Most Important Year-End Tips To Increase Your Tax Refunds

Most Important Year-End Tips To Increase Your Tax Refunds

by | Nov 15, 2019 | income tax, Investment & Income, tax deductions, tax filing, Tax Liabilities, Tax Planning, Tax Refund, tax savings, taxes, Taxtips

Most Important Year-End Tips To Increase Your Tax Refunds

A quick look at the calendar and you will realize, this year has come to an end. And even before you realize, the tax season will be close. Instead of rushing during that time, you can take a few simple steps this holiday season to reduce your tax liabilities and increase your tax refunds. Most Important Year-End Tips To Increase Your Tax Refunds.

1.Retirement Planning

Planning for your retirement is a great way to add funds for your retirement and make handsome savings in the form of taxes for the current financial year. You can take the help of either traditional IRA or 401(k) to contribute to your retirement planning. Self-employed individuals can save up to 25% of their income under SEP IRA up to a maximum of $56,000 for the current year.

2.Upskilling

If you have been planning to take some classes to improve your skillset, this might be the best time to enroll. You can start with enrollment and make the payments for the next quarter by the 31st of December. This will help you get some valuable tax credits of up to $2,000 with the help of Lifetime Learning Credit.

3.FSA

Taxpayers who have FSA or Flexible Spending Account, it might be the right time to give your doctor a visit. While there is no hard and fast rule to use the FSA amount but there might not be a lot of benefits in keeping the amount as well. You can only carry forward $500 to the next year. The FSA plans usually allow subscribers to use these funds for up to 2 and a half months in the next year.

4.Charitable Donations

You can make this holiday season a little bit better for the people who are in need. If there are any unused household items or clothes, you can donate them to the less fortunate. Such donations can help you reduce your tax liability, provided you donate to qualified charitable organizations and if you itemize the items. Alternatively, if you volunteer for charitable organizations, you can claim the miles that you drove at 14 cents for each mile driven.

5.Shuffle your Investments

Some investments in your portfolio might not have performed as you expected them to. Investments that have gone down in their value can help you reduce your tax liabilities. You can use the loss to offset the gains that you have received from other investments. However, you must sell the loss-making investments to offset them with the profit-making ones. Should your losses exceed the profits, you can use up to $3,000 against your income.

6.Defer Any bonuses

Taxpayers expecting a year-end bonus for the hard work that they have put in, might find themselves in a spot. The bonus might push you to another tax bracket or increase your tax liability by a healthy margin. If you can, do speak with your boss to deter the bonus to January of next year. This way, you won’t have to taxes for the bonus in the current year.

7.Other Dependent Credit

Taxpayers supporting their grandparents or parents, or other loved ones can benefit from Other Dependent Credit. If they qualify to be non-child dependents, you can claim the Other Dependent Credit. You can claim up to $500 under this category and receive dollar by dollar reduction in your taxes.This tax credit is relatively new and not many taxpayers use it.

Each dollar that you save is a dollar that you earn. Using the above methods, you can save takes on your income and boost your tax returns as well.

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.

How to save money from your Employee Benefits offered to NRIs in the US

How to save money from your Employee Benefits offered to NRIs in the US

by | Sep 26, 2019 | 401 Plan, federal income tax, income tax, state tax, tax deductions, tax filing, tax rate, tax savings

How to save money from your Employee Benefits offered to NRIs in the US

ForIf you are an NRI and doing a job in the US, you will have to pay taxes to the US Government according to the tax laws framed by the US Government.  an NRI doing a job in the US, there are numerous taxes to be paid. However, some substantial amounts of money can be saved by an NRI by availing of the various employee benefits offered by the employer in the US.

Let us have a look at the taxes which an NRI doing a job in the US is supposed to pay.

Taxes to be paid by an NRI employee in the US

Social Security taxes

Every individual working in the US has to pay the Social Security Tax. This amount is contributed by you and your employer together. Half of this amount is contributed by your employer and you will contribute the other half for the payment of the Social Security Tax. An amount ranging to 6.2% of your gross salary is deductible from your salary for the payment of social security tax.

Medicare Tax

The Medicare tax would be paid by you for the health care services to be availed after your retirement. Your employer will deduct 1.45% from your gross salary for making the payment of the Medicare Tax. Even if you will not be present in the country to avail the retirement benefits, but you are still liable to pay this tax.

Federal Income Tax

This is a tricky category of taxation for the US residents including NRIs and PIOs as well. You will have to pay taxes on the income earned in the US but you will not be able to claim any deductions which the US citizens will avail. However, if you are willing to avail of these deductions then you will have to pay tax on your income earned outside the US as well.

State Tax

You are liable State Tax for that particular state in which you are working.

Global Income Tax

You will have to pay this tax if you are earning dividends on mutual funds, shares, agricultural income, etc.

Paying all these taxes would definitely reduce your take-home salary by a considerable amount. However, in the US your employers will provide a number of employee benefits which would be very helpful for you in saving money.

Let us check out some of these benefits available to NRI employees in the US which help in saving money.

Health Savings Account (HSA)

In case your employer is providing a good health plan with a high deductible, you can consider the option of opening a Health Savings Account (HSA). The maximum limit on the contribution to be made by families is $6900 and for singles, the maximum limit is $3450. This money is taken from your paycheck and is accumulated in a Savings Account that can be used during medical emergencies. However, your withdrawal from the HSA will be tax-free only when you are doing it for medical expenses.

Flexible Spending Account (FSA)

This is another benefit provided by your employer is giving you an opportunity to set aside the entire amount in this account free from ant taxation. The contribution into this account has to be made by your employer but you will have to use the money in this account within a stipulated time period otherwise you tend to lose the amount.

Medical Insurance

This insurance is a major benefit provided by your employer and it will cover expenses incurred in hospital visits, doctor’s visits, medicines, prescriptions, etc.

401(K)

This is otherwise known as your retirement plan and by this; you are contributing towards your savings for your retirement. The contribution to this corpus for retirement is made by you and your employer as well. The maximum limit on the contribution made by you would be up to $19000. Moreover, if you are above the 50 years you can contribute an additional $6000 into your retirement corpus.

Health Reimbursement Account (HRA)

This can be termed as Group Health Plans and are sponsored by you and your employer. The amounts which qualify for your medical expenses in a particular year up to a specific limit are free from taxes. The amount which remains unused can be used in the subsequent years as well.

Accident Insurance

This insurance covers medical examinations, emergency treatments, and ambulance or transportation charges, in-hospitalization expenses.

Hence, in addition to the above-mentioned benefits provided by employers, there are a number of other benefits as well such as Dental Insurance, Vision Insurance, Disability Insurance, Accidental death and, dismemberment insurance, etc. These benefits offered by employers can be a great help to NRIs working in the US in saving money.

Top #5 Life-Changing effects and their tax implications for NRIs in the US

Top #5 Life-Changing effects and their tax implications for NRIs in the US

by | Sep 19, 2019 | federal income tax, income tax, NRI, tax deductions, tax rate, Tax Refund, taxes

Top #5 Life-Changing effects and their tax implications for NRIs in the US

Tax implications,Life is a storehouse of changes; every person experiences certain life-changing events that can bring a transition in the entire course of the life of a person. These life-changing events can also bring a great transition in the taxation methodologies of an individual. Tax implications moreover, life-changing events and changes in the rules of taxation are the two major factors that will always cause either an increase or decrease in your taxes.

You can face this type of situation in your life when you have numerous changes happening together in a year. These changes will affect the payable taxes and you need to adjust to these changes.

When you are an NRI in the USA, you will have a number of taxes to be paid such as Medical Care Tax, Federal Income Tax, Social Security Tax, Global Income Tax, etc. These numerous taxes will reduce your take-home salary considerably and on top of this, when you have life-changing events and their implications to be addressed you will really have a tough time in handling these issues.

Let us have a look at the top 5 most crucial life-changing events and the impact they can have on the tax of an NRI in the USA.

Tying the knot

Mostly, all married NRI couples receive tax benefits in the US as they would file the taxes jointly now. This results in lower tax rates and more tax benefits.  But, sometimes if both the spouses are earning too high and are filing their taxes jointly then there might be a scenario of penalty. This might occur due to the reason that by filing joint tax returns, the couple is paying much more taxes than they should have paid as singles. But, there have been various tax reforms that have lowered the tax rates for these couples.

Welcoming a little bundle of joy in your life

This is, in fact, a real life-changing event and would be a crucial phase in life. Your little bundle will not only bring happiness into your life but also will help you in reducing your tax liabilities. The Child Tax Credit helps NRIs in the US in reducing their liable taxes. By this, if your child is below the age of 17 years then you can get a tax credit of $2000 known as Child Tax credit. Moreover, other additional credits are associated with this i.e. Child and Dependent Care Credit and the Earned Income Tax Credit. All of this would be helpful in saving a substantial amount of money.

Separation

Getting separated legally or getting divorced is a tough phase of life and has certain implications related to your taxes as well. According to the new tax laws in the US, the spouses who will be receiving the alimony do not have to pay tax on the received alimony. However, the spouse who will be making the payment cannot claim this as a tax deduction. Precisely, alimony paid is not a tax-deductible component for the payer and also is not included in the income of the spouse receiving it.

This will be the law implication for those married couples who got legally separated after 2018 or before 2019 and then later certain modifications were made into the deductions associated with alimony.

Death of a partner

There is nothing more painful than losing your partner or spouse, but the laws of paying taxes related to this are even more hurtful. You will need to file for an estate tax return depending on the size of your estate and the assets in your estate. Moreover, new tax law states that you will need to pay estate tax only when the value of your estate is above $11,400,000.

Buying or selling a house

There are many additional deductions that you can claim if you are buying a new home or selling a home. When buying a new house, you will be able to claim deductions like paid points, interest on the mortgage, other real estate taxes, etc. However, while selling a house you will not be liable to pay taxes above $500,000 on the gains in case of filing tax returns jointly along with your spouse.

Hence, these life-changing events not only bring a change in your mental state but also affect the state of your tax liabilities. After these events, either you tend to pay more taxes or pay fewer taxes in some respect depending on the taxation laws.

The Top #5 Tax saving tips from your new job as an NRI in the US

The Top #5 Tax saving tips from your new job as an NRI in the US

by | Aug 23, 2019 | global income tax, NRI, tax deductions, tax rate, tax return, tax savings tips, taxes

The Top #5 Tax saving tips from your new job as an NRI in the US

If you are an NRI working in the US, you will need to pay taxes in US and you will be considered as a Resident alien with respect to tax purposes in US. You will be liable to pay taxes in US if you are a green card holder or you were present in US for a total period of 183 days i.e. you can count on the actual number of days you were present in US in the current year i.e. it should be at least 31 days , one-third of the number of days you have been in US in the first year preceding the present year and one-sixth of the number of days you were present in US in the second year preceding the present year. This is known as the Substantial Presence Test (SPT) used by the IRS to find out your liability to pay tax in US. Tax saving tips from your new job as an NRI in the US

Types of taxes to be paid by an NRI in US

Let us have a look at the types of taxes NRIs need to pay in the US.

  • Social Security Tax

Social Security Tax is to be paid by every individual who is working in the US. Half of the amount will be contributed by your employer in US and the other half is given by yourself. 6.2% of your gross salary would be deducted as your contribution to Social Security Tax.

  • Federal Income Tax

Since you are a non-resident in US you will have to pay tax on all income earned in the US without any deductions that the US citizens can avail. However, if you are availing the deductions which the US citizens are enjoying you will have to pay tax on the income earned outside the US as well.

  • State Income Tax

You will have to pay State Income Tax based on the state of the US in which you are working

  • Medicare Tax

This tax is paid by you for the health care services which will be availed by you after your retirement and is irrespective of the fact if you would be in the country then to avail them or not.  You and your employer will have to contribute 1.45% of your gross salary for this purpose.

  • Global Income Tax

Any dividend obtained by you on shares and mutual funds in India are to be taxed in the US.  Moreover, this rule of taxation is also applicable to any agricultural income and capital gains obtained in India. A foreign tax credit in your US tax return can be claimed by you, in case of tax payment done for the above-mentioned income sources. Form 8938 (Statement of Specified Foreign Financial Assets) and

Form 8621(Passive Foreign Investment Company) can be filed along with the US Tax return for this purpose.

Tax Saving Tips for NRI in new jobs in the US

Some of the tax-saving tips for NRI working in new jobs in US are mentioned below.

  • Form W-2 must be present with you

This form is a major document required while filing your US tax returns. You can obtain this form from your employer and it will contain details related to your annual payroll. You should collect your Form W-2 from each employer for whom you have worked in a particular year.

  • Spousal exemption to be claimed and declaration of dependents

An important tax-saving method is by claiming a spousal exemption. For this, you will have to file Form W-7 and apply for an ITIN i.e. Income Tax Identification Number.

While filing for US tax returns, you can declare your dependents even if they are residing in India. However, there are certain laws by which they will have to qualify as your dependents.

  • Declaration of all financial interest

You will have to submit Form TD 90-22.1 in case of having financial accounts outside US with a value of the accounts exceeding $10,000 on a yearly basis.

  • Medical deductions should be claimed

You can claim your medical deductions by filing Form 1040; Schedule A in case of your medical expenses exceeding 7.5% of your Adjusted Gross Income.

  • Make investments or take mortgage loans

You can make investments into retirement schemes, stocks or fixed deposits to save taxes. Also, you can save taxes by taking mortgage loans or by making donations.

Since you are an NRI and new at your job, your income in the US would be reduced up to a large extent due to the payment of taxes. However, these tax-saving tips will help you in reducing your tax liabilities up to some extent.