How is the Rental Income from Foreign Country taxes in US?

How is the Rental Income from Foreign Country taxes in US?

by | Mar 20, 2019 | IRS, tax filing, Tax Planning, Tax Preparation

How is the Rental Income from Foreign Country taxes in the US?

The possibility is quite high that you might decide to invest in a home or other property type while staying in the USA. The tax implications of such earnings vary from country to country. For instance, a foreign country taxes have a minimum threshold in place.

Only if your income exceeds the threshold, are you expected to pay taxes on the same, however, if you are staying in the USA and the property or house generates some income, you need to consider both the countries.

You will have to look after the tax ramifications in the country where you have bought the property as well as the USA.

Classification of Foreign Property

Before we get started with the tax implications, it is important to understand the different classifications of rental properties. It would help you identify which tax treatment category you belong to.

As a rule of thumb, you would need to report any income that you earn outside of the USA, be it rental, dividends, interests etc. The USA has different thresholds for rental properties, depending on the duration for which the property was rented. The following table will help you better understand the same.

Your usage Rented duration Applicable Taxes
Nil Anywhere between 0 to 365 days Regular rental taxes are applicable
More than 15 days Less than 15 days Not required to report on the tax return
Less than 10% of the number of days it was rented for or 15 days More than 15 days Taxes on rental property and a vacation home are applicable
More than 10% of the number of days it was rented for or 14 days More than 15 days Taxes on a vacation home and secondary residence are applicable

Reporting Your Income

The IRS expects you to file your rental income in a foreign country just as you would do for a property in the USA. Though there are a few exceptions.

  • You would first need to calculate the total income for a fiscal year due to the rental property(s).
  • You then have to convert the amount into USD.
  • The IRS’s website has a link to Foreign Currency and Currency Exchange Rates, you can refer to this page for exchange rates.
  • The rental expenses can include:
    • Any repair expenses
    • Foreign local taxes
    • A mortgage interest that you pay in a foreign country
    • Travel related expenses if you have to inspect your property
    • Any fees pertaining to the management of the property
  • One of the major differences is in the form of depreciable cost of the building portion that you own. It must take place over a period of 40 years.
  • In the event that you have to pay taxes on your foreign income in the native country, you can seek for offsets in your tax returns.
  • In your tax returns, you can mention the income and the tax deducted for the same which will help you avoid double taxation on the income.
  • Again, it largely depends on the understanding and double taxation agreement between the USA and the country where your property exists.
  • Apart from the above, you might have to file for FBAR, if you have set up a bank account in a foreign country to receive the payment for the rental property.
  • You might even have to file Form 8938 if the rental property is owned as a part of partnership, corporation or trust.

If you have any form of rental income from a foreign country, do not forget to report the same in your tax returns.

5 Tax Benefits you should claim if you OWN A VEHICLE

5 Tax Benefits you should claim if you OWN A VEHICLE

by | Mar 18, 2019 | Tax Planning, Tax Preparation, tax return, taxes

5 Tax Benefits you should claim if you OWN A VEHICLE

Tax Benefits of vehicle and driving are imperative for Americans to get to their workplaces.

You own a vehicle, then you must be aware of the tax deductions and write-offs you can do at the time of filing for tax returns.

When you own a car

  • oil
  • Gas
  • Repairs
  • Licenses
  • Insurance
  • Parking

If you are travelling more than 50 miles away for a job, then the miles travelled can be deducted. However, driving your car for any personal reasons, commuting to and from work, certain meagre tasks by employers like picking up mails on the way etc. are not eligible for any claims.

  1. If you are driving a car for any volunteer work, then definitely you can claim the gas & mileage for driving to and from the place along with the parking charges & other tolls.
  2. If you are driving a car for employers with commuter benefits program, then there are benefits available to you in the form of transit passes that include tokens, fare cards or vouchers for mass transit, Vanpooling, parking charges etc.
  3. If you are driving a car fora business like a food truck or a mobile travelling photo studio or a mobile car-wash etc. then you can claim expenses as well.

When you own SUVs or trucks

  • If you are self-employed& you purchase an SUV or a truck, then the entire purchase price can be written-off during filing for tax returns.
  • You can also apply the bonus depreciation deduction for the vehicle while paying taxes.

While discussing tax write-offs on auto expenses, there are two major methods to be listed down.

Mileage method

In this method, your total business mileage covered by the vehicle is multiplied with the Standard Mileage Rate (SMR) which is fixed by the IRS to obtain the deduction. Different rates are set by IRS for categories like vehicles for medical or other moving purposes, vehicles used for charity purposes etc.

Actual Expenses method

Here, we sum up the total cost spent in the operation of the vehicle and then multiply it with the percentage of business use of the vehicle. While we calculate the total operation cost of the vehicle, we can include gas expenses, Insurance expenses, Maintenance expenditure, Licensing, Registration fees, Vehicle depreciation value (i.e. the depreciation value applicable to the business use of a vehicle) etc.

However, both of these methods produce different results each year. So, it is generally advisable to follow the Mileage method in the first year of purchase of the vehicle and later on, you can calculate the tax deductions yielding from both the methods & chose the one with larger deductions.

Hence to summarize, the major 5 tax benefits you can claim if you are the owner of a vehicle are:-

  1. The entire vehicle’s purchase price can be written off while filing for tax return if you have bought a new SUV or truck by the end of 2017, specifically, the vehicle should be above 6000 pounds.
  2. The depreciation deduction for a new SUV or a truck depends on the amount of time it has been used for business purposes. Suppose, an SUV has been purchased for $80,000 and has been used 90% for business activities then the deduction will be around $74000.
  3. If a car has been bought by the end of the year 2017 & the registration fees have been paid by the last day of the year, then the registration fees are deductible. Also, the sales tax on the purchase is deductible if you are going to use the vehicle for business purposes.
  4. Having a home office is an additional advantage for entrepreneurs while calculating tax deductions. If you are using a vehicle for business & you have a home office, then the percentage for which vehicle is used for business is increased &a major part of the automobile expenses of the owner are deductible.
  5. If you have purchased a passenger car towards the last 3 months of 2017, and you are using it 90% for business purposes, then you can file for a deduction of up to $11,160 of the purchase price.
How is the Interest Income from NRE and NRO accounts taxed in US?

How is the Interest Income from NRE and NRO accounts taxed in US?

by | Mar 15, 2019 | NRE, NRO, Tax Extension, Tax Planning, Tax Preparation, taxes

How is the Interest Income from NRE and NRO accounts taxed in the US?

For NRIs who have shifted to the United States of America, there are usually two options when it comes to keeping their bank accounts active. They can either convert them into NRE or NRO accounts. Needless to say, your money in either of these accounts earns interest over a period of time. Thus, the first and foremost question that would crop into the mind of anyone is, whether or not this income is taxable. If yes, how to go about the same? Here are some easy steps that you can follow to ensure easy compliance and avoid being labelled as a tax evader.

Calculate Income

Income generated from any of the following means would qualify to be taxed in the United States of America.
  • Interest earned on NRE accounts.
  • Interest earned on NRO accounts.
  • Interest earned on NRE FD accounts.
  • Interest earned on NRO FD accounts.
  • Income generated from Mutual Funds in India, including any SIP’s (Systematic Investment Plan) that you might have.
You are liable to pay taxes on the above counts if you belong to any one of the following categories.
  • A holder of Green Card.
  • A Legal resident i.e. working on either an H1B, L1B, H4 EAD or any other work permits in the USA.
  • You are a PIO.
  • You are an OCI.

Dollar Amount Calculation

Once you have identified the income that might be taxed in the USA, it is now important to convert the same into dollars. The IRS publishes exchange treasury rates in the year-end. You can use these exchange rates to calculate your Indian income in dollars.

Taxes in India

If you hold an NRE account, you can breathe easy since Indian tax laws do not levy any taxes on the interests earned. Thus, banks will not deduct any amount from the interest earned. However, the interests earned on an NRO account is taxable at 30% along with applicable taxes.

Form 1040

To file your taxes in the USA, you need to fill Form 1040 and file it. You can either file your taxes on your own or take the help of professional services to do the same. The important thing to keep in mind during such transactions is to fill the Schedule B on your Form 1040. This includes the income that you have earned in India. You need to find out the total amount of tax (TDS in India) that banks have deducted from your accounts. Banks usually send a Form 16 in India which collates all this information.

Do Indian Banks Issue Form 1099-NT?

None of the Indian bank’s issue Form 1099-NT for the interest earned on your NRE or NRO accounts. Thus, you diligently have to file the information correctly in your Form 1040. As a matter of fact, none of the banks in the USA also issue Form 1099-NT, unless the interests earned is more than $10.

Do I have to Pay Taxes In the USA for the interests earned?

The simple answer is yes. You would need to pay taxes on the interests earned on your NRE or NRO accounts. Yet, if your bank has already deducted TDS from your account in India, you can claim the amount. You would need to declare that you have paid taxes to the Indian Government in your tax returns. If you wish to know the amount of interest that you have earned in your respective bank accounts, you should ask for bank statements. Indian banks usually credit interests once every quarter.
Haven’t filed taxes in the last 10 years? Start today

Haven’t filed taxes in the last 10 years? Start today

by | Mar 14, 2019 | tax filing, Tax Payers, Tax Planning, Tax Preparation, tax return

Haven’t filed taxes in the last 10 years? Start today

There can be a myriad of reasons why one hasn’t filed taxes. One could have forgotten to file their taxes, there was a death in the family which caused the delay, or you were seriously ill. Irrespective of what the reasons were, it is never too late.

In fact, every year about 7 million taxpayers fail to file their income taxes returns. Yet, there are more than 146 million Americans who do file their returns year on year. In other words, about 5% of the total population fails to file their returns.

If you haven’t filed your taxes, it is high time that you start doing the same immediately. The consequences of going for several years without paying taxes can be hazardous to your finances. It gives the IRS enough reasons to flex their muscles.

What if you haven’t filed taxes in the last 10 years? Well, there is a statement in the IRS policy. According to the statement, the IRS usually looks for tax records dating to six years in the past. However, if you haven’t paid taxes in about 10 years and want to start now, here are some tips to help you through.

  • Unfiled Years

You can either directly reach out to the IRS or take the help of a tax agent to find out the number of years for which you need to file taxes. The unfiled years is the first crucial step.

  • Old Refunds

This is one of the first steps where you start losing money. The IRS will only honour refunds dating back to three years from the current return filed date. If you had any returns prior to this period, the amount is lost.

  • Transcripts

While filing your taxes or even returns, it is important that the number matches with that of the IRS. You can take the help of transcripts from the IRS to trace your income history as accurately as possible.

The next logical step would be to file the taxes for the income mentioned in the transcripts. Any mismatch would allow IRS to dig deeper into your filing.

  • Penalties

In the event that you haven’t filed or paid taxes in quite some time, be ready to cough out hefty fines. Penalties such as failure to pay taxes and failure to file taxes can amount up to 47.5% of the total taxes that you are liable to pay.

Thus, if you haven’t filed your taxes yet, the sooner you start, the better it is.

  • Penalty Reduction

While back filing your taxes and returns, you have an option to ask the IRS not to charge you on the failure to pay or failure to file charges. If you qualify for the first-time abatement, use it for the first year.

Or else, you can use the reasonable cause argument and seek discounts or reduction of the pending taxes.

  • SFR

If you fail to file your returns within three years of the due date, the IRS might start a process called SFR or substitute for return. And should you file to return or replace the SFR, the IRS will look into it closely and compare with their SFR. And it is this close scrutiny which leads to a much longer turn around time. At times, it might even take more than 4 months.

  • Settlement

If you feel that you cannot pay the pending taxes, it is advisable to reach out to the IRS and strike a settlement with them. Depending on your needs, there are several types of settlements that you can choose from.

But it is important to settle if you cannot pay. The simple reason being, the second wave of enforcement and fines will follow.

Should you delay the filing process, you have more to lose than gain. With the help of the above tips, you can start your tax filing.

5 Tax Benefits you should claim if you use ENERGY SAVING EQUIPMENT

5 Tax Benefits you should claim if you use ENERGY SAVING EQUIPMENT

by | Mar 14, 2019 | tax filing, Tax Payers, Tax Planning, Tax Preparation, Taxation

5 Tax Benefits you should claim if you use ENERGY SAVING EQUIPMENT

U.S 5 Tax benefits for the second largest single consumer of energy in the world and about half of the total energy consumed in the U.S is used by the residential sectors which include apartments, independent houses, dormitories etc.

Under the Energy Star program since 1996, the U.S. Government provides tax credits to owners who install energy-saving equipment in their houses. This energy saving equipment help in energy conservation resulting in lowering the dependence of the country on foreign oil reduces national expenditure & also provides a healthy environment.

By using these tax credits, taxpayers can file for deductions in the annual tax returns which in turn reduces the federal taxes to be paid.

Equipment which qualifies for Energy Tax credits are:-

Central air conditioning

Energy Star qualified geothermal heat pumps.

Solar panels or solar water heaters.

Biomass stoves.

Non-solar water heaters operating on gas, propane or electricity.

Small Wind turbines.

HVAC Air Circulating Fan.

Electric Heat Pump water heater.

Gas Furnaces.

The major 5 tax benefits you can claim if you are using Energy saving equipment are given below:-

1(A)For Central Air Conditioning systems

  1. A tax credit of $300 is given for split systems with SEER >= 16 and EER>=13.
  2. For Packaged air conditioning products, the qualifying efficiency levels are SEER >=14 and EER>=12.

(B) For HVAC Air CirculatingFans – a Tax credit of $50 is applicable for the fans that use less than 2% of the furnace’s energy.

2(A) For Energy Star qualified geothermal heat pumps

1.A tax credit of 30% of the cost of the product is available for geothermal heat pumps.

2.These geothermal heat pumps use the natural heat from the ground to provide heating &cooling effects and especially hot water.

3.All the Energy Star qualified geothermal heat pumps are eligible for tax credits.

(B) For Solar Panels or Solar Water Heaters

  1. Deduction of up to 10% of the cost i.e. up to $500 is applicable on Solar Water Heaters
  2. These panels absorb the energy from the sun and convert it to electricity whereas the solar water heaters also use solar energy to heat up water.

For Electric Heat Pump Water Heaters: – A tax credit of $300 is available for water heaters with Energy Factor>=2.

3(A) Biomass Stoves

1.A tax credit of $300 is available on biomass stoves.

2.These stoves burn the fuels derived from plants and are used for water heating purpose basically.

(B) Non-Solar water heaters

A tax credit of $300 is available for non-solar water heaters.

These water heaters operate on gas, propane or electricity and should have an energy factor of at least2 to be eligible for tax credit.

4(A) Roofs

1.Energy efficient roofs are eligible for a tax credit of up to 10% of the cost i.e. $500.

2.Energy Star certified roofs are eligible for these tax credits.

(B) Windows, Doors & Skylights

1.Energy efficient windows, doors and skylights, when used in homes, can maintain the cooling effect of the house during summers & will prevent heat loss during winters.

2.They are eligible for a cumulative tax credit of $500 i.e. a tax credit of up to 10% on the cost.

5(A) Insulation

1.Tax credits of up to 10% on the cost of the products used for insulation.

2.Those products which reduce air leaks can be used for insulation.

3.There are various insulation products like batts, spray foam insulations etc. which can be used as energy efficient insulating appliances.

However, all these tax credits can be availed if a copy of the manufacturer’s certification statement is present with the tax-payers and also the equipment satisfies the specifications & qualifying criteria.

5 Things that a COUPLE be mindful of when FILING TAXES

5 Things that a COUPLE be mindful of when FILING TAXES

by | Mar 13, 2019 | Deduction & Credits, Tax credits, Tax exemption, tax filing, Tax Planning, Tax Preparation

5 Things that a COUPLE be mindful of when FILING TAXES?

The decision to marry someone usually revolves around love and compatibility. Finance is an aspect that we don’t know usually bring into the equation. However, Filing Taxes is an aspect that ought to get additional attention, since it comes with tax implications.

You can be a smart couple and save thousands of dollars in a financial year by taking a few key decisions related to taxes. Here are the top 5 things that you need to be mindful of when filing taxes.

Filing Status

Of the many decisions that a new couple has must take, the first one comes down to choosing between the following filing types:

  • Married filing jointly
  • Married filing separately

Needless to say, each type has its pros and cons. Let’s assess the benefits of filing jointly first.

  • On filing together, couples can enjoy lower tax rates since their income is combined and then the taxes are calculated.
  • It brings in a sense of responsibility as well since both the individuals must sign the filing.
  • You get access to a wider range of benefits as per the tax codes.

However, there are a few scenarios and conditions where you would want to file separately. Such as:

  • If a spouse is involved with business and the other partner does not want to be involved with the same.
  • In the event that a spouse is expecting refunds, filing separately will not jeopardize the refunds as well.

Possibly Lower Taxes

As already mentioned in the above, couples filing jointly can benefit from lower tax rates due to the combination of income. Couples with varying income levels can benefit from it. However, the benefits just do not end with lower taxes. You can opt for several tax credits as well. Here is a couple of them.

  • Lifetime learning credit
  • Adoption expense credit

If one spouse itemizes their tax filing, the tax code considers the standard deduction of the other spouse as $0. This ensures that the couple together itemizes and does not miss out on deductions.

Gift Taxes Exemption

Another advantage of filing for taxes jointly comes in the form of gift taxes exclusion or exemption. Here is how it works.

  • Currently, the annual federal exclusion for gift taxes is $14,000 per spouse.
  • If you are filing jointly, you can combine this exclusion.
  • You can use this clause to strategically move assets to loved ones or between both of you.

Cap LessMarital Deduction

This is one of the most understated benefits of filing taxes together as a couple. Though none of the couple’s plans for this, it is good to have feature. Surviving spouses have access to the unlimited marital deduction which allows them to transfer assets to their name. This might not seem that significant early on but gains a lot of momentum as the year’s pass.

Tax Credit

The child tax credit is one of the most alluring credit systems for married couples who want to file jointly. Here are the benefits.

  • The IRS allows couples to reduce their net taxable income by $1,000 for every qualifying child.
  • Factors such as relationship, age, dependent status, residence, citizenship and support decide whether your child is qualifying or not.
  • You can claim the benefits if your child is less than 17 years old, lives with you for more than half of the year and is related to you either by blood, adoption or marriage.

Given the fact that in 2015, 141.2 million taxpayers declared earnings to the tune of $10.14 trillion as adjusted gross income, resulting in taxes worth $1.45 trillion, it is essential that you are aware of the above.