Tax Tips for the Self Employed NR Indians in the US

by Mounica Kota | Mar 24, 2021 | tax deductions, Tax Exception, Tax Planning, Tax Preparation, Tax Refund

Tax Tips for the Self Employed NR Indians in the US

If you are an NRI in the US and have just started your entrepreneurship, then you should be aware of the different tax implications related to self-employment. Some of these tax implications can even help reduce your tax liabilities.

Let us now have a look at the different facets associated with the tax rules for the self-employed NRIs.

Offices at home

When you are working comfortably from your home, it can help maximize your tax write-offs. In case, you are using a specific home office for your work or your business then that be claimed while filing the tax returns.

Those expenses which you can deduct as a part of your deduction for the home office can also include a part of expenses related to the home i.e. the mortgage interest, rent, taxes on real estate, utilities, insurance, etc. Moreover, you would also be eligible for the deduction of the total expenses that have been incurred in the repairs and the painting that is required for your home office.

Hiring part-time employees

If you have grown-up kids and they are on holiday, the best idea to keep them engaged is by hiring them for doing some of your office work. If you are hiring your kids for cleaning the office, running your deliveries, data entry, answering phones, etc. then you would be able to claim a tax deduction. You can claim that wages are deducted under Schedule C. However, this deduction can only be done until the compensation to be obtained is reasonable for the activity performed.

In case, your kids are below the age of 18 years the wages paid to them would be exempted from Social Security taxes and Medicare taxes. Moreover, if your kids are below the age of 21 years they would not owe the Federal Unemployment taxes. Even by these part-time hires, the tax liability of your family would be reduced as your children would not owe any income taxes on this income obtained.

Planning for retirement

By opting for a retirement plan, you would be lowering your taxable income. If you are a self-employed NRI the best retirement plan for you is the SEP (Simplified Employee Pension Plan). You have the option to put in up to less than around 25% of your earnings done from self-employment or put in up to $57,000 for the tax year/$58000 for the tax year 2021. You can compare this with the limit of $6000 which has been put on the contributions made to the IRA for the tax year 2020.

Mileage

If you would have been an employee who is traveling regularly to work then the expenses related to driving to your office and back could not have been claimed under tax deductions. Since you are self-employed then any work-related travel such as traveling to meet any client, going for work to some other location, etc. can be claimed as a tax deduction. In the year 2020, work-related travel done for a mile can be used to claim 57.5 cents along with the parking cost and any other tolls that have been paid. So, you must track your mileage coverage for work so that it can be used to claim deductions.

Business Travel

When you are a self-employed NRI and are traveling to another city in the US for work it is possible to claim a tax deduction for 100% of the costs incurred in the travel. Moreover, during the travel period, it can also be feasible for you to claim the expense incurred in your hotel stay and 50% of the expenses incurred in your meal. However, this is only possible for those days for which the travel has been work-related.

Moreover, under the provisions of the CARES Act, 100% of the expenses incurred in business meals can be claimed as tax deductions rather than 50%. This would be feasible starting in the year 2021 and would continue throughout the tax year 2022.

Conclusion

Hence, these tax guidelines would be helpful for you to lower your tax liability if you are an NRI and self-employed in the US.

Tax Deductions Available for Cancer patients

by Mounica Kota | Jan 23, 2021 | Tax Deduction, Tax Deduction Ideas, tax deductions, tax filing, Tax Payers, tax return, tax savings

Tax Deductions Available for Cancer patients A life-threatening disease like cancer can lead to a lot of mental unrest along with a lot of financial responsibilities. If you have a health insurance plan, then it would be helpful in providing cover for some amount of the medical expenses incurred. If you are undergoing any cancer related medical treatment then your health insurance would help in providing cover for the bills incurred. But, in the medical treatment related to these life-threatening diseases there would be some additional expenses which have to be paid by you. Also, cancer patients can avail the benefit of tax breaks on their taxes by the help of their out-of-pocket expenses. Eligibility for tax deductions which are cancer-related If you are able to itemize your tax deductions instead of making claim for Standard Deduction, then you can easily deduct those medical expenses which are related to regular care, medication, diagnosis, hospital stays, etc. if the expenses that have been incurred are more than 7.5% of the Adjusted Gross Income (AGI). Medical-related travels can also be claimed as deduction such as the mileage related to driving to the appointment at the rate of 20 cents per mile as well as travel-related to any seminars. Those taxpayers who are self-employed do not need to itemize their tax deductions for deduction of their health insurance premium. Self-employed taxpayers are eligible to deduct their health insurance premium as a deduction to their income. What would be done? Medical expenses that can be deductible are defined according to the IRS code as those costs which are related to the diagnosis, treatment or mitigation of diseases and are mainly for the purpose of affecting any major body part or function. Various treatments related to cancer such as the chemotherapy and radiation surgery are too expensive and the arrangement of your health insurance plans will have a major impact on the coverage of these expenses. There are several categories of cancer and in case of any rare type of cancers such as mesothelioma which would need specialized care; travel is an important part of the treatment procedure. The cost involved in the travel during cancer treatment medical procedures might be tax-deductible. There is a comprehensive list of costs which would qualify for a tax deduction and this list would include health insurance premiums which are not paid in pre-tax dollars. You might pay for the medical care you have received by your credit card, cash or personal checks during the period of the tax year in which the tax deduction was being considered. During the time of tax return filing, itemized tax deductions such as the expenses related to medical bills, mortgage interest, State and Property taxes and charitable contributions will exceed the increased Standard Deduction that has been permissible by the IRS. The permissible Standard Deduction for the US citizens is $12,000 for those who are filing using Single status and is $24,000 for those citizens who are married and are filing their returns jointly. In case of your tax deductions being itemized, the medical costs incurred should be more than 7.5% of your Adjusted Gross Income (AGI) for the year 2019. Also, this figure was different for the tax year 2018 in which someone who has an AGI of $50,000 would deduct the expenses which are out-of-pocket if they are more than $3750. Conclusion Hence, in case of any life-threatening diseases such as cancer tax deductions and claiming of credits is feasible but you must be well-aware about the tax rules and regulations.

Health coverage and tax exemptions.

by Mounica Kota | Oct 18, 2020 | tax deductions, Tax exemption, tax filing

Health coverage and tax exemptions.

According to the individual shared responsibility provision of the Affordable Care Act, you and the members of your family must have the qualifying health coverage. In case there is no coverage available for each month, you would have to make a payment called an Individual shared responsibility payment at the time of filing the Federal Income Tax return.

However, there are some taxpayers who qualify for an exemption from the requirement of making the above-mentioned payment. The major causes for this exemption can be:-

Those taxpayers might not be having access to the health coverage which is affordable,
Those taxpayers might have had a coverage gap which is less than three calendar months or
Those taxpayers have low income and expansion of Medicaid was not done by their respective states.

Moreover, there can be some taxpayers who would have health coverage or would qualify for the exemptions for some months and would owe payments for other months.

The Interactive Tax Assistance Tool of the IRS helps in the determination of your eligibility for a coverage exemption or your responsibility for making the payment of individual shared responsibility. The exemption might have been obtained anywhere; it must be reported by you on Form 8965, Health Coverage Exemptions while filing your Income Tax Returns.

Health Coverage Exemptions

The list of some of the available major health coverage exemptions is mentioned below.

Unaffordable coverage –

The available health coverage you have would be considered unaffordable. Your coverage would be considered as unaffordable when the lowest amount which you must have paid for the employer-sponsored coverage or for the coverage that has been obtained by the Marketplace is much more than a particular percentage of the household income you have for the year.

General hardship –

This means that you had experienced certain circumstances which prevented you from availing the health coverage under a qualified health policy. These circumstances can be eviction, homelessness, domestic violence, foreclosure, unpaid medical bills, etc.

Short coverage gap –

This would mean that you were without any coverage for almost three consecutive months during a year.

Income below the return filing threshold –

This exemption means that your gross income lies below the minimum threshold needed to file a tax return.

Certain noncitizens –

This exemption is for those who are not US citizens and are not present in the country as per the laws. You can qualify for this exemption even if you are having a Social Security number (SSN).

A resident of a state which did not expand Medicaid –

The income of your household is below 138 percent of the federal poverty line for your family’s size. Moreover, during any time of the year, you resided in a state which did not participate in the Medicaid expansion.

Members of the Indian tribe –

This health coverage exemption is available for you when you are a member of a Federally-recognized tribe of India or were eligible for services from an eligible Indian health care service provider.

How to report the coverage exemptions which have been obtained from the Marketplace?

If you are obtained health coverage exemption from the Marketplace, then you would receive an Exemption Certificate Number (ECN). You can report this exemption by entering the ECN in Part I of your Form 8965, Health Coverage Exemptions in Column C. In case, your application for health coverage exemption has not been processed until your time of filing tax returns you must complete Part I of your Form 8965, and your Colum C must have the entry as “Pending”.

Procedure to obtain coverage exemption.

Some of the health coverage exemptions can be easily obtained by applying in the Marketplace. However, there are some which can be obtained by filing a tax return.
In case, you have an income which is below the minimum limit for filing a tax return you would avail exemption from making individual shared responsibility provision. You are not even required to file the federal income tax return for claiming the exception. But, if you are filing a tax return then you must claim a health coverage exemption with your return.
You can claim health coverage exemptions on Form 8965, Health Coverage Exemptions, and attach this to Form 1040, Form 1040A, or even Form 1040EZ.

The process to claim coverage exemptions with the IRS

In case, your household income is below your tax filing threshold and you are filing a tax return then you must use Part II of Form 8965, Health Coverage Exemptions.
The other exemptions are usually claimed on Part III of Form 8965.
You must file only one Form 8965 along with your Forms 1040, 1040A, or 1040EZ for reporting all the health coverage exemptions for yourself, your spouse as well as your dependents.

Conclusion.

So, these basic details on health coverage and tax exemptions would help you in understand the process better.

Tax deductions for your child born in the US.

by Mounica Kota | Oct 1, 2020 | Tax Deduction, tax deductions, tax filing, Tax Payers, taxes, US Government

Tax deductions for your child born in the US.

When the deadline for the tax return filing approaches, you should keep your details ready for review so that you do not miss any necessary detail. If you have a kid, then it is feasible that you can obtain some good tax benefits.

Dependency Requirements.

If you are going to claim your child as a dependent, then there are certain dependency requirements which your child must meet.

Your first step is applying for the Social Security Number of your baby. It will take nearly two weeks for your Social Security Number to arrive.
Another criterion is that your child should have been living with you for a period of more than half of the year. The time which your newborn child has spent in the hospital would not be taken into consideration here.

Changes in your tax filing status.

In case you were single and now after having a baby you are supporting your household, your tax filing status would change to “Head of the Household”.
By this tax filing status, you would be able to obtain a much larger standard deduction and even more favorable tax brackets.
So, you can save more on your taxes after being the Head of Household than you were saving while you were Single.
However, when married and having a child your filing status would not change.

Child Tax Credit.

This is considered to be one of the best tax breaks for the parents. You can claim Child Tax Credit up to $1000 for each qualifying child.

Some criteria must be met for your child to be the qualifying child.

Relationship – If you are going to claim this credit, then your biological children, foster children, adopted kids, step-children are eligible. Moreover, some of your other family members can also qualify.
Age – Your children must be of the age of either 16 years or younger than that to avail of this credit.
Dependent – You will have to claim your child as your dependent on the federal taxes.
Support – Your child should not have been provided half of the support.
Resident – Your child should have stayed with you for nearly half of the year or more.
Citizenship – Your child can qualify if he is a US citizen, US resident alien, or a US National.

Claiming the tax breaks for medical expenses and child care.

Medical expenses related to the birth of your child and child care are deductible.
These expenses are deductible only when they are exceeding 10% of your AGI (Adjusted Gross Income).
To qualify these expenses for deductions, these expenses must be itemized.
If you are a working parent, then you are eligible to claim credit for Qualified Child Care Expenses.
You can also claim the Child and Dependent Care Credit if you have paid some worker or Daycare center for taking care of your child while you were working.
To qualify for this credit, you should be able to identify the individual who has given support or taken care of your child. You and your spouse should have earned income to avail of this credit if you are filing the returns jointly. Moreover, the expenses paid for child care should not be given to your spouse or any other dependent on your tax returns.
This credit is based on your income and can exceed up to 35% of the child care expenses which qualify for a credit. This can be up to maximum expenses of $3000 for one child and $6000 for more children.
However, your Child and Dependent Care might get reduced if your employer is providing you with dependent care benefits that are tax-free.

Some additional tax breaks.

There are some other tax breaks which parents can enjoy such as:-

You can qualify for obtaining the Earned Income Tax Credit.
Any gifts i.e. in the form of money or property would be free of tax for you and your kid if received from grandparents and other relatives.
You can also be eligible to participate in QTP i.e. Qualified Tuition Program which is being offered by your State. Even though there is no immediate break for the taxes, the earnings in the account would be tax exempted. You could also obtain state deduction or credit for the contributions made.

Conclusion.

So, these factors would help you to understand the different facets related to the tax deductions associated with your child born in the US.

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

by Mounica Kota | Jul 14, 2020 | e file taxes, tax deductions, Tax Professionals, tax return

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

By hiring qualified tax professionals for your tax preparation, you are free from the stress of preparing the tax returns alone. The expertise of qualified professionals would ensure that you obtain all the deductions and credits which you are eligible to receive. You can gain peace of mind, avoid making mistakes while filing tax returns, and also save your time by hiring qualified tax professionals.

Currently, the pandemic COVID-19 has created mayhem all around and has affected the economic condition of the entire country. Several businesses have been shut down and millions of Americans have lost their sources of livelihood. In such a deteriorating situation, obtaining a considerable amount of tax refund would be very helpful to ease the financial stress for some time.

If you are preparing your tax returns with the help of a qualified tax professional, your tax preparer would suggest you several methods to e-file by which you can obtain maximum tax refunds.

So, let us have a look at some of the methods to e-file suggested by your tax professionals for getting maximum tax refunds.

a.Claim all available tax deductions

Your tax preparer would suggest you to dig into all available tax deductions. There are many common deductions available such as charitable donations, medical costs, interest on mortgage and education expenses, etc. The deductions would be subtracted from your AGI (Adjusted Gross Income) thus, lowering your taxable income. As your taxable income would be low, you would have to pay fewer taxes and you can obtain higher refunds.

However, there are some deductions which you might not be aware of or are very easily overlooked such as State Sales Tax, Student loan interest, Out-of-the pocket charitable contributions, Certain jury duty fees, Child and dependent care, Reinvested dividends, State income tax paid on returns of last year, Earned Income Tax Credit (EITC), etc. You must keep good records of your deductions especially in case of charitable contributions. Moreover, your tax preparer would suggest you to ensure that you are claiming deductions for those organizations which have the status of “Tax-exempt” with the IRS.

b.Maximize your contributions made to IRA and HSA

Your tax preparer would suggest you maximize your contributions which you are making towards the IRA and the HSA. Traditional IRA contributions can help reduce your taxable income. The contributions made towards Roth IRA do not qualify for tax deductions but they can qualify for Saver’s credit if you can meet the income guidelines. In case, you are self-employed you can be able to contribute towards a certain self-employed retirement plan till 15th October 2020.

Your pre-tax contributions to an HSA can also help lower your taxable income. Your tax preparer would suggest you to contribute more towards your HSA before the timelines are closed. You should have enrolled in a health insurance plan which has high deductibles that either meet or exceed the required amounts of the IRS.

c.Use of best filing status

One of the major factors which can maximize your tax refunds is the choice of your filing status. You must inform your tax preparer about any of your major life changes before e-filing. Your relationship status on 31st December of a year determines your entire year’s filing status and you must use it while filing your tax returns. These options for filing status include Single, Married and filing jointly, Married and filing separately, Head of household or qualifying widower. If you could file your tax returns using two statuses such as “Single” and “Head of Household”, your tax preparer can calculate your taxes and find out which one would be beneficial for you in terms of more returns.

d.File your tax returns on time

Your tax professional would always suggest you to file your tax returns on time. This increases your chances of getting a maximum refund. The only exception to this is the case in which you have filed for an extension in the timeline to file your tax returns. The IRS charges penalties for not being able to file your income tax returns on time. Your penalty would be around 5% of your unpaid taxes for each month late up to 5 months from your tax filing deadline. Moreover, if you are not paying your taxes on time the IRS would charge penalties and interest on it. If there are penalties and interest levied by the IRS, then it is quite obvious for you to obtain low tax returns.

e.Report all your income

Many people do not report all income on their return. This can be intentional or unintentional but the IRS would charge penalties for this. If IRS uncovers your unreported income then it would charge penalties and interest on your unpaid taxes. Your tax professionals would suggest you to spend some extra time in reviewing your returns and make sure that you are not forgetting any source of income. Usually, the sources of income that are overlooked are the interest income, income from dividends, contract work, 529 contributions, charitable gifts, etc. You can maintain a spreadsheet and keep on updating your income sources every year to avoid mistakes while tax preparation.

Conclusion

Hence, with the help of these tips and methods, you are sure to maximize your refunds during these difficult times. If there is an error after filing your tax returns which would affect your refund amount, you can amend your return by filing Form 1040X.

Health Insurance Tax Deductions for an NRI in the US

by Mounica Kota | Jun 8, 2020 | health insurance, health insurance premiums, tax deductions

Health Insurance Tax Deductions for an NRI in the US

As we all know, health expenses can be highly expensive so having health insurance and being able to claim a tax deduction would help save tax up to a certain extent. However, for an NRI residing in the US claiming health insurance for tax deductions depends on certain conditions. It depends on the health care services and the expenses incurred by the NRI in health insurance.

NRI Health insurance premiums and medical expenses can be tax-deductible only if they are paid out-of-pocket. Moreover, the financial condition of the NRs and from where health insurance has been received are two important factors in determining if the costs would be tax-deductible or not.

Can Health Insurance Premiums for NRIs be deductible on Federal taxes?

The Health Insurance Premiums for NRIs are classified as deductible on Federal taxes as these are the monthly payments made for the coverage which can be termed as “Medical Expenses”. There are various sources from which health insurance can be obtained by an NRI and the scope of these expenses being tax-deductible.

a.When health insurance is sponsored by an employer

The premiums for the health insurance policies sponsored by the employer are not tax-deductible. Employers would deduct the premium payment from the NRI’s payroll on a pre-tax basis. So, the employee contributions are already taking the tax-saving advantage and further deduction is not allowed. Moreover, the contributions made to HSA (Health Savings Account) are paid by the NRI on a pre-tax basis and would not be tax-deductible.

b.COBRA insurance

In the case of COBRA insurance, an NRI can continue the employer-sponsored coverage even though he is no longer working in that organization. The premiums for COBRA insurance are tax-deductible because an NRI would pay that entirely by himself on an after-tax basis.

c.When health insurance has been purchased through an insurance marketplace

In this scenario, the health insurance premium of the NRI would be tax-deductible as these would be termed as “Medical Expense”. Suppose, an NRI is eligible to be enrolled in his spouse’s health insurance program which is employer-sponsored but he opts out for that coverage then he will be unable to avail the tax deduction.

d.Medicare

The premiums for Medicare plans depending on the plan the NRI selects such as Medicare Part B, C, or D plus Medigap would be eligible for a tax deduction. In the case of Medicare Part A, the expenses would not be tax deductible if the premiums have been paid by Social Security.

How to claim tax deductions for health insurance?

There are two options offered by the IRS to claim tax deductions for health insurance by the NRIs.

Standard Deduction
Itemizing the Medical Expense

In both cases, the AGI (Adjusted Gross Income) of the NRI would be reduced and the tax to be paid would be mitigated.

If an NRI is opting for Standard Deduction, then he would not be opting out for Itemized Deductions by default. By Standard Deduction, the process of tax preparation becomes quite easy and simple. The rates for Standard Deduction in case of NRIs can be listed below.

Single Taxpayers – $12,400
Married taxpayer filing return jointly – $24,800
Married taxpayer filing return separately – $12,400
Head of Household – $18,650

In case an NRI decides to opt for itemizing the health insurance, then currently in 2020 he can only deduct those medical expenses which are allowable and exceed 10% of his AGI.

An NRI can easily decide on choosing Standard deduction or Itemization of Medical Expense by having a look at his Schedule A 1040 Form. This would give him a chance to compare his itemized expenses with Standard Deduction and decide on which one to opt for.

Health Insurance Deduction for Self-Employed NRIs

In case of an NRI being self-employed then his threshold for permissible medical expense deduction lowers down to 7.5%. Suppose, the AGI of an NRI is around $100, 00 then medical expenses which would exceed $7,500 would be eligible for tax deductions.

Those NRIs who are independent contractors can also claim the health insurance deduction under the Self-employed category. By this, a self-employed NRI’s AGI can be directly reduced by health insurance premiums.

What can and cannot be deducted from tax?

The IRS would allow for any medical expense that has been paid from the pocket prescribed by the doctor for a tax deduction. Some of the common expenses included under this list are Medical tests, Dental Insurance, Therapy, Crutches, Hearing Aids, Birth Control, Prescription drugs, etc. In addition to these expenses, some other expenses which include travel costs for health care are also tax-deductible.

However, some expenses are not tax-deductible such as co-pays, Premium tax credits, expenses related to cosmetic surgery or hair transplant, or expenses related to non-prescribed drugs, etc.