How Much To Save Up For Your Retirement In The US?

How Much To Save Up For Your Retirement In The US?

by | Dec 27, 2019 | income tax, NRI, tax deductions, Tax Extension, tax filing, Tax Planning, Tax Preparation, Tax Refund, tax savings, Taxation

How Much To Save Up For Your Retirement In The US?

A lot of us look up to retirement so that we can hang our boots and finally relax or take a break from all the running around. However, how well your retirement goes depends on a few important factors. The quintessential one being how much you save for your retirement.

Should you plan your retirement well in advance and align your savings and investments accordingly, the chances are high you will have a stress-free retirement phase. To aid you in the entire process of making your retirement a much happier place, here are some tips.

The amount that you need to put away for your retirement depends on the following factors.

  • Your age when you start investing for your retirement.
  • Your paycheck when you decide to save for your retirement.
  • The age at which you wish to retire.
  • The returns that you are expecting on your investments.

There is a simple correlation when it comes to saving for your retirement. When you start saving for your retirement early, you will end up setting aside a smaller chunk of the salary. And the reserve also holds good. The later you start, you must invest a larger chunk of your paycheck towards your retirement.

How Much Is Enough For Retirement?

Your lifestyle plays a crucial role in deciding the amount of money you would need for your retirement. If you wish to retire at 60 years and expect to live for another 30 years, you will need enough money to support you through that entire duration. You should consider the needs along with wants as well. A simple monthly budget will help you understand the amount. But unexpected medical expenses are something that you must also consider.

Estimating Your Requirements

There are several online calculators that you can use to estimate the amount you must set aside for retirement. As a general rule of thumb, when you are 35 years old, you would need to save about 1 to 4 times your annual income for your retirement. Similarly, when you are 50, the savings must be at 5 to 10 times your annual income. You can reach out to a trusted financial advisor if you need details on specifics.

Optimize Your Income Taxes

There are different ways to fund your retirement. Once you start optimizing your income taxes, you will find additional room for savings for retirement. Here are a couple of ways to do the same.

  • Withholdings

A lot of taxpayers withhold a lower amount from their taxes while declaring their W-4 Form. Eventually, the IRS refunds the amount at the end of the tax season. Should you opt to withhold exactly as much taxes as you owe, you will end up with some savings. You can then invest this additional amount into a tax-deferred retirement plan. Thus, do not forget to update your W-4 if there is any change in your filing status, income, employment, etc.

  • Refunds

And should you decide not to alter your withholdings, you can expect a refund from the IRS at the end of the tax season. You can use this refunded amount to fund your retirement. Depending on the amount that you receive, you can either put the entire amount into a tax-deferred investment account or a portion of it. If the refund is a considerable amount, you can opt to use only a portion of it.

Start saving for your retirement at the earliest and you will have to put away a smaller amount every month. This will give you a head start and the possibility of saving a higher amount as well.

Reference:

https://www.taxslayer.com/blog/how-much-do-i-need-to-save-to-retire/

Is lottery/gambling winnings taxed for an NRI in the US?

Is lottery/gambling winnings taxed for an NRI in the US?

by | Dec 21, 2019 | NRI, tax deductions, tax filing, Tax Liabilities, Tax Planning, Tax Preparation, Tax Refund, taxes

Is lottery/gambling winnings taxed for an NRI in the US?

It is hope that gets us to buy another lottery ticket or head out to a casino. Is Lottery taxes for an NRI in the US The hope that we might win the next lottery or hit the jackpot. If you have won either of them, first of all,congratulations. Before you start planning how to spend the amount, here is something that you must consider, taxes. The winning amount is taxable,but you choose how you wish to get the winning amount.

You can either opt for a lump-sum payout or as an annuity. Taxpayers usually have 60 days to decide the method and it has an impact on the taxes that you must pay to the IRS. If you have not won a lottery or winnings, it still might be a good idea to be aware of the tax implications. Here is all that you need to know.

Lump-Sum or Annuity?

Each method has its pros and cons. Should you opt for the payout as an annuity, you will be placed in a lower tax bracket and a fewer amount of taxes. The only caveat being, the taxes might go up in the future since you do not have any control over it. If the winning is relatively lower, you can opt for the annuity method.

Taxpayers who have won millions, taking the payout as a lump sum is a better option. While it might take a decent chunk of your winnings, you still getthe remaining money at a single shot. If you opt for an annuity, the lottery will pay only 4.5% of the total earnings per year. It will take a long time to recover the entire amount. It is recommended that taxpayers who take the lump sum reach out to a financial advisor to help them with the winnings. Putting the winnings at the right places will ensure you do not spend a lot of it rather earn more from it.

Taxes on Both the Methods

Should you go ahead with a lump sum payout, 25% of the total earning is withheld before making the payment to you. This amount is not the actual taxes that you owe to the government. Once you file Form W-2G, your total liable taxes will be calculated. And you will get to know the total taxes that you owe to the government in April.

And for the annuity method, each installment is taxed as they are handed over to you. Similar to lump sum payout, this is not the actual amount of taxes. Only when you file your Form W-2G, you will get to know the total amount of taxes that you owe to the government.

Depending on the state that you live in, you might have to pay state taxes as well. You must only pay federal taxes and no state taxes if you live in Florida, South Dakota, Texas, Tennessee, Alaska, New Hampshire, California, Nevada, Wyoming, Pennsylvania or Washington.

Minimize Your Tax liabilities

There are a couple of steps that you can take to reduce your tax liability when it comes to earnings from a lottery or gambling. For starters, you can donate some of your earnings to charity. You can then itemize your deductions and reduce your liability.

Alternatively, you can gift a portion of the earning to friends and family. As per the law, you can gift up to $15,000 per person before the gift taxes come into the picture. And lastly, you can create a trust and put your money in it, which will reduce estate taxes should anything happen to you.

Knowing the tax liability for lottery or gambling will ensure that you do not get a surprise in April during the filing of taxes. Being aware will help you better plan your taxes.

Reference:

https://www.taxslayer.com/blog/winning-lottery-taxes/

https://blog.turbotax.intuit.com/income-and-investments/how-are-gambling-winnings-taxed-8891/

Top 10 Tax Refund Takeaways From 2019

Top 10 Tax Refund Takeaways From 2019

by | Dec 15, 2019 | 401(k), capital gains, IRA, Tax Extension, Tax Liabilities, Tax Payers, Tax Planning, tax return, Taxation, taxes

Top 10 Tax Refund Takeaways From 2019

As winters approach, Tax Refund Takeaways 2019, taxpayers across the country have even less time to plan for their taxes. In no time Spring will be looming and you do not want to be caught in the crosswinds. This festival season, you can set aside some of your time and plan for your taxes, if you haven’t already done this. It is to ensure that your tax liability is low and that you have a better chance at a higher tax refund. Here are the top 10 takeaways considering the proposed changes in taxes in 2019.

1.401(k) and HSA

You can contribute towards traditional IRAs up to the 15th of April of next year. However, you will miss out on the provisions for 401(k) and Health Savings Account if you do not make any contributions till the 31st of December. Taxpayers can deductions up to $7,000 for contributions towards health insurance plans.

2.Delay Your Mutual Fund Purchase

If you wish to buy mutual funds during this time of the year, you might want to rethink the decision. Especially if you want to hold them in a taxable account. The problem with buying at this time is that you would have to pay taxes on the year end dividends. This is applicable even if you just purchased the shares.

3.Capital Loss Harvesting

Should you own any stocks that are at a loss, you can sell them and deduct up to $3,000 on the federal taxes that you owe. The only thing that you need to be careful about is that you do not violate the wash-sale rule. According to the rule, you cannot purchase the exact same stock or something substantially similar within 30 days of selling the stocks.

4.Opportunity Funds

You have the option to defer paying capital gains tax if you choose to reinvest in Qualified Opportunity Funds. The Tax Cuts and Jobs Act of 2017 brought the Opportunity Funds into existence. The fund aims at creating jobs and opportunities in communities that are distressed.

5.Charity

On reaching the age of 70 ½ years, senior citizens must take minimum distribution if they have 401(k) or IRA. If you do not need the amount for living, you can send it to a charity. Essentially it is a check issued by the IRA to the charity.

6.Traditional To Roth IRA

Any amount that you withdraw on retirement from a traditional IRAs taxable but any distribution from Roth IRA is fax-free. Roth IRAs also do not have minimum requirements, which can be beneficial to reduce your taxes. You can convert your traditional IRA to Roth IRA, but you need to be cognizant of the fact that the converted amount can be taxed.

7.Opt For Capital Gains Tax

If you belong to the 10% or 12% tax bracket, you can consider selling your stocks that are in green. You can sell stocks that have seen significant appreciation as you do not have to pay any capital gain taxes for the mentioned brackets.

8.Charity

You can club your charitable contributions together for more effective tax planning. You can club your contributions for two years and file in a single year. This will allow you to claim itemized deductions for alternate years.

9.Flexible Spending Account

You cannot carry forward any balance that is in a flexible spending account. It might be a good idea to put the amount to use before it expires.

10.Tax Advisor Services

To maximize your tax refunds, reaching out to tax advisor might be a good idea. And the earlier you meet, the better chances you have of getting a good advisor and good refunds.

Knowing the basics of taxation and ways to reduce liability is helpful in the long run and something that all tax payers must be aware of.

Reference:

https://money.usnews.com/money/personal-finance/taxes/articles/10-year-end-tax-tips

 

 

When Can I Get A Natural Disaster Tax Deduction?

When Can I Get A Natural Disaster Tax Deduction?

by | Dec 12, 2019 | global income tax, tax deductions, Tax Extension, tax filing, Tax Planning, tax reduction, tax return

When Can I Get A Natural Disaster Tax Deduction?

Can I Get A  Tax Deduction? Natural disasters can cause and leave behind severe damage, once they are done. Hurricanes in recent times have done a lot of damages for individuals and communities. And the official season for hurricane stars from June to November. Thus, it is important that you prepare for the same even if you stay in an area, that is not known for hurricanes.

In the event that you have incurred some loss from a hurricane or any other natural disaster for that matter, you can write off some damages on your tax returns. This includes disasters such as earthquakes, floods, fire, etc.

How To Prepare For A Natural Disaster?

It is very difficult to prepare yourself for a natural disaster. However, there are a few precautionary steps that you can follow to maximize protection against it.

  • Know the Storm

It is essential that you stay on the top of the storm. Not literally. But being aware of the category, the direction in which it is headed, whether you should vacate your home or not, etc. will be helpful.

  • Create an Emergency Plan

You can start with creating a supplies kit for the disaster. This can contain stuff like any prescribed medications, blankets, flashlights, pillows and any other essentials. As a part of the emergency plan, you can decide on a general meeting place in the event of an emergency.

  • Secure Your Documents

Ensure that all your essential documents are kept in a box that is weatherproof. You can also make a copy of all the documents and keep them in a separate location. Consider creating a digital copy of the second set.

  • Protecting Your Home

You can carry out a few simple steps to reduce the amount of damage caused by a storm. For example, you can install storm shutters or replace your roof or make minor adjustments to protect your house against storms. You can also take pictures of your house so that you have documented how it looked before the damage to show it to the insurance company.

  • Quick check on your finances and insurance

Take a quick look at your emergency fund and decide if it’s enough. If it is not you can set aside anadditional amount till the disaster. You can also check your insurance if it covers natural disasters such as flood fire. If it does not,you can make minor adjustments.

What Disasters Would Qualify For Tax Deduction?

As per the Tax Cuts and Jobs Act,you can write off only disasters that have been declared federally.For example, hurricane Harvey in 2017 and the California wildfires were federally declared disasters. If your tax records come under the disaster area as per the federal records,you are eligible for the benefits. As an affected taxpayer you’re eligible for these unique benefits. And it is not limited only to individuals as sole proprietors, business entities and business owners can also benefit from it.

Are There Any Special Rules For The Affected Taxpayers?

Yes. Here are some of the special rules for the affected taxpayers.

  • Access To Retirement Accounts

You can withdraw up to $100,000 from your retirement account to pay for damages.

  • Deductions

In the case of an official disaster, you can deduct $100 from the total damage caused. And then you can deduct up to 10% of your adjusted gross income.

  • Tax Filing Extension

For natural disasters, the government might allow for an extension of the tax filing deadline, beyond the standard 6 months extension.

Natural disasters can be very difficult. With the above, you can reduce your recovery duration by a small margin.

 

 

 

 

 

Buying A House In The US? Know The Tax Implications For The Same

Buying A House In The US? Know The Tax Implications For The Same

by | Dec 9, 2019 | income tax, Tax Break, tax deductions, tax filing, Tax Liabilities, Tax Planning, Tax Preparation, Tax Refund

Buying A House In The US? Know The Tax Implications For The Same

Buying your own house is one of the major milestones during a lifetime. Each buyer has a different reason to buy a house, but there is one aspect that everyone benefits from. It’s the taxes. On buying a house, you can get tax breaks which will help you reduce your tax liability.Being aware of the nitty-gritty and details will help you make the most out of these. Whether you already have bought a house or are planning to buy one, here are the tax implications that you must know.

Mortgage Payments Are Tax Deductible

Once you buy a house and start paying the mortgage, a portion of it goes towards paying the interests and a portion towards the principal amount. You might have to pay property taxes and insurance premiums to your mortgage provider as well. And when the time comes, they will pay it to the respective entity on your behalf.

As a general practice, you can take a deduction on the amount that you pay as an interest to your bank or lender for the mortgage. Also, you can deduct the amount paid as property tax to the lender in your tax returns as well.

However, a change in the rule now puts a cap on the amount that you can deduct as state or federal taxes, which includes property taxes from your returns. Post the amendment, you can deduct up to $10,000 only for property, income or sales tax.

Mortgage Insurance Premiums

Homebuyers who pay less than 20% as the down payment for their homes, may have to take the Private Mortgage Insurance. This cover is essentially recommended by the lender since they want to get coverage in the case of any default. You can utilize this insurance premium for a deduction, provided you itemize your deductions and the insurance was bought post 2006.

Taxpayers whose Adjusted Gross Income exceeds $100,000 would be subject to phasing out of deductions. As part of phase-out, a taxpayer must deduct 10% of the insurance premium paid for every $1,000 that exceeds $100,000. And the deduction is not applicable for taxpayers who have an AGI above $109,000.

Another important aspect to understand is that though standard deduction might be the easy way out, they do not offer a lot of benefits. Only when you itemize your deductions can you maximize your deductions. Here are the standard deductions just for your reference.

Filing Status Deduction
Single/Married filing separately $12,000
Head of a household $18,000
Qualifying widow(er) with a dependent child/Married filing jointly $24,000

Buying A House For Tax Benefits

Given the tax benefits of buying a home, few taxpayers choose to buy a house just for the tax benefits. If you are planning for such a purchase, it is essential to be cognizant of a few things first. For starters, irrespective of how much tax benefits you receive, it does not make a lot of sense to overbuy a house. By overbuy, we mean buying a house that is completely out of your budget, so as to get tax benefits.

Sticking to a budget is important since you should be able to pay off the installments comfortable without adding a lot of financial stress on yourself. Once you plan and buy a house within your budget, the deductions come as a bonus and should not be treated as a primary reason.

If you have decided to buy a house in the US, you must consider the above tax implications and take a decision accordingly. And most important look at the economic side of things as well before signing the documents.

Reference:

https://blog.taxact.com/homeownership-tax-breaks/