Taxation Norms For The NRI Entrepreneurs In The US

Taxation Norms For The NRI Entrepreneurs In The US

by | Nov 12, 2019 | Double taxation, income tax, NRI, Tax Liabilities, tax reforms, tax savings, Taxation Norms, taxes

Taxation Norms For The NRI Entrepreneurs In The US

Getting your idea into a working model can be strenuous and require a lot of effort. taxation norms for NRI entrepreneurs in the US. If you have to worry about taxes on top of it, things can get a bit out of control. Taxes for individuals and businesses work entirely differently. And not being aware of these might result in Entrepreneurs paying a lot more taxes than they ought to or getting into a lot of unwanted tax-related problems that could have been avoided. Here are a few simple tips that can help you avoid these conundrums.

The Right Entity

The type of legal entity that you choose for your business plays an instrumental role in deciding the applicable taxes. For example, the taxes for a corporation differ from that of a partnership and it differs from a sole proprietorship. Needless to say, each entity has its advantages and disadvantages. And you must pick an entity that best serves your interest and helps you save on the taxes as well. For instance, startups usually stay away from C corporation due to double-taxation. Since the company pays taxes and the individual owners must also pay taxes. LLC (Limited Liability Corporation) and S Corporations manage to avoid double taxation.

Segregate the Finances

It is recommended that you get into the habit of bookkeeping as early in the company’s lifecycle as possible. Here are some easy ways of ensuring the same.

  • Getting a corporate checking account.
  • Creating a balance sheet and income statements.
  • Getting a corporate savings account.

Failing to separate personal and business finances can have severe consequences. In case of a lawsuit, the opposition lawyer can sue you from the organization’s point of view and personally also. In extreme cases, the Secretary of State can strip your company’s corporate status as well.

Total Tax Compliance

Another crucial step is determining the significance of full tax compliance. While a lot of it has to do with the legal entities, the city and state also play an important role in the same. Some of the larger cities levy Business Privilege taxes on the companies that operate within the city. Usual taxes are on the net profits of an organization, but the business privilege taxes are on the gross income. A simple example would be, if you sold products worth $500,000 in the previous year, you would owe a percentage of the income to the city.

Deductible Expenses

One of the advantages of being an entrepreneur or a startup is that you can claim most of the business related expenses. As long as the expenses are necessary and are ordinary in nature, you can claim the amount as business expenses. Here are some common examples of business expenses.

  • Any magazines or books related to your field of work.
  • Training materials or programs for your industry.
  • Any sort of travel for your work.
  • Certain expenses related to client entertainment.
  • Utilities for the office or home offices such as rent and other bills.

The only thing to keep in mind for such expenses is to have proper receipts and documentation to back your claims. It is recommended that you keep all such receipts and documents at a single place as you keep getting them.

Paying Quarterly Taxes

Paying your taxes every quarter is a habit that one must inculcate as an entrepreneur. This will help you plan for your taxes in a more efficient manner. Also, you will not be surprised by a huge tax bill at the end of the year. A little bit of trouble every quarter will save you from a lot of headaches down the line.

A proper knowledge of taxes and the norms is very essential for everyone planning taxes and their liabilities. For all NRI entrepreneurs it is no exception and thus, they should also know the basics of taxation laws.

Top #5 Ways To Maintain Your Budget During Holidays

Top #5 Ways To Maintain Your Budget During Holidays

by | Nov 6, 2019 | Blog, income tax, Tax Planning, Tax Refund, tax return

Top #5 Ways To Maintain Your Budget During Holidays

Budget During Holidays,Take a few moments to let this sink in, this year is coming to an end. The festival season is around the corner and you might have quite a few plans lined up. Catching up with friends and family, traveling, going out on a shopping spree, stacking up electronic gadgets, etc. are some of the common activities that accompany the holiday season.

As exciting as these might sound, they are not healthy for your wallet. If you want to enjoy your holidays and not burn a hole in your pockets, here are some easy to follow tips for this holiday season.

1.Create a budget

Creating a budget isn’t a new tip, yet a lot of us forget or just ignore to do that. Budget is a very powerful tool that can help you prioritize where your money is going. Spending a few minutes to analyze and go through your plans can go a long way in saving you money. When you go through your plan, you will get a fair understanding of how much money you need or the amount that you have with you. This will prevent you from going on an impulsive spending spree or tackling last-minutes unwanted expenses in a much better way.

2.Plan your Travel better

Since it is the holiday season, we tend to travel and meet almost all of our friends and relatives. This exercise can be both exhausting and expensive. An easier alternative is to visit a location and ask all those who are available to come and drop by. If it is someone’s house or a community park, the costs will be way down, which also enjoying the company of the close ones.

3.Healthy Eating

While traveling or visiting different places, we tend to pick up fast food, as it is convenient and quick. If you can replace these with planned meals, you will do your body a huge favor and save a considerable amount of money as well. There are several guides online, which can help you prepare quick meals that are healthy as well. Thus, spend a few minutes to plan for a week and grab the essential ingredients. Simple meals won’t require a lot of effort or time to prepare. Similarly, you can pack some healthy and tasty snacks for the road or the airport, so that you don’t have to stop and keep buying stuff regularly.

4.Cutting corners

The holiday season can be overwhelming for you as well as your bank accounts. The idea of buying presents for everyone can be easily put a dent in your budget or wallet. You can continue to enjoy the holiday spirit and yet save money. You must figure out different places where you can cut corners, without giving up on the spirit. One of the easier ways is to wrap the gifts on your own, either with newspaper or brown wrapping paper and be creative with it. If you can cut down on the gift wrapping for several gifts, it might seem small but will turn out to be a decent enough amount.

5.Free Activities for Meet up

Meeting friends or relatives at restaurants can be expensive, especially during the holiday season where you might bump into even more people. Instead, you can plan for some free activities, where you can catch up and have fun, without ballooning your credit card bills or hurting your wallet. A simple walk around your neighborhood or house can be a pleasant way to catch up.

The above steps will help you make considerable savings this holiday season, without missing out on the spirit of holidays.

Top #10 Tax Deductions That You Might Not Have Even Heard Of

Top #10 Tax Deductions That You Might Not Have Even Heard Of

by | Nov 2, 2019 | income tax, tax deductions, Tax Liabilities, Tax Planning, Tax Preparation, tax rate, Tax Refund, tax return, taxes

Top #10 Tax Deductions That You Might Not Have Even Heard Of

The holiday season is around,and taxes are the last thing that one would like to think of. Tax Deductions,However, even before you realize, the holiday season would be over and the tax filing season would be at center stage. Spending a few moments to plan your taxes can help you in lowering your tax liabilities and a smoother tax filing season. And who doesn’t like lower taxes! Here are some Tax deductions that taxpayers do not use that often.

1.Use Your Vehicle’s Mileage

Whether you are self-employed or work for a business, you can claim your vehicle’s mileage as expenses as 58 cents for every dollar. The number is slightly higher from 2018, where one could claim 54.5 cents per dollar. Taxpayers who work for different clients can even claim the amount spent on traveling between different job locations.

2.Miscellaneous Itemized Deductions

Certain miscellaneous tax deductions such as tax preparation expenses or job-related expenses that are not reimbursed are no longer covered under itemized deductions. Tax preparation expenses are still covered for self-employed individuals. Losses due to fire, shipwrecks, storms, etc. are deductible up to 10% of the adjusted gross income of an individual, as long as the natural disaster is federally declared.

3.State and Local taxes

The IRS allows taxpayers to deduct either state income tax or state sales tax as long as you itemize your deductions. For states with no income tax, there is no reason why you should not claim the sales tax that you have paid. You can opt for the deduction that offers you the biggest tax cut. The maximum amount that you can deduct stands at $10,000.

4.Medical Expenses

You can claim medical expenses for a financial year, including miles driven for medical purposes at 20 cents a dollar. However, this is applicable only if your medical expenses exceed 10% of your adjusted gross income, provided you itemize the deductions. This might include the installation of certain equipment in your home, as recommended by the doctor.

5.Camping For Kids

Taxpayers with children less than 13 years can avail of the Child and Dependent Care Credit. This is applicable if you took your children to day camp before or after their daycare, or school care program so that you can go to work. This excludes sleepover camps or overnight camps.

6.Education Expenses

You can make use of the American Opportunity Tax Credit and Lifetime Learning Credit.You can claim up to $2,500 underAmerican Opportunity Tax Credit for expenses in the college. Similarly, you can claim up to $2,000 under Lifetime Learning Credit for tuition fees and even books.

7.Health Insurance Policy

Any premiums that you pay for yourself and your family members, you can take deductions for the same if you are self-employed. Employees might be able to make the premiums tax-deductible if they can itemize these deductions.

8.Charity

Irrespective of how small your charity is, you can claim the same for deductions. The only thing to keep in mind is that you must have receipts for the same. You can even claim the miles you have driven for charity including parking and tolls at 14 cents per mile.

9.Home Office

If you use your home for work-related purposes, you can claim certain expenses such as utilities, rent, depreciation, maintenance, etc.

10.ODC

The Other Dependent Credit comes in handy if you take care of someone other than your dependent children. You can take tax credits up to $500 for every non-child dependent that you support.

Tax planning is an important part of financial planning and must not be ignored. Knowing the basics of taxes and the deductions is essential and helps in the long run to save money.

Top #6 IT rules for new NRI’s in the US

Top #6 IT rules for new NRI’s in the US

by | Oct 30, 2019 | federal income tax, income tax, tax deductions, tax filing, Tax Planning, tax return

Top #6 IT rules for new NRI’s in the US

Individuals move to the US with an anticipation of a better life and better pay. It can be quite exciting to move to a new country, with so many things to look forward to. However, amidst all this, there is one factor that IT rules for new NRI’s must not forget, taxation. Shifting to a new country means that one must adhere to new tax laws. Being aware of the laws will help you avoid getting unwanted attention from the taxman.

Here are the top 6 IT rules that you should be aware of, to help you with your first tax filing with Uncle Sam.

1.Residential Status

US residents or US citizens are liable to pay taxes on their global income, in which US citizens include NRIs, PIO, OCI. An individual qualifies to be a US resident if they meet any of the following tests.

  • The Green Card Test

If an individual has been a lawful permanent resident of the USA during anytime of the year.

  • Substantial Presence Test

A person should have stayed in the USA for 31 days in the current financial year and a total of 183 years in the previous three years.

2.Make Use of Deductions

There are several legal ways of reducing your tax liabilities and deductions is one of the smarter ways. The recent Tax Cuts and Jobs Act has increased the standard deductions from $6,500 to $12,000 for individual taxpayers and $9,550 to $18,000 for the head of a household.The limits for married couples filing taxes jointly was enhanced from $13,000 to $24,000. You can make use of retirement plans as well to reduce your tax liabilities.

3.Federal Income Tax

Unlike the general notion, not everyone might be required to file their federal income taxes. There are quite a few factors that impact whether or not one has to file their federal taxes. Factors such as the income for a financial year, your age, your tax filing status, your source of income, etc. play a crucial role in deciding where you should file federal income tax or not. It is essential that you figure out whether you are required to file your federal taxes or not.

4.Knowing The Due Date

Forgetting to pay or file your taxes by the due date can cause considerable damage to your yearly finances. The IRS has due dates for filing of taxes and if you do not adhere to it, you will end up paying penalties and fines. These can at times come with interest, which tends to pile up a lot. It is recommended to file your returns at the earliest, even if it has crossed the due dates.

5.Filing Date Extension

There is a clause in the tax laws, which allows taxpayers to opt for an extension in the tax filing dates. But the important thing to keep in mind is that the date extension is only for filing of taxes and not paying the taxes that you owe. As the deadline comes closer and you feel that you are not ready to file your taxes, you can seek extension in the deadline. At the same time, do not forget to pay any pending taxes that you owe.

6.Charity

Contributions towards charity can help you bring down the taxes that you owe to the government. You can either pay by cash or even gifts, but it is limited to 50 percent of your adjusted gross income. Ensure that you have a receipt that states that the donation was made by you.

Being aware of these tax laws will help you get through your first tax year with relative ease.

TDS implication on an NRI of the US for sale of property in India

TDS implication on an NRI of the US for sale of property in India

by | Oct 24, 2019 | income tax, tax savings, taxes, TDS

TDS implication on an NRI of the US for sale of property in India

What is TDS?

TDS implication on an NRI of the US , TDS is referred to as Tax deducted at Source. It is the income tax that is reduced from the money paid at a specific time such as payment of rent, salary, commission, interest, etc.  The Income Tax Department ensures that income tax is deducted in advance from the payments that are made by taxpayers and this is made feasible by TDS.

According to the provisions of the Income Tax Act, 1961 if an individual is purchasing a property in India then he would have to deduct the appropriate TDS from the sale value and pay it to the Government. In the case of a seller who is a resident of India and the value of the property is Rs. 50 lakhs or more, a TDS at the rate of 1% is deducted by the buyer and deposited with the Government.

However, there are certain different provisions related to TDS in case of the seller being an NRI.

Tax implications of sale of property by NRI in India

The selling of property in India by an NRI residing in the US is taxable under Section 195 of the Income Tax Act, 1961. When the seller of the property in India is an NRI, TDS at the rate of 1% is not applicable under Section 194/A of the Income Tax Act, 1961.

When an NRI is selling a property in India, there are three major points affecting taxation. Let us have a look at these 3 major factors.

  • Capital Gain Tax

 When an NRI is selling a property in India after a period of 3 years of holding, then long term capital gain tax at the rate of 22.6% is applicable on the amount earned. In case of holding the property for less than 3 years before selling it, the short term capital gain tax is levied as per the rates of the Income Tax slab.  In the case of short term capital gain, a TDS at the rate of 33.9% is applicable even if the seller is an NRI. The capital gain taxation proceeds remain the same in the case of both resident sellers and an NRI as well. The difference lies in the calculation and deduction of TDS. The Income Tax Department of India directs the buyer to deduct the TDS under Section 195 before making payment to the NRI buyer.

  • TDS

In case of an NRI selling a property in India, the buyer must deduct TDS at the rate of 20.66% on the price of the property. This is applicable in case of Long term capital gains. In the case of short term capital gains, the TDS would be deducted at the rate of 33.9%. NRIs who are selling property in India are liable for making payment of Capital Gain Tax on the capital gain obtained but TDS is levied on the property’s total sale value. So, usually, NRIs have to incur a loss if they do not claim their TDS refund on time.

  • Re-investment of the capital gain obtained

Many NRIs re-invest their capital gains to be safe from the payment of capital gain tax. An NRI who has incurred a long term capital gain can re-invest the gain into property or other tax-exempted bonds for saving long term capital gain tax.  The Income Tax Department can issue a Tax Exemption Certificate to NRIs under Section 195 of the Income Tax Act, 1961.

Claim of TDS refund by NRIs

1.DTAA

NRIs in the US can avail the benefit of lower TDS by the provisions of DTAA (Double Tax Avoidance Agreements).  NRIs in the US can obtain a tax residency certificate i.e. ‘Form 6166′ from Revenue and Customs Department. Then an application for a TDS refund can be submitted with the IRS by ‘Form 8802′.

2.Re-investment proofs

NRIs can submit their proofs of re-investment proofs in India to claim a TDS refund.  NRIs will have to submit an affidavit which states the investment of the capital gains in the purchase of capital gain bonds. Moreover, if an NRI is purchasing a new property by the capital gain obtained then an allotment letter can be submitted.

3.TDS Waiver

In case of an NRI’s total income in India is less than Rs. 2, 50,000; an application for TDS waiver can be submitted with Income Tax Officer.

Hence, NRIs selling property in India will have to pay TDS on the entire sale value of the property. But, they should claim the TDS refund by making appropriate tax planning in advance.

 

 

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

by | Oct 10, 2019 | capital gains, income tax, tax filing, tax savings

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

NRI Tax Filing The Indian Income Tax Department has made strides of improvement over the years when it comes to its processes. Thus, there are higher chances of your tax filing or lack of filing coming under the radar of the Income Tax Department. Here are some prominent reasons why you might receive a notice from the Income Tax Department.

  • Delay in Filing IT Return

If you fail to submit your IT return by the deadline set by the IT Department, you will most likely receive an intimation from the department.

  • Misreporting of Capital Gains

The IT department expects its taxpayers to report all the short term and long term capital gains that they have made. Failing to do so might add extra scrutiny to your returns.

  • Mismatch with Form 26AS

There ideally should not be any mismatch when it comes to Form 26AS, your TDS, Form 16 or Form 16A. Any mismatch between these would warrant notice from the department.

  • Failing to disclose income

Any taxpayer who fails to disclose income to the IT department would also come under the lenses of the department.

All You Need to Know

If you are an NRI, here is all that you need to know when it comes to tax filing in India.

  • Residential Status

India, like most other countries that rely on income taxes, depends heavily on the residential status of an individual to calculate income taxes. Individuals satisfying any of the following conditions would qualify as a  resident Indian, otherwise a Non-resident.

  •           You have spent a minimum of 182 days during the financial year in question.
  •           You have spent a minimum of 60 days during the financial year in question and cumulative of 365 days in the previous four years.
  • Taxable Income

For resident Indians, their global income is taxable in India as per the applicable tax slabs. However, if you are a non-resident Indian, you are liable to pay taxes only on the income generated in India. This could include salary received for consultation, rental property in India, interests earned on fixed deposits, capital gains on shares, selling of capital assets, etc.

  • When to File

NRIs or any individual for that matter, need to file their income tax returns only if their annual income exceeds the minimum threshold of INR 2,50,000 for a fiscal year. For example, if you have only one source of income in India and it is interest earned on your fixed deposits, you would be taxed accordingly. If the interests earned for a year is INR 80,000 you do not have to file your tax returns. On the other hand, if you have one or more sources of income and together, they add up to INR 3,00,000 for a financial year, you will have to pay taxes and file your returns.

  • Tax Filing Timeline

The standard deadline for NRIs for filing their taxes and returns is 31st of July. Should there be any changes in the dates, the IT department would notify everyone of the same.

  • Advance Tax

The concept of Advance taxes come into the picture when the tax liability of an individual exceeds INR 10,000 for a financial year. This is in general to avoid tax evasion. Failing to do so will warrant fines and penalties under Section 234B and 234C.

Staying a step ahead and being aware of the various intricacies of the income tax will help you avoid any notices or fines from the IT department or even coming under their lenses as well.