3 things to do if you did not file your FBAR/FATCA

3 things to do if you did not file your FBAR/FATCA

by | Feb 23, 2019 | FATCA, FBAR, Tax Payers, Tax Planning, Tax Preparation

3 things to do if you did not file your FBAR/FATCA

The major requirement under The FBAR/FATCA is to find out the financial assets of the U.S. citizens outside the country. All financial institutions outside the U.S. need to find out the records of customers with the U.S as their place of the birth & report about their assets to the U.S. Department of the treasury.

FBAR stands for Foreign Bank Account Report which must be filed with the Financial Crimes Enforcement Network (FinCEN) by U.S. citizens who are authorized signatories or financial interest holders in any foreign financial account, where the account can be either a bank account or a mutual fund.

Filing for FBAR is different from general filing for tax returns with IRS and is generally done electronically by E-Filing system.

Unfortunately, there are cases of U.S. citizens being unaware of the filing for FBAR and being penalized by the Government. So, if you have missed out filing for FBAR by any chance you can follow the below-mentioned procedures.

Streamlined Filing Compliance Procedures–

This method is applicable:

  • If you have unknowingly missed foreign assets declaration
  • Made any mistakes while filing FBAR forms
  • If you are non-tax compliant for all foreign accounts which will be mentioned in your FBAR declaration.

In this method, the taxpayer is allowed to amend or make changes in the last 3 years of tax returns & the last 6 years of not reported FBAR declarations.

Offshore Voluntary Disclosure Program–

In this method, the IRS provides another opportunity to the non-tax compliant citizens to disclose their foreign financial assets voluntarily before the IRS finds out and implements criminal prosecution.

However, there are penalties associated with this method but can be reduced to a certain extent.

Delinquent International Information Return Submission Procedures-

  • The taxpayers who opt for this method need to file the International Information Return by providing a statement of all facts which justify the reason for the failure of non-compliance.
  • Usually, those citizens who have reasonable causes for non-compliance & have not been contacted by IRS yet for any penalties can use this method.

The FATCA also instructs citizens to self- report about their non-U.S. assets to the IRS (Internal Revenue Service). The entire motive behind this law is to prevent tax evasion. Several methods are used by the citizens to avoid paying taxes like making a tax-advantaged investment, plans or opening tax-advantaged accounts.

The Health Savings Account (HSA) is one of the best examples of tax-advantaged accounts in which the contributed funds are tax-exempted. Since these accounts are not liable to taxation citizens contribute more & more to these accounts.

As per current statistics reports, there are approximately 22 million HSA accounts holding over $45 billion in assets. The HSA accounts have grown by 8.3 billion dollars which results in a year over year increase of 22% in assets.

Another such tax-advantaged plan is the Child Tax Credit. This credit amount is given to the taxpayer at the end of the tax year for every dependent child below the age of 17 and satisfying other mandatory criteria like citizenship test, family income test, relationship test etc.

The new Child tax credit for tax years after 2017 is up to $ 2000 per qualifying child with a refundable amount up to $1400. As per recent reports, around 60 million children from 35 million families are saving taxes using the Child tax credit. In the U.S, the state and local tax deduction is one of the major tax expenditures.

However, all these procedures & methods enlisted are not simple and will need professional guidance as well. Hence, to have a hassle –free financial life it is always advisable to be compliant with the tax payments.

3 Tax Investments that I can make AFTER 12/31?

3 Tax Investments that I can make AFTER 12/31?

by | Feb 18, 2019 | Investment & Income, Tax Planning

3 Tax Investments that I can make AFTER 12/31? 

Tax Investements,Let us consider that you have some idle cash lying in your bank account. Where would you invest them, so as to get tax benefits and make the most of the money? With so many options out there, it can be a bit overwhelming.

Of course, you can go on a trip or buy something new for the house. But would it be the ideal way to utilize your funds? Certainly not. To make matters easier for you, we have come up with a list of smart tax investments that you can make post 31st of December.

HSA

The HSA or Health Savings Account is a good way to park any additional cash that you might have in your possession. Here are some of the crucial details.

  • The IRA allows you to park about $10,000 per year in HSA.
  • The HSA account is available for families that have health plans with high deductibles.
  • Your investment amount sits in the HSA account and grows until you decide to withdraw the money.
  • You can withdraw the HSA found once you reach the age of 65 without any penalties, thus allowing you to even use the funds for retirement.
  • The contributions that you make towards HSA can be deducted for taxes.
  • The money in the account grows tax-free and so is the withdrawal.

Roth IRA

A lot of individuals qualify for Roth IRA but do not utilize the available option. Roth IRA is a great investment option for the following reasons.

  • You can contribute as much as $6,000 per year or $7,000 if you are above 50 years old.
  • The investments in Roth IRA are post-tax dollars.
  • The money grows tax-free in Roth IRA.
  • When you withdraw the money in retirement, it is tax-free since you would have already paid taxes on the contributions made.
  • There are certain earning thresholds which bar individuals to invest in Roth IRA directly. For example, the phaseout for Roth IRA for 2019 begins at $122,000 for single taxpayers and $193,000 for married filing jointly.
  • Importantly, you can continue investing in both Roth IRA and 401(k).

Traditional IRA

Investments in traditional IRA is similar to that of Roth IRA baring some differences. In the end, it is your personal preference when it comes to choosing which IRA is better. The following details should help you choose better.

  • You can contribute $5,000 per year into the traditional IRA.
  • Claiming traditional IRA will bring down your adjusted gross income and thus your tax liability.
  • The contributions can grow tax-deferred and you can even withdraw the funds without paying any taxes if they are done a bit late.
  • You can set up a traditional IRA, even if you have another retirement plan in place.
  • You have the option to pass on the assets to beneficiaries after death.
  • The age limit for contributing to the traditional IRA is 70 1/2 years.
  • While everyone can open a traditional IRA, the tax deductions vary. Single taxpayers who already have an employer-based retirement plan and earn $56,000 or less are eligible for a full deduction. Married filing jointly status individuals have a similar threshold of $89,000.

These investment options let you save money in the form of taxes and yet allow your assets to grow over time. In the year 2017, HSA grew by $8.3 Billion. In numbers perspective that is about 22% year on year growth. You can also invest and let your corpus grow.

4 Tax Benefits that you should not miss if YOU ARE PARENT

4 Tax Benefits that you should not miss if YOU ARE PARENT

by | Feb 11, 2019 | Investment & Income, Tax Planning, Tax Refund

4 Tax Benefits that you should not miss if YOU ARE PARENT?

4 Tax Benefits ,Being a parent is not easy and not is it cost-effective.  Tax creditRight from the moment of birth, you must endure expenses such as diapers, baby food, toys and other essentials. It is possible that one might get a bit exhausted and hope for a quick break.

Well, the quick break is there for your taking in the form of tax benefits.You can claim your parenting related expenses, which will in turn lower your liable taxes via deductions and tax credits. Here is a list of few tax benefits that you as a Parent should not miss or ignore.

  • Child Tax Credit

Tax credits essentially lower your taxes dollar for every dollar spent. If you have a few kids, you can use these tax credits to lower your taxes by a considerable margin. However, you can claim the credits for only qualifying children. Here are a few conditions.

  • You children must be below 18 years of age.
  • Your children must be a citizen of the USA, or a resident alien or a national.
  • You must declare your children as dependent on your tax claims.
  • Your children must be living with you for at least half of a financial year.
  • You can declare your own children, step children, foster children, half brother or sister, or a dependent such as grandchildren as your dependents.

You can claim the credits for several children, as long as you declare them as dependent and they are not listed as dependenton anyone else’s tax filing.

  • Adoption Tax Credit

With the help of adoption tax credit, you can easily offset some of the expenses related to adopting a child. Of course, there are few limitations when it comes to income and amount that you can claim per child. Here are a few expenses that you can claim under this clause.

  • Travel expenses related to court.
  • Food expenses related to court.
  • Attorney and court related fees.

In the event that you adopt a child with special needs, you can claim the entire Adoption tax credit. Irrespective of whether or not it surpasses your actual expenses. Since it is non-refundable, you must ensure that it doesn’t exceed your actual tax liability.

  • Higher Education Credits

Sending your kid for higher education is not cheap these days. Here are two credits that you can avail.

  • Lifetime Learning Credit (LLC)
  • American Opportunity Tax Credit (AOTC)

You can use the AOTC for up to four years, whereas the LLC can be carried forward as long as your kid pursues education.

The following expenses qualify for the above credits.

  • Tuition fees
  • Enrollment related fees
  • Expenses related to school materials

There are certain clauses in AOTC, which allows you for tax credit even if that results in zero tax liabilities.

  • Student Loan Deduction

You can avail deductions in your tax filing based on the payments that you have made for student loans. Since it is a deduction, you can reduce your net taxable income and thus lower the taxes.Here are a couple of conditions that are applicable.

  • A student loan should come from a qualified institution.
  • The loan should not be from any relative.
  • There are certain income limits that apply to deductions.
  • Your child’s enrollment for the degree should be more than half of the duration.

For the fiscal year 2016, as many as 19,273,883 taxpayers had opted for child tax credit. You can be one of them and save your hard earned money.

Phase out limits for Adoption credit

Phase out limits for Adoption credit

by | 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.

Taxes on Investments in India- FD, Mutual Funds, Equity/Stocks, Real Estate, etc.

Taxes on Investments in India- FD, Mutual Funds, Equity/Stocks, Real Estate, etc.

by | Dec 26, 2018 | Tax Planning, Tax Preparation

Taxes on Investments in India- FD, Mutual Funds, Equity/Stocks, Real Estate, etc.

Taxes on Investments,Irrespective of which country you travel to, there is something that one must always be cognizant of, taxes. And things can get a bit tricky since you might have to pay taxes at both the places, the current country of residence as well as your country of origin. If you are an NRI and have investment interests back in India, there are some tax laws that you must be aware of.

Being aware of these tax rules would ensure that you are not caught in any crosswinds. And that you are on the top of any taxes that you are liable to pay. The following are the taxes on investments that NRIs must pay.

Real Estate

If you have a property that you have rented out, either for commercial or residential purposes, you are liable to pay taxes on the same. The calculation of taxes remains more or less similar to that of resident Indians. In such cases, an NRI can claim a standard deduction of 30%. On top of that, if they have an outstanding loan, they can claim the principal amount under Section 80C and deduct the property taxes as well.

If you have rented your place, the tenant must deduct 30% as TDS and then pay the rent. An individual making a payment (or remittance) to an NRI must also submit Form 15CA to the income tax department. In certain cases, you might even have to work with a chartered accountant and submit Form 15CB along with Form 15CA.

Fixed Deposits

For NRIs who like to invest in fixed deposits for steady returns, they will also have to pay taxes on the same. The same extends to savings accounts as well. If you have a NRO or FCNR account, then you need not worry about taxes. But for NRO savings account or normal savings account, you are liable to pay taxes as per the applicable tax slab.

Capital Gains

When you sell an asset for a price higher than what you had paid to buy, capital gains taxation comes into the picture. Capital gains taxes are defined by duration for which you are holding on to the assets for. You either end up paying short-term capital gain taxes or long-term capital gain taxes.

Depending on the asset class, the definition of a short-term or long-term capital gain changes. If you have any properties that you decide to sell after three years from the date of purchase, it would qualify as long-term capital gain. In such instances, the profit made on the transaction is taxable depending on the tax slab for the NRI. And should you decide to sell the property before the completion of 3 years, short-term capital gain is applicable.

Any investments made on Equity or Stocks or even Mutual Funds follow a similar school of taxation. However, the holding period differs slightly. If you hold on to Equity/stocks or mutual funds for at least a year, they qualify as long term capital gain and short term capital gain if it is held for less than a year.

For such short gains, one must pay 15% taxes on the gains. Whereas for long term gains, the taxes are 10% of the profit amount that exceeds INR 1,00,000.

These are some of the most common modes of investment and their implications on taxation. If you have invested in any of these avenues, it is recommended to pay the applicable taxes or reach out to a chartered accountant for additional help.

Tax Liability for NRI’s residing in the US for sending money to India

Tax Liability for NRI’s residing in the US for sending money to India

by | Dec 25, 2018 | Tax Planning, Tax Preparation

Tax Liability for NRI’s residing in the US for sending money to India

Tax Liability for NRI’s residing in the US for sending money to india.A better working opportunity or an opportunity to secure a better future for yourself and your family or better earnings are some of the most common reasons for people to seek jobs abroad. It is only but natural that one would want to send money back to the country. Either to their existing savings account or to your family. One must be cognizant of the fact that two different countries and their respective tax laws come into the picture in such transactions. If you are an NRI who resides in the United States of America, what are the tax liabilities that you must adhere to? If you are sending money back to India, it largely depends on whom you want to transfer the money to. For starters, when an NRI sends money to their spouse, kids or parents, they might not have to pay any taxes. The reason being, it is considered as a gift from your income to them. And in India, a gift from earning heads is not considered to be liable for taxes. On the other hand, if you are sending the money to the savings account of someone else, it would be a source of income for them and they must pay applicable taxes on the same. Another important thing to keep in mind is the conversion of bank accounts. As soon as you become an NRI, the first thing that you must do is convert your savings account to NRO. Thus, a scenario where you would send money to your own savings account doesn’t arise in the first place.

Abroad to NRO

There are different ways by which you can submit money to your NRO account. You can either wire transfer the same, do online transfers or take the help of any other banking channel. The amount that you transfer is non-taxable either in India or in the USA. The simple assumption is that you have already paid taxes for the income that you receive in the USA. But if you earn interests from your NRO account, you are liable to pay taxes on the same. Of course, this taxation adheres to income tax laws of India. Thus, if the interest that you earn exceeds the basic exemption income of INR 2,50,000 for a fiscal year, you will have to pay taxes on the same. Remember, it is not mandatory to file your taxes if your only source of income is interests earned on a saving account. However, you can reclaim the money as a part of TDS that is already deducted.

Abroad to NRE

The other account that you can possibly convert your savings account to is an NRE account. And the taxes change by a considerable margin should you decide to transfer funds to your NRE account. Any amount that you transfer to your NRE account is non-taxable. Also, the interests that you earn on your NRE savings account is non taxable as per Indian tax laws. But for NRIs based out of USA, they would need to include the income from NRE accounts in their income tax filing, since it becomes a global income. However, if you choose to transfer the same to your spouse’s account, the effective taxation would come down by a considerable amount due to the lower tax bracket. For any money transfers to the savings account of your parents, they need not pay any taxes on the same. As already mentioned, the type of account that you transfer money to largely defines the amount of taxes that you are liable to pay.