Top #10 reasons to file your taxes every year

Top #10 reasons to file your taxes every year

by | Mar 23, 2019 | income tax, tax deductions, Tax Planning, Tax Preparation, tax savings

Top #10 reasons to file your taxes every year

It is a common tendency for all of you to wait until April to file your taxes. While it is all fine as long as you file taxes, the earlier you do the better it is. Gone are the days when filing taxes was a difficult and tedious job.

Every year about 10 million taxpayers end up paying $130 on average for estimated tax penalties. Thus, filing and paying your taxes every year on time will help you avoid such penalties.

With several government initiatives and tools in place, it is easier to get through tax filing these days. Here are the top reasons why you should consider filing your taxes every year and at the earliest.

Faster Processing

It is advisable that you do not file close to the deadline. It only delays the processing and in turn, results in slowing down the entire process. You might also run into the risk of submitting while the servers are under heavy load, further slowing down the process. The file at the earliest for faster processing of returns.

Proper Documentation

While the complexity of filing returns has come down by a considerable margin, it is far from ideal. One can still get overwhelmed by the entire process. It is recommended that you start early so as to figure out of there are any additional documents that you might need to submit.

Faster Refunds

Taxpayers who file their taxes earlier are more likely to receive their entitled returns early. Since you file early, there won’t be too many returns for the IRS staff to go through or process. And thus, they can complete them at the earliest.

Additional Time to Pay Taxes

Filing your taxes early will help you determine the amount that you have to pay to Uncle Sam. It must be noted that even though you can file your returns earlier, you do not actually have to pay any taxes till the 15th April deadline. This will allow you to plan your taxes better.

Avoid Extension

There are certain circumstances, where requesting an extension for your taxes is much needed. Consider this, a person was carrying all their tax documents to the office and they get stolen on the way. Or a person lost his/her house to fire, burning down all the documents in there. These are legitimate reasons for filing an extension. Others, not so much. Instead of opting for extension and slowing down the process, it is better to get it done at the earliest.

Better Help

If you need the services of any tax agents, the most reputed ones will most likely be booked closer to the deadlines. In the event that you file your taxes earlier, you can seek professional help without having to wait.

Financial Help

If you are looking to utilize the FAFSA or Free Application for Federal Student Aid either for yourself or for someone else in your family, it is recommended to do it at the earliest. The earlier you file your taxes, the better are your chances of receiving the maximum amount out of it. The aid is dependent on the most recently filed return.

Identity Theft

Every year a lot of taxpayers are victims of tax fraud. In the year 2014, about 3 million people reported the same. It usually takes place if you wait till the end to file your taxes.

Clear Things up

Filing taxes earlier gives you ample time to fix if something is wrong with your taxes. This is one of the simplest and most straight forward benefits of filing your taxes every year and on time.

Buying a House

Your mortgage provider would want to have a ton of supporting documents from your end. These include W2 form, bank statements, tax returns and so on. Thus another added advantage of filing your taxes every year.

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES

by | 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.

Is NRO/ NRE/ FCNR Interest taxable in the US

Is NRO/ NRE/ FCNR Interest taxable in the US

by | Feb 19, 2019 | income tax, NRO, tax deductions, tax filing

Is NRO/ NRE/ FCNR Interest taxable in the US?

NRO/NRE/FCNR ,With more and more people shifting to the US for a better future, the above question becomes even more pertinent. Are the interests earned from NRO/NRE/FCNR accounts taxable in the USA?

The simple answer to the question is Yes. The interests that you earn from such accounts is taxable in the USA. However, it is not as simple as it might sound and it as a complete process that you must follow.

The following steps will help you ensure that you are able to determine the income from other sources such as NRO/NRE/FCNR accounts earning interest. And that the income is taxed appropriately so that it doesn’t come to bite you at a later date.

Determining Status

Any income generated from the above means is taxable in the USA if you are a US person. Thus, the first step involves determining whether or not you are a US person. You must meet any of the following conditions for the same.

  • Are a citizen of the USA.
  • Are a former legal permanent resident but due to some reasons wasn’t properly expatriated.
  • Are a legal permanent resident.
  • Are a national of another country but have cleared the Substantial Presence Test.

In short, if you are a Green Card holder, OCI, PIO or a legal resident of the USA (holding L1B, H1B, H4 EAD or other work visas of the USA)you must pay taxes on the above-mentioned income.

Dollar Amount

Every year the IRS publishes the year-end treasure rates for various currencies. These can hold as a good starting point to consider the conversion rate. You can use this rate to convert your Indian income from NRO/NRE accounts into the US Dollar.

For example, if you have earned about INR 15,000 as interest from your NRO/NRE account, and consider an exchange rate of 75, the dollar equivalent would be $200. INR 150,000/72 = $200.

You can then use this amount for tax purposes.

Taxes in India

Any interests that you earn on NRE accounts is not taxable in India. This means that banks will not deduct any amount from your earnings directly.

Similarly, any interests that you earn on your FCNR account is not taxable in India.

However, things change a little bit when it comes to NRO accounts. Any interests that you earn on NRO accounts are charged at 30% plus applicable taxes.

Depending on how your bank operates, it can either be deducted from your account directly, or you might have to file at the end of the year.

Taxes in the USA

Once you are a US person, you are expected to file your taxes and returns. In other words, you will have to file Form 1040 using any of the tax filing services or directly with the IRS.

Irrespective of which method you use, it is important that you fill the Schedule B in the Form 1040. Schedule B includes the income generated from your Indian assets or accounts.

In case you have paid taxes in India, you would need to mention that in your tax returns. This is applicable for NRO accounts. As far as NRE and FCNR accounts go, you will have to mention the income from the accounts and that will be added to your annual income in the USA for the fiscal year.

For the year 2016, as many as 21,428,230 filings were there for Schedule B out of which 18,781,052 were electronically filed.

Depending on the tax bracket that you are a part of, you will have to pay appropriate taxes. And for the taxes that you have paid in India, the DTAA will ensure that you do not pay taxes twice.