount for the year in question.
  • The IRS decides the exemption amount and the value might change year on year.
  • In the event, your parent(s) have income from dividends or interests, a portion of their social security might also be taxable.
  • The IRS publication 501 consists of the exemptions for the current year.

  • Providing Support

If you provide support to your parents for at least half of the fiscal year, there are a few tax benefits that you can avail. The following are some factors that you need to consider before determining the support amount.

  • You would need to find out a fair market value for the room. If someone were to rent the room out, how much would they pay for it?
  • The next step would be to include expenses related to food. One needs to be careful and not include utility bills, medical bills or other general expenses that you incur.
  • The amount that you want to claim as support should exceed the income of your parent(s) by a minimum of $1.
  • A comparison between the income that they receive, social security or other income and the support that you lend will paint a clearer picture of support requirements.

  • Care Credit

Dependent care is a non-refundable tax credit that you can benefit from. In the event that your parent is a qualifying individual, you can claim for it. Here is all that you need to be aware of.

  • Parents who are physically or mentally unable to take care of themselves are qualified individuals.
  • You should have an income and certain work-related expenses to show, so as to qualify for the tax credit.
  • You should be able to identify your care provider properly.

  • Supporting Siblings

In the event that you support your parents along with siblings, you can claim the amount as well. The only condition being that each sibling must contribute to at least 10% of the total support expenses.

The above tax benefits will aid you in taking care of dependent parents or relatives.

10 Things you should know about College tax Savings Plan for?

10 Things you should know about College tax Savings Plan for?

by | Feb 26, 2019 | Education, tax deductions, tax filing, Tax Planning, tax return

10 Things you should know about College tax Savings Plan for?

College Tax Savings Plan Let’s face it. College and education, in general, are getting expensive. This means that saving for your children’s future can be a daunting task. It is only natural that one looks for as much help as possible.

Should you look at investing in a 529 college savings plan? American parents who have kids, save on an average $18,135 for college. And about 30% of these savings go into a college savings plan. While the average savings in the plan was $2,280 in 2016, it has nearly doubled to $5,441.

General savings account for another 22% for college-related funds. While 14% are investment related savings. More parents are opting to invest in a college savings plan and here are some important facts that you should be aware of.

  1. Anyone can open a 529 college savings plan and invest in one of the instruments.
  2. Though people usually associate a 529 plan with college tuition, it does much more than that.
  3. Amendments to the tax laws recently, allow individuals to withdraw up to $10,000 from a 529 for the purpose of K-12 tuition expenses.
  4. The plan is not limited only for kids or teenagers. You can open an account and start saving for graduation or higher studies.
  5. A single tax filer can contribute as much as $15,000 for a year as tax-free in a 529 plan. For married couples filing jointly, the amount is $30,000.
  6. You also have the option to contribute $75,000 into a 529 plan up front for 5 years. For married couples filing jointly, the amount is $150,000.
  7. 529 plan is similar to mutual funds in some ways, as you have the option to purchase them on your own or take the help of a financial advisor.
  8. You can buy a 529 plan depending on the age of your kid, however, you should also look at the past returns and volatility. Some plans can be very aggressive for you, while others can be quite conservative.
  9. Before you start saving into a 529 plan, it is essential to go through all the terms and conditions. You should be aware of the plan’s ins and outs along with any limits that the provider imposes.
  10. Another crucial aspect that you should not miss at any cost is the enrolment fees of the plan along with any annual fees.

Since there are different 529 plans that you can choose from, it is important to delve into the details. Try to look for a plan that offers state-level tax breaks. You should also look at the expense ratio of the plan. A higher ratio would eat into your profits.

There are some cases where your kids might not need to use the 529 plan. What happens to the fund in such cases? Well, you can always transfer the fund to someone in the family. If that is also not possible, you can withdraw the fund yourself. But keep in mind, that you will have to pay a 10% penalty for not using it for educational purposes.

A fundamental of any investment is the minor fluctuation with the market. And 529 plans aren’t immune to that. Thus, it is important that you look into the assets that a fund is investing it.

If you have a short term in your hands, take four or five years for an example, and you invest it entirely in stocks, that might be a bad idea. A big swing in the market can nullify your funds. Thus, take the duration and risk appetite into consideration before investing.