Is lottery/gambling winnings taxed for an NRI in the US?

Is lottery/gambling winnings taxed for an NRI in the US?

by | Dec 21, 2019 | NRI, tax deductions, tax filing, Tax Liabilities, Tax Planning, Tax Preparation, Tax Refund, taxes

Is lottery/gambling winnings taxed for an NRI in the US?

It is hope that gets us to buy another lottery ticket or head out to a casino. Is Lottery taxes for an NRI in the US The hope that we might win the next lottery or hit the jackpot. If you have won either of them, first of all,congratulations. Before you start planning how to spend the amount, here is something that you must consider, taxes. The winning amount is taxable,but you choose how you wish to get the winning amount.

You can either opt for a lump-sum payout or as an annuity. Taxpayers usually have 60 days to decide the method and it has an impact on the taxes that you must pay to the IRS. If you have not won a lottery or winnings, it still might be a good idea to be aware of the tax implications. Here is all that you need to know.

Lump-Sum or Annuity?

Each method has its pros and cons. Should you opt for the payout as an annuity, you will be placed in a lower tax bracket and a fewer amount of taxes. The only caveat being, the taxes might go up in the future since you do not have any control over it. If the winning is relatively lower, you can opt for the annuity method.

Taxpayers who have won millions, taking the payout as a lump sum is a better option. While it might take a decent chunk of your winnings, you still getthe remaining money at a single shot. If you opt for an annuity, the lottery will pay only 4.5% of the total earnings per year. It will take a long time to recover the entire amount. It is recommended that taxpayers who take the lump sum reach out to a financial advisor to help them with the winnings. Putting the winnings at the right places will ensure you do not spend a lot of it rather earn more from it.

Taxes on Both the Methods

Should you go ahead with a lump sum payout, 25% of the total earning is withheld before making the payment to you. This amount is not the actual taxes that you owe to the government. Once you file Form W-2G, your total liable taxes will be calculated. And you will get to know the total taxes that you owe to the government in April.

And for the annuity method, each installment is taxed as they are handed over to you. Similar to lump sum payout, this is not the actual amount of taxes. Only when you file your Form W-2G, you will get to know the total amount of taxes that you owe to the government.

Depending on the state that you live in, you might have to pay state taxes as well. You must only pay federal taxes and no state taxes if you live in Florida, South Dakota, Texas, Tennessee, Alaska, New Hampshire, California, Nevada, Wyoming, Pennsylvania or Washington.

Minimize Your Tax liabilities

There are a couple of steps that you can take to reduce your tax liability when it comes to earnings from a lottery or gambling. For starters, you can donate some of your earnings to charity. You can then itemize your deductions and reduce your liability.

Alternatively, you can gift a portion of the earning to friends and family. As per the law, you can gift up to $15,000 per person before the gift taxes come into the picture. And lastly, you can create a trust and put your money in it, which will reduce estate taxes should anything happen to you.

Knowing the tax liability for lottery or gambling will ensure that you do not get a surprise in April during the filing of taxes. Being aware will help you better plan your taxes.

Reference:

https://www.taxslayer.com/blog/winning-lottery-taxes/

https://blog.turbotax.intuit.com/income-and-investments/how-are-gambling-winnings-taxed-8891/

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.

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.

How to transfer Indian income to the US for an NRI?

How to transfer Indian income to the US for an NRI?

by | Oct 17, 2019 | indian income, NRI, NRO, tax form

How to transfer Indian income to the US for an NRI?

Many NRIs, PIOs (Persons of Indian Origin) and even American Indians are interested in bringing money earned in India to the US. Indian income ,This scenario mostly arises when people have the immovable property back in India or they have inherited assets in India. This NRIs will try to bring the money associated with these assets to the USA by liquidating the assets.

NRIs or PIOs or American Indians who are interested in bringing such Indian income to the USA have to follow certain procedures. This usually depends on the methods by which the income has been acquired in India such as either by selling of property, an inheritance or gift or by making investments into certain financial instruments.

Selling of property in India by an NRI

 NRIs or PIOs are allowed to sell residential or commercial property in India but not agricultural land or farmland. According to the laws, NRIs are also allowed to bring Indian income earned from the sale of a maximum of two residential properties. The NRI who is selling his property and wants to bring his Indian income to the USA must have an NRO Account i.e. Non-resident ordinary Account.

In case of an NRI selling a property in India, the proceeds of the sale must be credited to the NRO account of the individual. If an NRI is selling a property after three years of the purchase of property then it is a long-term capital gain and a long-term capital gain tax of 20% would be levied on this. There is a limit of $1million which can be transferred from India to the US in a particular calendar year.

To begin the transfer of money from India to the US, the NRI has to obtain a certificate from a Chartered Accountant in India. The Chartered Accountant will issue a ‘Form 15CB’ obtained from the website of the Indian Government’s tax department. This certificate is proof that the money which is being transferred from India to the US has been earned by legal means and also all taxes have been paid. In addition to this, the NRI also has to fill another form online i.e. ‘Form 15CA’. This form is submitted online and a system-generated receipt has to be obtained by the NRI. Form 15CB and this receipt have to be deposited in the bank which has the NRO Account along with an additional ‘Form A2’ and a foreign exchange form.

Inheritance or gift received

The property which has been inherited in India is exempt from any gift tax. However, the amount which is obtained from the sale of inherited property is the capital gains and is taxed depending on the specified tax rates.

NRIs that are selling their inherited property and bringing that Indian income into the US must fill up two forms i.e. ‘Form 3520’ and ‘Form 8938’. Form 3520 has to be signed by NRIs along with their tax returns if they are inheriting any property in India.  This helps in validating the trail of the receipts by the NRI and also checks the basis of his inheritance.

Form 8938 has to be filled by all the USA residents, citizens and green card holders for reporting about their financial assets if the aggregate asset is more than $50,000 in case of single taxpayers and $100,000 for couple taxpayers.

Investments made in financial instruments

Another method by which NRIs can bring money from India to the US is by investing in financial instruments like debt investments and equity investment. For making debt investments, NRIs can invest in NRO Account or NRE fixed deposit account. NRIs can also invest in FCNR deposits which yield high returns and the interest income obtained from FNCR deposits is tax-exempted in nature. NRIs can also invest in direct equities or equity mutual funds.

For the transfer of this income earned in India, the NRI needs to fill the Form 15CB and Form 15CA and proceed with the repatriation procedure.

Hence, the procedure for the transfer of funds from India to the US is not a complicated process and can be carried out smoothly by the help of some expert professionals like CAs.