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/

When Can I Get A Natural Disaster Tax Deduction?

When Can I Get A Natural Disaster Tax Deduction?

by | Dec 12, 2019 | global income tax, tax deductions, Tax Extension, tax filing, Tax Planning, tax reduction, tax return

When Can I Get A Natural Disaster Tax Deduction?

Can I Get A  Tax Deduction? Natural disasters can cause and leave behind severe damage, once they are done. Hurricanes in recent times have done a lot of damages for individuals and communities. And the official season for hurricane stars from June to November. Thus, it is important that you prepare for the same even if you stay in an area, that is not known for hurricanes.

In the event that you have incurred some loss from a hurricane or any other natural disaster for that matter, you can write off some damages on your tax returns. This includes disasters such as earthquakes, floods, fire, etc.

How To Prepare For A Natural Disaster?

It is very difficult to prepare yourself for a natural disaster. However, there are a few precautionary steps that you can follow to maximize protection against it.

  • Know the Storm

It is essential that you stay on the top of the storm. Not literally. But being aware of the category, the direction in which it is headed, whether you should vacate your home or not, etc. will be helpful.

  • Create an Emergency Plan

You can start with creating a supplies kit for the disaster. This can contain stuff like any prescribed medications, blankets, flashlights, pillows and any other essentials. As a part of the emergency plan, you can decide on a general meeting place in the event of an emergency.

  • Secure Your Documents

Ensure that all your essential documents are kept in a box that is weatherproof. You can also make a copy of all the documents and keep them in a separate location. Consider creating a digital copy of the second set.

  • Protecting Your Home

You can carry out a few simple steps to reduce the amount of damage caused by a storm. For example, you can install storm shutters or replace your roof or make minor adjustments to protect your house against storms. You can also take pictures of your house so that you have documented how it looked before the damage to show it to the insurance company.

  • Quick check on your finances and insurance

Take a quick look at your emergency fund and decide if it’s enough. If it is not you can set aside anadditional amount till the disaster. You can also check your insurance if it covers natural disasters such as flood fire. If it does not,you can make minor adjustments.

What Disasters Would Qualify For Tax Deduction?

As per the Tax Cuts and Jobs Act,you can write off only disasters that have been declared federally.For example, hurricane Harvey in 2017 and the California wildfires were federally declared disasters. If your tax records come under the disaster area as per the federal records,you are eligible for the benefits. As an affected taxpayer you’re eligible for these unique benefits. And it is not limited only to individuals as sole proprietors, business entities and business owners can also benefit from it.

Are There Any Special Rules For The Affected Taxpayers?

Yes. Here are some of the special rules for the affected taxpayers.

  • Access To Retirement Accounts

You can withdraw up to $100,000 from your retirement account to pay for damages.

  • Deductions

In the case of an official disaster, you can deduct $100 from the total damage caused. And then you can deduct up to 10% of your adjusted gross income.

  • Tax Filing Extension

For natural disasters, the government might allow for an extension of the tax filing deadline, beyond the standard 6 months extension.

Natural disasters can be very difficult. With the above, you can reduce your recovery duration by a small margin.

 

 

 

 

 

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/

All You Need To Know About Setting Realistic Financial Goals

All You Need To Know About Setting Realistic Financial Goals

by | Nov 27, 2019 | global income tax, tax deductions, tax filing, Tax Planning, Tax Refund, tax return

All You Need To Know About Setting Realistic Financial Goals

Did you achieve your New Year’s resolution this year? If yes, congratulations. If no, the chances are high that you had set an unrealistic goal. A lot of us set ourselves for failure by coming up with unrealistic goals. For instance, if you want to lose some weight a goal of losing a pound or two per week is a realistic goal. But most of us just set the end weight with no time frame.

Losing weight and setting financial goals are poles apart, yet the central theme remains the same. Setting realistic goals is the first step towards achieving them. Here are a few simple steps which will help you set financial goals that are realistic and achievable.

  • Drop Any Comparison

With the presence of social media almost in every sphere of life, it can get a bit difficult to stay away from what your friends or relatives are up to. However, paying too much attention and comparing them to you is a bad place to start your proceedings. You should not compare even with people of your same age group. You can start with what you have in your hands and work your way up,instead of procrastinating of when things get better. As mentioned with the weight loss example, you cannot become wealthy overnight, unless you get your hands on the jackpot.

  • Realistic Goals to Save

You can follow simple goals to start saving and making an impact. You goal must be simple, timely, measurable and relevant. You can set up a goal to save a certain amount by a specific day every month to increase your chances of succeeding. You can break down bigger goals and start working towards them. For example, if you want $10,000 for the down payment of your car in a two to three years, you can start by saving $250 a month. Even before you realize you would have accumulated more than half of your down payment requirement. Of course, you can play around with the $250 a month value. Once you know the amount that you must save, you can plan your expenses accordingly and achieve the goal.

  • The Right Goals

It is essential to set the right goal and priority for these goals as well. While it is essential that you save towards a car, you must not forget that an emergency will not wait for you to be financial stable. Thus, you must make small contributions towards ensuring that you have savings to last you at least a month’s worth spending. The more you end up with, the better it is. This short term goal will give you the confidence that you can achieve bigger goals with equal confidence.

Similarly, you can set other smaller goals to pay of any pending debt. Getting rid of your debt will help you eventually save more and work towards other goals.

  • A Working Budget

When it comes to financial goals, it is crucial that you set up a working budget. An effective budget will ensure that you do not end up spending every penny that you earn. You need to find a good balance between the inflow of funds (income) and expenses. If you find it a bit challenging to create a budget, you can take the help of any of the several apps or tools in the market. However, merely creating a budget is just the beginning. You would need to stick to the budget diligently month after month to achieve your financials goals and eventually achieving financial freedom.

Financial planning is important and so is setting targets. The targets set should be realistic and achievable, else they are of no use. Proper thought and analysis should go into  setting realistic targets.

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.