Tax Planning Archives - Page 7 of 24

What is the FBAR (form 114) all about?

by Mounica Kota | Jan 28, 2020 | FBAR, Form 114, income tax, Investment & Income, tax filing, Tax Planning, taxes

What is the FBAR (form 114) all about?

Given the increased scope across the globe, it is not uncommon for citizens to have bank accounts in foreign countries. Whether it is for investment or for savings or simply grabbing a good opportunity, there is no dearth of reasons for not having a bank account outside the USA. However, it is essential that you inform the government about the same, under the Bank Secrecy Act.

To report the existence and operations of such foreign bank accounts, you need to file FBAR (Foreign Bank and Financial Account) or Form 114. Here are the two conditions under which you must file FBAR.

The total value of your foreign financial accounts exceeds $10,000 during anytime of the year.
You have a financial interest in a foreign financial account or have signature authority over the same.

The United States Department of Treasury requires all citizens of the country with foreign banks to file FinCEN Form 114 and inform the department of any such accounts. Failing to do so will attract hefty fines and in extreme cases even criminal prosecution.

Who Should File FBAR?

The form is applicable to any US person who has foreign accounts and the account value has exceeded $10,000 anytime during the year. Here are the individuals who qualify as US persons.

A citizen or resident of the United State of America
Any form of domestic trust or estate
Any form of domestic partnership
Any form of a domestic corporation

A common question that a lot of expats have is, how will the government of the US find out whether certain financial assets are being declared or not. The government has been constantly strengthening FATCA guidelines. The government has also got into information sharing agreements with 39 countries and finalizing the discussions with 62 more countries.

As per these guidelines, foreign financial institutions or FFIs are required to inform the government about any accounts held by US citizens. The FFIs would share information such as the name of the account holder, social security numbers or the Tax Identification Number, account number, balance of the account, any interests or dividends earned on the account, etc.

Filing of Form 114

US citizens can file Form 114 online only and it does not have any direct correlation with your expat tax returns. And in the event that you have asked the IRS for an extension for your tax filing, the same does not apply to Form 114. You do not have to explicitly request an extension for the filing of Form 114. The default due date is the 15^th of April it automatically extends to the 15^th of October.

Exception For Filing Form 114

If you meet any of the following conditions or criteria, you might not have to file Form 114 in the first place.

You are a part of a domestic corporation with assets exceeding $10 Million and the corporation has more than 500 shareholders and you do not have any personal interest in these assets.
You are a part of a bank (either employee or officer) that works under the Board of Governors of the Federal Reserve System, Comptroller of the Currency, Federal Deposit Insurance Corporation or the Office of Thrift Supervision and do not have any personal interest in the bank accounts.
You are a part of a bank account for US military financial institutions which is operated by the US for the sole purpose of serving the government operations abroad.

If you have a financial account outside of the US, it is recommended that you verify whether you qualify to file the FBAR and file the same if you do.

Reference:

https://www.taxesforexpats.com/expat-tax-advice/FBAR-Fincen-114.html

https://usofaexpattax.com/report-of-foreign-bank.php

https://www.efile.com/irs-foreign-bank-and-financial-account-assets-report-form/

Does it make sense to file your taxes early?

by Mounica Kota | Jan 20, 2020 | income tax, tax filing, Tax Planning, Tax Preparation, Tax Refund, taxes

Does it make sense to file your taxes early?

Filing taxes can be a bit boring and overwhelming. Apart from your life and work, you need to devote some time and energy to file your taxes early. A lot of taxpayers barely are able to file their taxes on time, let alone before time.

What if there are some strong reasons and benefits for filing your taxes early? Would that pull you into the idea of filing your taxes early? If yes, here are some of the most prominent reasons why you must seriously consider filing your taxes early.

1.To Avoid Missing Out On Tax Benefits

Usually filing your taxes at the end means, that you are running against the clock. In such cases, the chances of missing out on some information are quite possible. A common mistake made by taxpayers filing their taxes in the end if using a wrong SSN or forgetting to mention their SSN, or their dependent children’s SSN or spouse’s SSN. Missing out on SSN is a sure way of missing out on certain tax deductions and tax credits.

2.A quicker Tax Refund

When you consider data from the previous years, you will find out that about 72% of taxpayers receive tax refunds up to $3,000. That is a decent chunk of money that you can use as rainy-day savings or paying off some debt. Filing your taxes earlier allows for a quicker tax refund.

3.Possibly Bigger Refunds

When you file your taxes early, you can benefit from certain life changing milestones. Milestones such as marriage, or the birth of your child, starting your own business, etc. can translate into better tax refunds or deductions. Which ultimately will help you save money. Thus, filing your taxes early can be beneficial.

4.Debt Management

In the event that you are struggling with some of the debts, opting for an early tax filing can save the day for you. The IRS expects to issue tax refunds within 21 days of your filing tax returns. The earlier you file your taxes, you boost the chances of an early refund and thus, it can help you manage some of your debts as well.

5.Leverage Your Time and Money

When you file your taxes early, you are firstly not under any pressure of filing them before the deadline. It enables a smoother filing. Secondly, the chances of mistakes are also minimal, thereby allowing you to spend less time on tax filing. And more importantly, you can expect an earlier refund as well. You can then use these funds either for a quick trip while your friends and colleagues are busy filing their taxes or use them for other purposes.

6.File Taxes Online

Once you have made up your mind to file your taxes early, you can visit online portals to help you file your taxes. There are a lot of trusted portals, which can help you file your taxes within a few minutes. All you need to do is provide some basic information and answer simple questions. The portals can help you extract the most out of your refunds as well. And the best part is, you can do this from the comfort of your home or office or even while you are vacationing. If you need additional help in the form of an Enrolled Agent or a CPA, the portals would be able to help you with that as well.

Apart from the most obvious benefit of peace of mind and no stress during the tax filing season, the above are some of the other benefits of filing your taxes early. If you have never filed your taxes early, now might be the best time to give it a shot and reap its benefits.

Reference

https://blog.turbotax.intuit.com/tax-refunds/6-reasons-it-pays-to-file-your-taxes-early-19100/

Buying a property in India? Here’s all you need to know about taxation norms

by Mounica Kota | Jan 17, 2020 | capital gains, Tax Break, tax deductions, Tax implications, Tax Liabilities, Tax Planning, taxes

Buying a property in India? Here’s all you need to know about taxation norms

Whether you have bought a property in India or are planning to buy one, here all you need to know about taxation norms, it is quintessential that you are aware of the tax implications. This will help you plan your taxes and make the most of the available tax breaks. And most importantly, it will keep you away from surprises which might burn a hole in your pockets.

Property Taxes in India

In simple terms, any taxes that you must pay for your property would be tagged as property taxes. Primarily there are two types of property taxes in India,

Maintenance Taxes
Sales Taxes

Buying Property in India

Before you can proceed with buying a property in India, you must be aware of the eligibility criteria. There are no restrictions when it comes to buying a property for resident Indians. Indian nationals or people with Indian origin can buy property in India even if they live abroad. However, you cannot buy a property if you have moved to Iran, Nepal, Bangladesh, Bhutan, Afghanistan, Pakistan or Sri Lanka.

If you are neither a resident of India nor Indian, you cannot buy a property in the country. To be a legal resident, you must have spent at least 183 days in a financial year.

Who Must Pay Property Taxes?

A buyer of the property would end up paying most of the taxes in the form of sales tax. And if you are selling a property, you would be entitled to pay any capital gains taxes. And the owner of a property is responsible for paying out any maintenance taxes applicable.

Types Of Property Taxes

Here are the different types of property taxes that one must bear during ownership.

Sales Tax

The sales tax comes into the picture while both buying or selling a property. And the tax collected is used for the following purposes.

Registration charges
- The buyer of the property must pay the registration charges in front of a registration officer. The registration charges are set by the respective states and are usually at 1%.
TDS
- TDS or Tax Deducted at Source comes into the picture when the property transactions qualify to be ofhigher value. The TDS must be paid by the buyer of the property and is applicable for transactions that exceed INR 50 lakhs. The buyer must deduct the TDS from the total transaction value and submit the same to the income tax department.
Service Tax for properties that are under construction
- For properties that are under construction, you might have to pay service taxes. The central government is responsible for these taxes and not the local authorities. The charges are usually 3.75% to 4.5% of the total property value.
Capital gains tax
- If you sell a property and make profits in the transaction, you are liable to pay capital gains tax on the same. Properties held for 2 years, long term capital gains are applicable and the properties which are held for a lesser duration, qualify for short term capital gains tax. Currently, the short term capital gains tax is at 15% and long term capital gains tax is at 20%.
Stamp duty
- The Stamp duty charges are paid to the state government and depend on a variety of factors such as the location of the property, the property, its age, etc. The stamp duty charges vary depending on the state and can range between 35 to 10%.

Being aware of the above property tax types will help you plan your taxes and take appropriate actions so that you are not caught off guard.

Reference:

https://transferwise.com/au/blog/property-tax-in-india

https://www.nkrealtors.com/blog/save-taxes-on-the-sale-of-property-in-india/

https://economictimes.indiatimes.com/nris/tax-implications-for-nris-on-purchasing-property-in-india/articleshow/42085833.cms

Who is considered to be an individual investor in the US?

by Mounica Kota | Jan 15, 2020 | 401(k), global income tax, IRA, tax filing, Tax Planning, Tax Refund, tax savings, taxes

Who is considered to be an individual investor in the US?

In the US, the direct impact of investment falls on the taxes of individuals. If you are investing, it would have a different implication on your taxes. Nowadays, with the various taxes, related software filing up for tax as an investor is not too tedious and difficult in the US.

Let us find out the various ways by which an individual would be considered as an individual investor in the US.

Buying or selling of a security

One of the simplest methods by which it can be determined that you are an individual investor or not is either you have bought or sold any security throughout the year. Here security can mean stocks, bonds, index funds, cryptocurrencies or even mutual funds.

However, by simply buying some stocks the way you fill your taxes for the year is not going to change. The company whose stocks or bonds you have purchased must give you a dividend and you must be able to sell them, otherwise, there would be no impact on the way you fill your taxes. In case, the company whose stocks or bonds you have purchased gives you a dividend you need to report it as income. Now, again if you sell that particular stock either for a gain or a loss you will have to report about this particular transaction on your taxes.

By investing in mutual funds or index funds, you will obtain 1099-DIV and 1099-B which will cover all the activities they have generated. In case, you have made any investments with the help of a retirement plan such as 401(k) or a Roth IRA it is going to have a separate impact on the way you will fill your taxes.

Savings App

On the purchase of stocks, you may not find it too relevant to consider yourself as an investor but there is numerous savings app available nowadays which help in saving more and turn you to be an investor. There is some savings app which will help in rounding up your purchases and thus save your money.

For instance, when you are purchasing by using the debit card of a particular company they will round up your transaction into the next dollar and your extra money would be invested on your behalf. Suppose, you have purchased food and beverages for a particular amount, it is rounded up and the extra amount is invested in a portfolio of exchange-traded funds. So, even if you are investing using these petty amounts you are an investor.

Type of investor

The type or category of investors you belong to is important when it comes to filing your tax for that particular year. A day trader or a pattern day trader is someone who can trade four times or even five times during a five-day period. The number of day trade is usually higher than 6% of the total trading activity taking place during that period. Moreover, a person can also be termed as a day trader if he is classified as a day trader by the broker and this happens in the case of distinct capital and margin requirements.

However, filing of taxes is going to be challenging even if you are a casual investor or a day trader. This is due to the heavy paperwork that is involved in the process of tax filing. But, if you have maintained your records then with electronic methods; tax filing should not pose as a threat for you.

Category of transactions

This is another simple method by which you can determine whether you are an individual investor or not. This is to think about the type of transactions you have done during the entire year.

For instance, you have sold some shares of stock and that will generate some gain or loss. This gain or loss will have to be reflected while filing the taxes. So, this clearly states you are an individual investor.

Hence, when you answer a few simple questions and analyze them it is easy for you to determine if you are an individual investor or not. While filing your taxes, you report about your transactions in Form 8949 whereas Schedule D covers the profits and losses.

What to do if you haven’t filed your taxes in the US?

by Mounica Kota | Jan 11, 2020 | global income tax, Tax Exception, tax filing, Tax Liabilities, Tax Payers, Tax Planning, Tax Refund, tax return, tax savings, taxes

What to do if you haven’t filed your taxes in the US?

There can be an array of reasons for taxpayers not to file their taxes in the US. For starters, an individual might not have filed their taxes because they cannot pay their taxes. Or the more common reason is that individuals get consumed with life and work and cannot get things aligned to be able to file their taxes on time.

Irrespective of what your reason maybe, it is essential that you file your taxes at the earliest. Simply because non-filing of taxes is a serious issue for the IRS. There are three straightforward outcomes when it comes to filing your taxes. Firstly, you do not owe any taxes to the government. Secondly, the government owes you tax refunds and thirdly, you owe taxes to the government.

While the first and second scenarios are still easy to live by, the third one can take a hefty toll on you. In the event that you owe taxes to the government, you are liable to pay fines and penalties on the top of the taxes that you are liable to pay. And things can get ugly, quite fast.

File your Tax Returns

For individuals who have not yet filed their taxes, they must start immediately. The first question that will come to your mind is, for how many years should I file my taxes. As per the IRS guidelines, you must file your taxes for at least 6 years to establish a good understanding with the IRS.

If there are any changes to the same, the IRS management will have to approve of the same. Depending on the situation, the IRS management can ask you for tax returns exceeding 6 years as well. Here are some of the common reasons for the same.

If there are relatively larger tax bills on your past filings. The absence of any withholdings for large wages, property taxes or Form 1099-Misc is red flags for the same.
The IRS would most probably do additional scrutiny if any businesses are involved since the possibility of non-compliance is higher.

Tips For Filing your Taxes

Citizens who have not filed their taxes and wish to do so, here are some tips that will help you get through.

It is essential to get a confirmation whether the IRS needs 6 years of taxes or beyond. You can either call the IRS to find out the same or reach out to a tax consultant for the same.
One more reason to file your taxes at the earliest is that the IRS will not pay older tax refunds. As per the IRS guidelines, it will pay refunds up to a maximum of 3 years from the date of filing. Thus, you might lose any refunds even if they are valid.
There is a good possibility that you might have to pay hefty fines on your taxes. The failure to pay and failure to file penalties can accrue up to 47.5% of your liable taxes.
The IRS usually starts a process called the substitute for return, if the due date exceeds three years. When you file your taxes, the IRS will compare your returns with the SFR (substitute for return). And this can be time consuming, sometimes these cases might take up to four months.
In the event you cannot pay your liable taxes, it is recommended that you reach out to the IRS and ask for an agreement. Depending on your needs, there are several typesof agreements that you can opt for.

Irrespective of your reasons, if you haven’t filed your returns, you must initiate the same at the earliest to minimize its impacts.

Reference:

https://www.hrblock.com/tax-center/irs/audits-and-tax-notices/get-back-track-irs-havent-filed-one-returns/

https://twocents.lifehacker.com/what-to-do-if-you-havent-filed-your-taxes-in-years-1803756859

https://www.irs.gov/taxtopics/tc153

Can You File Your Taxes In The US Without A Social Security Number?

by Mounica Kota | Dec 30, 2019 | EITC, global income tax, IRS, ITIN, SSN, Tax Payers, Tax Planning, Tax Refund, taxes, W-7 Form

Can You File Your Taxes In The US Without A Social Security Number?

Citizens of the US use their Social Security Number as identification when it comes to doing their taxes. However, there are a lot of citizens from other places who do not qualify for SSN, yet earn in the country and are liable to pay taxes. If you are one such citizen, you can use the Individual Taxpayer Identification Number or ITIN to file your taxes instead of SSN.

ITIN’s Capabilities

The ITIN is designed only to help citizens without an SSN the capability to file taxes and nothing else. The IRS clarifies that the ITIN cannot be used as:

An authorization to work in the US
Qualification for SSN or other tax credits such as Earned Income Tax Credit (EITC)
A stimulus to impact your immigration status

Who Needs an ITIN?

Anyone who needs to file their taxes and does not have an SSN can apply for ITIN. If you have a dependent and want to claim them in your tax returns and they do not have an SSN, you would need to get an ITIN for them as well.

As per the IRS, resident and non-resident aliens can get ITIN irrespective of what their immigration status is. An easy way to understand is that you would need an ITIN if you need to file your taxes. This is applicable even if you stay in another country.

How To Apply For ITIN?

Getting your ITIN isn’t all that complicated. To apply for ITIN, you need to submit Form W-7 to the IRS. You can either submit the form by mailing it to the IRS or schedule an appointment if you need any helpwith the forms.

To fill the application form, you would need certain basic details such as name, birthdate and mailing address. You would have to mention your US visa number should you have. Also, the form requires you to mention the reason why you want to apply for ITIN.

Expiry of ITIN

An issued ITIN can expire if it has not been used. If you obtain an ITIN and do not use the same for a period of three years, the ITIN will expire on the 31^st of December 2019. ITIN that were issued before the year 2013 would also expire on the 31^st of December 2019. The middle digits for the ITIN in such cases would be 83 and 84. For example, you ITIN could look like (9XX-83-XXXX).

Renewal of ITIN

In the event your ITIN expires, you do not have to worry about filing your taxes. You can always renew the ITIN using the following measures. You must fill up Form W-7 along with an application form for ITIN. While you are required to submit the required documents, you do not have to submit a tax return in the case of renewal. Unless there is a filing requirement, you do not have to submit your tax returns. If your family members were issued ITINs, you must submit their W-7 forms at the same time.

The renewal process of ITIN is a bit similar to getting a new one. You can use any of the following methods.

Mail the forms to the IRS at:

Internal Revenue Service

Austin Service Center

ITIN Operation

P.O. Box 149342

Austin, TX 78714-9342

Schedule an appointment with the IRS Taxpayer Assistance Center.
Apply for an ITIN in person at any Certifying Acceptance Agent that is authorized by the IRS.

You can file your taxes in the US even if you do not have a Social Security Number. You can apply for ITIN using the methods mentioned above and file your taxes.

Reference:

https://www.taxslayer.com/blog/how-to-file-taxes-without-a-social-security-number/

https://www.irs.gov/credits-deductions/individuals/how-do-i-renew-my-itin