Understanding the New 2019 Federal Income Tax Brackets And Rates

by Mounica Kota | 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 1^st 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

by Mounica Kota | 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.

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

by Mounica Kota | 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.

Phase out limits for Adoption credit

by Mounica Kota | 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.

by Mounica Kota | 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

by Mounica Kota | 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.

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