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/

Are Robo-Advisors Legal?

Are Robo-Advisors Legal?

by | Dec 6, 2019 | Blog, income tax, Investment & Income, tax savings

Are Robo-Advisors Legal?

Millennials are slowly and steadily becoming a demographic that industries are taking more seriously now. As a result, there are several products aimed at Millennials. The advent of Robo-Advisors is one such product. In simple words, Robo-Advisors is a digitized solution that helps an individual build their investment portfolio. To create a portfolio based on your risk appetite and financial goals, it considers several parameters.

What are Robo-Advisors?

Robo-Advisors are digital platforms that offer investors with automated investment options which are algorithm-driven. This requires little to no human supervision. Normally you would have to answer a set of questions, which will help the Robo-Advisors asses your risk appetite, goals and tolerance levels. The Robo-Advisors then use this data to offer advice and even automatically invest in certain assets.

If you are in the search for the best Robo-Advisors, you can expect easy setting up of an account, services related to your account, robust planning, management of your portfolio, education on investment and lower fees.

Pros of Robo-Advisors

There are no boundaries or restrictions which can stop you from investing on your own. However, it comes with its own set of challenges. For instance, you will have to do any rebalances in the assets to make the most of the situation, look into maximizing your returns while minimizing the taxes that you pay. All this can be quite overwhelming if you are new to the investment scene.

Even if you have been investing for some time now, allocating time for such decisions can be a challenge. This is where Robo-Advisors come into the picture. The automated systems will take care of such decisions and actions. A lot of the Robo-Advisors offer online materials in the form of calculators, blogs or videos. Some Robo-Advisors are known to send regular emails to clients and offer assurance even when the market doesn’t seem very positive.

Cons of Robo-Advisors

As an investor, it is crucial that you are aware of the fees that you are paying to different platforms or brokerages. Every dollar that you lose in fees is a dollar that you could have invested. The Robo-Advisors do come at a price. And they are almost always higher than investing either through a brokerage or investing directly. Yet, the fees are less than a dedicated advisor.And you might face some issues building a relationship with your advisor.

Legality of Robo-Advisors

The legal status of Robo-Advisors is the same as human advisors. To conduct business, the Robo-Advisors must first register with the U.S SEC or Securities and Exchange Commission. Thus, they are liable to the same laws that apply to human advisors. Once registered, they get the designation of Registered Investment Advisor.

Since Robo-Advisors are still in their early days, it is natural for investors to be wary of their investments or even proceeding with the idea of hiring a Robo-Advisor. This is where the SIPC or Securities Investor Protection Corporation comes into the picture. The SIPC offers protection of up to $500,000 should your brokerage firm decide to file for bankruptcy.

Secondly, it is important to understand that you are merely investing in different assets via Robo-Advisors. Robo-Advisors would invest in ETFs, Index Funds or even stocks on your behalf. And if they were to go out of business, you can still take over and manage these assets. You can move them to a new brokerage or another Robo-Advisor.

As an investor, it is recommended that you carry out some level of research before availing the services of Robo-Advisors. You can always check for reviews or reach out to friends and family members who have used the services.

Reference:

https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp

https://blog.taxact.com/robo-advisors-are-they-legitimate/

 

 

All You Need to Know About Tax-Deductions on Charity

by | Nov 30, 2019 | Charitable Deduction, income tax, Standard Deduction, tax filing, Tax Liabilities, taxes

All You Need to Know About Tax-Deductions on Charity

A lot of taxpayers plan to do charity by the end of the year or during the festival season. If you have any such plans, it is only natural to wonder how the new tax laws will have an impact on your donations or Tax Deductions on charity.

While donating to charities, it is essential to be cognizant of the organization that you are donating to. Since there are a lot of scammers who do not miss an opportunity to collect charity in the wake of a natural disaster.

Making donations towards a qualified non-profit organization is the right way to go. Thequalified non-profit organization includes groups that are educational, charitable, religious, literary or scientific. Or any organization that works towards reducing cruelty towards children and animals. The IRS provides enough information on their website regarding all the organizations that are qualified. So that your contributions are directed to the right resources.

Though there have been new tax laws, it doesn’t bring a lot of changes for charity. They are still tax-deductible. The new laws have made some changes to itemized deductions but with minor changes, charity remains tax-deductible. You can still contribute money towards charity or items as long as you itemize them.

Updates for Charitable Deductions

The following are the two major changes for charitable deductions.

  • The earlier law allowed taxpayers to claim up to 80% of donations towards a seasonal ticket for college as tax deductions. However, under the new law, you cannot make any such claims. This is applicable from the year 2018 onwards, or the filing year 2019.
  • The limits when it comes to cash contributions to public charities have been hiked from the current level of 50% to 60%.

Itemized Deductions and Standard Deductions

The new tax laws have increased the standard deduction limits and it might impact the way you claim or do not claim your donations towards charity. Though there is no direct correlation between them, the IRS believes taxpayers are more likely to take the standard deduction.

For 2019, the IRS has hiked the standard deduction to $12,200 for single taxpayers and $24, 400 for jointly filing taxpayers. Taxpayers who are the head of the family can claim up to $18,350 as a standard deduction. The thing which hasn’t changed is your decision to take the standard deductions or itemize your deductions. Of course, you still must assess which option gives you a better tax option.

As mentioned, predictions show that a lot more taxpayers will now have their standard deductions a bit higher than itemized deductions. Thereby, leaving them with the option to go with the standard deduction and not itemized deductions. Consider this, you are liable to $8,000 as state and local taxes, $5,000 as mortgage interest and have made charitable contributions of $2,000. If you are filing as a single taxpayer, these itemized deductions sum up to $15,000 which is higher than the standard deduction of $12,200.

However, taxpayers filing jointly have a higher buffer of $24,400 and are more like to take the standard deduction instead of itemizing their deductions.Taxpayers who are close to the upgraded standard deduction limits can choose to contribute towards a charity of their choice during the festival season and claim it under Itemized deductions.

There are a couple of benefits of doing the same. For starters, you will be bringing a positive impact in someone’s life during the festive season and boost your tax refunds at the same time.

While both the options are still available, a taxpayer must do a quick assessment as to which method saves the most amount of taxes for them.

Cancer Patient’s Tax Considerations for NRI’s In The US

Cancer Patient’s Tax Considerations for NRI’s In The US

by | Nov 24, 2019 | income tax, IRS, NRI, tax deductions, tax filing, Tax Liabilities, taxes

Cancer Patient’s Tax Considerations for NRI’s In The US

The diagnosis of cancer can be heartbreaking for an individual as well as the family. Getting adequate financial assistance during the time is one of the first things that would occur to an individual. While health insurance plans do cover some of the expenses, cancer patients have a lot of expenses that they must cater to. Cancer patients can reduce their tax liability with the help of substantial tax breaks, as they can deduct some of the expenses that they have paid from their pockets.

Eligibility

Taxpayers who use itemized deductions instead of standard deductions can still deduct medical expenses related to cancer. They can deduct expenses related to medical care, hospital stays, medication, diagnosis, provided that these expenses exceed 7.5% of their adjusted gross income (AGI).

Taxpayers can also claim mileage used for medical treatment at 20 cents per mile along with expenses related to attending seminars on education and diagnosis of cancer.

To deduct their health insurance, self-employed taxpayers don’t have to itemize deductions. They can directly deduct their health insurance premiums from their income.

How to Avail the Tax Break

According to the IRS, expenses that qualify for tax deductions under medical expenses include the cost of cure, cost of diagnostics, cost of treatment, cost of prevention, etc. Treatment for cancer is usually very expensive starting from chemotherapy to surgery. And your health insurance policy plays a crucial role in the amount that you can claim under the tax break.

For certain rare types of cancers, patients need to undergo special treatment such as mesothelioma. Travel is an integral part of such treatments and it might be considered for tax breaks.

The IRS lists out all the expenses that qualify for the tax break, which even includes the health insurance premiums which taxpayers pay with pre-tax dollars. To make it even more accessible, there are no restrictions on the mode of payment. You can pay for the care by cash, check or even credit card for the financial year that you want the tax deductions for.

For cancer patient’s tax considerations, there is one important thing that one must keep in mind. The IRS has increased the standard deduction for all the categories. The enhanced limit now stands at $12,200 for single taxpayers and $24,400 for taxpayers filing jointly. And the same for the head of a family is now $18,350.Thus, it still is at the hands of a taxpayer if they want to opt for standard deduction or itemized deductions. The usual condition where it makes sense to opt for an itemized deduction if it exceeds your standard deduction threshold.

When your itemized deductions exceed the standard deductions, you can benefit from the tax considerations for cancer patients. And medical expenses related to treatment or cure of cancer would go under the itemized deduction category, along with expenses such as state and property taxes, contributions to charity, interest paid on the mortgage, etc.

There is another condition that you must satisfy to avail of the benefits mentioned above. If you wish to itemize your deductions pertaining to medical expenses, you can do so only if it exceeds 7.5% of your AGI or adjusted gross income. For 2019, the limit is pushed further to 10% of the Adjusted Gross Income. For the year 2018, if someone had an AGI of $100,000, they would be eligible to deduct medical expenses, if the total expenses exceeded $7,500. The calculation is quite simple, 7.5% of AGI or $100,000, which deduces $7,500 as the threshold amount.Thus, you can claim the medical expenses and reduce your tax liability along with it.

Is Bonus Taxed For NRI’s In The US

Is Bonus Taxed For NRI’s In The US

by | Nov 18, 2019 | income tax, NRI, Tax Liabilities, Tax Planning, tax savings

Is Bonus Taxed For NRI’s In The US

It is essential for companies to keep their top-performing employees with them for a longer duration. One of the proven techniques for doing the same is to pay a bonus. It not only incentivizes employees but also boosts their motivation levels.

However, as an employee, it is only natural to wonder how you will be taxed on it. Is there a separate tax for the bonus? Is there any way to reduce your tax liability on a bonus?Here is all that you need to know about taxes on bonuses for NRIs in the US.

Are Bonuses categorized as supplemental wages?

It should not come as a surprise that the IRS goes to greater lengths to define different sources of income and tax them accordingly. Bonuses usually are put under the category of supplemental wages. Likewise, they are treated a bit differently from normal salary as far as withholding taxes during payout is concerned. Here are the two standard methods followed to withhold taxes from a bonus.

  • Aggregate Method

The aggregate method comes into the picture when your employer pays the bonus with one of your recent paychecks. Your employer then refers to the withholding tables by the IRS to determine the amount of taxes that must be withheld for both the amount together. Your employer would then take into consideration the amount withheld from your salary and withhold the remaining amount from the bonus.

  • Percentage Method

The percentage method is easier of both the methods. According to the percentage method, the bonus that you receive is subject to a flat supplemental rate of 25%.If you were to receive a bonus of $10,000 you would have to pay $2,500 as taxes to the IRS. Employers usually choose this method, since it is easier to implement and consumes less time as compared to the aggregate method. Also, the percentage method usually results in a smaller tax amount being deducted or withheld.

There might be instances where your bonus might push you to a higher tax bracket. Should you expect to make less in the next year, you can ask your employer to defer the bonus to the next year.

High End Bonuses

Few organizations are known to pay their employees with hefty high-end bonuses. These corporate bonuses can at times exceed the $ 1 million mark. How are taxes handled in such cases? These high-end bonuses attract much higher taxes as well. For NRI’s receiving more than $ 1 million in taxes, your employer will withhold a tax of 39.6% for the amount exceeding $ 1 million, on the top of the flat 25% tax using the percentage calculation method. Thus, for the hefty bonuses, taxpayers end up paying hefty taxes as well.

There are chances that your employer might withhold a higher amount of taxes from your bonus. Yet, you should not panic about the situation. Keep in mind that the taxes withheld are at a higher rate during the payout. But it would change later based on the actual taxes that are applicable to your income. The actual tax rate comes into the picture when you file for your taxes and there are chances that the tax rates can be lower due to lower taxable income after deductions.

Your taxable income plays an important role along with the tax rate, deductions and credits in determining how much taxes you will end up paying from your bonus. Proper tax planning can help you get back some of the taxes in the form of credits once you file your tax returns at the end of a financial year.

Most Important Year-End Tips To Increase Your Tax Refunds

Most Important Year-End Tips To Increase Your Tax Refunds

by | Nov 15, 2019 | income tax, Investment & Income, tax deductions, tax filing, Tax Liabilities, Tax Planning, Tax Refund, tax savings, taxes, Taxtips

Most Important Year-End Tips To Increase Your Tax Refunds

A quick look at the calendar and you will realize, this year has come to an end. And even before you realize, the tax season will be close. Instead of rushing during that time, you can take a few simple steps this holiday season to reduce your tax liabilities and increase your tax refunds. Most Important Year-End Tips To Increase Your Tax Refunds.

1.Retirement Planning

Planning for your retirement is a great way to add funds for your retirement and make handsome savings in the form of taxes for the current financial year. You can take the help of either traditional IRA or 401(k) to contribute to your retirement planning. Self-employed individuals can save up to 25% of their income under SEP IRA up to a maximum of $56,000 for the current year.

2.Upskilling

If you have been planning to take some classes to improve your skillset, this might be the best time to enroll. You can start with enrollment and make the payments for the next quarter by the 31st of December. This will help you get some valuable tax credits of up to $2,000 with the help of Lifetime Learning Credit.

3.FSA

Taxpayers who have FSA or Flexible Spending Account, it might be the right time to give your doctor a visit. While there is no hard and fast rule to use the FSA amount but there might not be a lot of benefits in keeping the amount as well. You can only carry forward $500 to the next year. The FSA plans usually allow subscribers to use these funds for up to 2 and a half months in the next year.

4.Charitable Donations

You can make this holiday season a little bit better for the people who are in need. If there are any unused household items or clothes, you can donate them to the less fortunate. Such donations can help you reduce your tax liability, provided you donate to qualified charitable organizations and if you itemize the items. Alternatively, if you volunteer for charitable organizations, you can claim the miles that you drove at 14 cents for each mile driven.

5.Shuffle your Investments

Some investments in your portfolio might not have performed as you expected them to. Investments that have gone down in their value can help you reduce your tax liabilities. You can use the loss to offset the gains that you have received from other investments. However, you must sell the loss-making investments to offset them with the profit-making ones. Should your losses exceed the profits, you can use up to $3,000 against your income.

6.Defer Any bonuses

Taxpayers expecting a year-end bonus for the hard work that they have put in, might find themselves in a spot. The bonus might push you to another tax bracket or increase your tax liability by a healthy margin. If you can, do speak with your boss to deter the bonus to January of next year. This way, you won’t have to taxes for the bonus in the current year.

7.Other Dependent Credit

Taxpayers supporting their grandparents or parents, or other loved ones can benefit from Other Dependent Credit. If they qualify to be non-child dependents, you can claim the Other Dependent Credit. You can claim up to $500 under this category and receive dollar by dollar reduction in your taxes.This tax credit is relatively new and not many taxpayers use it.

Each dollar that you save is a dollar that you earn. Using the above methods, you can save takes on your income and boost your tax returns as well.