All you need to know about Stock Investments in your Income Tax report

by | Mar 8, 2021 | Blog, indian investments, Tax Payers, Tax Professionals

All you need to know about Stock Investments in your Income Tax report

All you need to know about Stock Investments in your Income Tax report

If you are investing in the Stock Market, then it is one of the best methods by which you would be able to increase your net growth. The money you have or in other words your money is being put to do work for you if you are investing in stocks.  The money which you would be investing in can help you earn dividends and interest as well. So, by the stock investment, you are able to earn a lot of dollars in return.

However, stock investments can lead to certain complications in your tax situations as well. The investments into stocks must be reported on your federal tax returns. So, if you are earning any interest or dividends from your stock investments then you would have to pay taxes on those earnings. Mainly, there are two situations when your investments into stocks can affect your tax returns i.e. first are when you earn from your investments, and the second is if you are selling your investments for either a profit or loss.

So, let us check out the various scenarios that are associated with the tax rules associated with either the purchase or sale of stock investments.

Purchase or Sale of investment

In case, you have sold some of your investments in the tax year 2020 you would pay taxes on the capital gains you have obtained. Capital gains can be said to be the profits that are earned from investments.

The amount of taxes that would be owed to pay in case of the sale of investments would be depending on some factors.  There would be two categories into which the capital gains would be divided i.e. short-term holdings and long-term holdings.

Short-term holding would be the one you had for a period which is less than a year and it can be taxed up to 37%. On the contrary, long-term holdings are those which you can hold for more than a year. Long-term investments are those which have been held for more than a year. These investments are taxed depending on your income earned and the tax rates can vary from 0%, 15%, or even 20%.

Interests and dividends

Even if you have not sold any of your investments in the year 2020, you would have to pay federal income tax on the dividends and interest.

In case, you are the owner of stocks or index funds you would be paid the dividends periodically. In a similar manner, if you are earning some interest on any bonds you have purchased it is necessary to report the interest earned in your tax returns. You would have to pay the respective taxes on the interest earned as well.

Reporting stock investments on your tax returns

Your investment in stocks would start complicating your tax returns. You will have to navigate several additional forms which you would need for reporting the investments made into stocks on your federal tax returns for the year 2020.

You can begin the procedure by gathering all the forms and documents which you have obtained. These additional forms would include 1099-DIV forms which would highlight how much had been paid to you by each company in the form of dividends. You might receive Form 1099-B which would be helpful in demonstrating any capital gains which you have obtained throughout the tax year. The Form 1099-B would help in the calculation of the capital gains or loss and post it on your Form 1040.

Moreover, if you are working with a tax professional or taking help from tax software you must ensure that you are completely organized and have all the tax forms in hand which you have received.

Conclusion

Hence, with this information, it would become quite easier for you to understand the tax implications if you have an investment portfolio.

All about the New Coronavirus relief package and a second stimulus check for the NRIs in the US

by | Feb 25, 2021 | tax filing, Tax Payers, Tax Professionals, tax reduction

All about the New Coronavirus relief package and a second stimulus check for the NRIs in the US

 

On 27th December 2020, the US Government had signed the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 into law. According to this law, a relief package of $900 billion would be delivered to the Americans as a second round of economic stimulus due to the pandemic COVID-19. This bill would help in providing relief to the Americans through the various provisions which have already been put in place by the CARES Act. 

Let us have a look at what this new Coronavirus relief package would include.

Stimulus Payments

Another wave of Stimulus payments for the Americans has begun. This Stimulus payment would be up to $600 for the eligible taxpayers, $1200 for those taxpayers who are filing their tax returns jointly, and also an additional amount of $600 for a dependent child who is below the age of 17 years.  So, if there is a family with two children then they would receive a Stimulus payment of approximately $2400. 

The NRIs in the US do not have to do anything special for being eligible to receive the Stimulus payment. The Stimulus payment would be done by the IRS by using the latest information which is present on the tax returns of the year 2019.

Who would be eligible to receive the Second Stimulus payment?

  • If you are filing your tax returns as a Single and having an AGI (Adjusted Gross Income) of up to $75,000 or if you are married and are filing your tax returns jointly with an AGI of up to $150,000 then you would be eligible for receiving the Stimulus Check.

  • For those NRIs who are filing their tax returns as single and have no qualifying dependents, the Stimulus Check payment would phase out at $87,000 and for married couples filing their tax returns jointly without any dependents the payment would phase out at $174,000.

     

  • There are possibilities of more households being eligible for obtaining the Second Stimulus payment as this bill would expand stimulus payment for those households which have a mixed-status i.e. different categories of immigration and citizenship statuses as well.

     

  • Also, those NRIs who were receiving Railroad Retirement, Social Security Retirement, or SSI income would receive the Stimulus payment without filing a tax return.

 By when would you receive your Second Stimulus payment?

 If you have not received your Second Stimulus payment yet, then you would be receiving it very soon. There have been some errors by the IRS due to which lots of Stimulus payments have been done to wrong accounts.  However, according to the IRS updates the payment for those affected by this error has been done by 8th January and many Americans must have received them too by now.

Extended Unemployment

There has been an increase in the unemployment payments and this would be $300 each week now. These benefits would be extended until 14th March 2021 now. According to this new bill, there has also been an extension to the Pandemic Unemployment Assistance (PUA). This implies that the freelancers and self-employed NRIs in the US can continue to obtain Unemployment benefits.

Moreover, some NRI workers earn a minimum amount of $5,000 in a year but are not able to avail the benefits of the Pandemic Unemployment Assistance as they have an employer. But, now with this New Coronavirus relief package, these workers can even avail the benefit of receiving $100 extra in a week as Unemployment benefits.  

The EITC and CTC

The New Coronavirus relief package would help the Americans having low income in using their income from the year 2019 for determination of their EITC (Earned Income Tax Credit) and even that part of the Child Tax Credit (CTC) which is refundable.

Expansion of the PPP 

Under the New Coronavirus relief package, the NRIs can also receive a second round of payments under the PPP (Paycheck Protection Program). Due to the expansion in the Paycheck Protection Program; there has been an expansion in the category of business expenses which can be forgiven under those loans that have been taken for meeting the supplier costs.

Contractor Paid Leave

Those contractors who have not been able to work for a temporary period due to the restrictions like the closure of facilities would receive reimbursement for their paid leaves taken. 

Eviction Moratorium and Rent Assistance

Furthermore, the New Coronavirus relief package provides an extension for the moratorium on evictions until 31st January 2021. Those families which are not able to pay their past rent or have problems related to future rent payments would be receiving financial assistance.

Extenders related to tax 

Tax extenders would be providing tax relief to individuals as well as NRI families with the help of mortgage relief, relief on medical and education expenses as well.

Conclusion

So, the New Coronavirus relief package and the second stimulus payment would help in providing some amount of financial assistance to the Americans during these difficult times thus, reducing the financial stress.

What is Recovery Rebate Tax Credit for 2020 all about?

by | Jan 28, 2021 | Tax credits, tax filing, Tax Payers, tax returns, taxes

What is Recovery Rebate Tax Credit for 2020 all about? The pandemic COVID-19 had created a huge adverse impact on the financial lives of the Americans. Initially, the US Government had issued a huge round of Stimulus Checks or Economic Impact Payments up to $ 1200 for each qualified adult in a household plus $500 for each qualifying dependent. Later on, another round of Stimulus Payments has been issued for the Americans according to which each qualified individual in a household would receive Stimulus Payment of up to $600. The eligibility of Americans to receive these Economic Impact Payments is based mainly on their AGI. The IRS would mainly have a look at the tax returns of the Americans for the year 2018 or 2019 for determining their eligibility to receive the Stimulus Payments. Under the CARES (Coronavirus Aid, Relief and Economic Security) Act, a different type of credit known as “Recovery Rebate Tax Credit” has been authorized. This implies that if an American is eligible to receive the Stimulus Payment or the Economic Impact Payment, but has not received the payment or has received an amount which is less than the total amount in the form of an advance payment for the tax year 2020 then it would be feasible to claim Recovery Rebate Tax Credit on the tax returns of 2020. Who would qualify for a Recovery Rebate Credit? In general, an individual would be eligible to obtain Recovery Rebate Credit if
  1. The individual was a US citizen or a resident alien of the US in the year 2020.
  2. The individual was not claimed as a dependent in the year 2020
  3. The individual has a valid Social Security Number issued for employment before the due date associated with the 2020 tax returns.
The amount of Rebate Recovery Credit to be obtained can be calculated by the IRS in the same method which was used to calculate the Stimulus payment.
  • Any eligible taxpayer who has not received either one or both of his Stimulus payments would be able to claim the Recovery Rebate Credit while filing their tax returns for 2020 in 2021. 
  • There might be some individuals who would have experienced a life-changing event after the first round of Economic Impact Payment was made such as unemployment or birth of a child etc.
  • If an individual is single and has an adjusted gross income of less than $75000 and his Stimulus obtained is less than $1200.
  • If an individual is married and is filing his tax returns jointly with a gross income, not more than $15, 00, 00 and his Stimulus payment is less than $2400 then he can claim Recovery Rebate Credit.
  • If an American has not received $500 for every qualifying energy then he can claim the Recovery Rebate Credit.
Information required claiming Recovery Rebate Credit In case, you have not received the full Economic Impact Payment and wish to claim more by the Recovery Rebate Credit on the taxes of 2020 then you would have to inform about the amount of Stimulus payment that was issued in the tax year 2020. A Notice 1444 is being issued by the IRS which reflects the amount that an individual was issued before any offences had happened in 2020. While filing your tax returns, an individual can have this form in front of him and do his taxes. Can a college-going student claim the Recovery Rebate Credit? If an individual is able to meet the basic eligibility criteria and has not been claimed as a dependent on his parents or anyone else’s tax returns of 2020, then he can claim the Recovery Rebate credit if he has not received the Stimulus Payment. If a college student has worked in 2020 and has federal taxes withheld from his pay, then he can get some of his withholding back either as a tax refund, claim the education tax benefits also increase their refund by the help of Recovery rebate credit. Recovery Rebate Credit – Way to claim the additional stimulus If you have not been able to claim the extra $500 for each qualifying child in your first Stimulus Check or have not been able to claim the additional $600 for each qualifying child in the second Stimulus Check then the additional amount can be claimed by the Recovery Rebate Credit. Conclusion Hence, in these challenging times of Coronavirus, the Recovery Rebate Credit would be a helpful means in increasing the amount of tax refund to be obtained by an individual or in decreasing the tax owed by an individual. Recovery Rebate Credit can be claimed on Form 1040 or Form 1040-SR in the year 2020.

Tax Deductions Available for Cancer patients

by | 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.

New to the US – Here’s what you need to know about filing your taxes as an NRI in the US

by | Jan 20, 2021 | NRI, tax filing, Tax Payers, tax return, taxes, US Government

New to the US – Here’s what you need to know about filing your taxes as an NRI in the US If you are a US resident or a US citizen i.e. an NRI, PIO or OCI you must have to pay taxes to the US Government on the global income which you have earned.  A person would be defined as a US resident only if he is able to meet either of the below-mentioned tests.
  • Green Card Test
If during any period of a particular calendar year, according to the laws of immigration you were a permanent resident of the United States and this status has not been abandoned by the law then you would be considered to have passed the Green Card Test.
  • Substantial Presence Test 
The Substantial Presence Test states that you should have been present in the United States physically for a period of at least 31 days during a particular year and 183 days during the three year period which would include the current tax year and the 2 years immediately before the current year.   If you have a green card, then you would be considered to be a US resident for the purpose of tax irrespective of the place where you are living. In case, you are a Visa holder then there are more complicated rules associated with the Universal Taxing Jurisdiction. If a taxpayer is having income or receiving a salary from India, then that has to be reported by filing Form 1040. Also, the taxpayer would fill up form1116 if he is claiming the tax credit. By the Double Tax Avoidance Agreements (DTAA) NRIs would be eligible to receive credits for the tax that has been paid in India. This would help in providing protection from paying taxes in both nations.   FBAR Information The FBAR Form can be considered as a reporting form for those US citizens who hold $10,000 or even more in a foreign financial account. Moreover, it is necessary for you to include the instruments like mutual funds, life insurance plans, accounts where you are considered as the signatory authority only.  FATCA Reporting – Form 8938 Certain taxpayers from the US who are holding some specific foreign financial assets with an aggregate value that exceeds $50,000 must report information about the assets on the Form 8938. This form must be attached to the annual income tax return of the taxpayers. Those US taxpayers who are residing abroad or who file a joint tax return can have the privilege of a higher asset threshold. Foreign Tax Credits Foreign Tax Credit is a non-refundable tax credit for the income tax which has been paid to the foreign Government due to the foreign income tax withholdings. This credit is mainly available for a taxpayer if he has either worked in a foreign nation or has some income from investments into foreign sources. There are some qualifying factors which would help in understanding if a taxpayer would be eligible to obtain a tax credit or not.  Foreign Earned Income Exclusion There is a concept of Foreign Earned Income Exclusion by which those citizens who are working outside can avail the advantage of the reduction in their taxable income. Taxpayers can also get the benefit of excluding their house expenses; however, this can be availed with the limit. There are certain rules as to who would qualify for this tax exclusion. Conclusion So, now with these important facts related to the taxation associated with the NRIs, it would be easier to have a clear understanding of the tax norms for the NRIs.

Does every NRI in the US need to file their Income Tax?

by | Jan 10, 2021 | income tax, income tax credit, NRI, tax filing, Tax Payers, taxes

Does every NRI in the US need to file their Income Tax? Everyone in the US is not required to file their Income Tax return every year. In case, your total income for a year does not exceed a particular threshold then you would need to file a federal tax return. The amount of income which you would be able to earn before you are needed to file a tax return would be based on the type of income, the age of the NRI and the filing status of the NRI. Gross Income Thresholds Most taxpayers are eligible to claim the Standard Deduction. As an NRI, the Standard Deduction amount for which you would be eligible for is mainly determined by your age and your filing status. The Government usually decides this amount before the tax filing season arrives and this amount would increase for inflation each year. By the help of Standard Deduction and other deductions, your income can be reduced to determine your taxable income. In general, if your income is less than your Standard Deduction then you do not need to file a federal tax return. You would not need to file a federal income tax return if the below-mentioned criteria are true.
  1. If you are below the age of 65 years
  2. If you are filing your tax returns with the Single status
  3. If you do not have any other special conditions which would require you to file the tax returns such as income obtained from self-employment
  4. If your income is less than $12,400 i.e. the Standard Deduction in the year 2020 for a taxpayer.
What would happen if you are only receiving Social Security Benefits? In general, cases, if your only source of income is the Social Security Benefits then you would not have to file a tax return. However, Social Security Benefits have another aspect i.e. if you are married and are filing your tax return separately from that of your spouse then some of your Social Security Benefits must have to be included in your taxable income to know if it is greater than the Standard Deduction you are claiming. Taxability of Social Security Benefits In order to find out if the Social Security Benefits which are receiving are taxable or not, the below-mentioned steps can be implemented.
  1. You can add one-half of your Social Security Income to all other types of income which you are receiving including the income which is tax-exempt.
  2. After that, the amount obtained can be compared to the base amount for determination of your filing status.
  3. In case, the total will be more than the base amount then some of your Social Security benefits would be taxable.
When a dependent would need to file a federal tax return? NRI taxpayers who are claimed as dependents on the tax returns of another person have different filing requirements with the IRS. The income of a dependent can be “unearned” when it would be derived from certain sources such as dividends or interest. If the unearned income of a dependent is more than $1,100 in 2020 then tax return must be filed by the dependent. Filing a Tax return to claim a tax refund There might be instances when there would be the need to file a tax return for an NRI such as taxes would have been withheld from a paycheck and a tax refund is due. If too much amount has been withheld from your paycheck, then the only method by which you would be able to obtain your tax refund is by filing their tax return.
  1. For instance, if you are an NRI who is a taxpayer with a single filing status and earns $2500 during a particular year and $300 is being withheld from your paycheck then you can obtain a refund of $300 as your income is less than Standard Deduction.
  2. If you have a refund due then the IRS would not automatically issue the refund. You would have to file a tax return so as to obtain your refund which is due.
Conclusion Hence, if you are an NRI in the US then there are various criteria which are applicable for determining your tax liability. You must be well aware of these criteria and file your tax returns accordingly.