Is it possible to maximize your tax refunds?

Is it possible to maximize your tax refunds?

by | Jan 9, 2020 | 401(k), Deduction & Credits, Investment & Income, IRA, tax deductions, tax filing, tax return, taxes

Is it possible to maximize your tax refunds?

Mostly, we think that when we have filed for our tax return and finally obtained our tax return brings an end to the entire procedure for the current year. There is nothing more to worry about or think about tax and tax returns throughout the year. However, even after receiving your tax return for the current year you can think about maximizing your tax refunds.

If you are interested in learning about how to maximize your tax refunds for the next year, then you can follow some simple tips. Let us have a look at these tips which can increase your tax refunds in the next year.

1.Deduction of education-related costs

There are numerous costs related to education that are deductible. In case you are the owner of a business or you are employed in an organization, you can try and deduct those education costs which are needed for improving your skills at the workplace. If you have an income that is less than $80,000 then you might be able to take up tuition and the fee deduction would amount up to $4,000 for the tuition, fees, and books.  For instance, if you and your family members are together pursuing a degree then you can take up an American Opportunity Tax Credit which is a maximum annual credit of $2,500 for each student provided your income is less than $90,000 and is less than $180,000 for married couples who would be filing tax jointly.

2.Deduction of expenses incurred in job-hunting

There are various costs associated with job hunting which can be reduced such as deduction of the cost incurred during travel for jobs, meals and telephone calls associated with job search, preparation of a resume, career counseling, payment made to employment agencies, etc. These expenses account for almost 2% of your annual income even if you are not going to change your job anytime soon in the future.  But, if it is your search or hunt for your first job then the expenses are unavoidable.

3.Take deductions available for business owners

When you are the owner of a business, you should keep a track of the business expenses and avail deductions that are available. Expenses like business dinners, mileage of the car, use of a computer, appointments, etc. can be used to increase your deductions available. You can also motivate your children to work in your business along with you. You can pay those wages for their jobs and as a result, they will not have to pay different varieties of taxes like other employees working with you.

1.Making investments in future

You should start investing in various plans such as 401(k), IRA, tax-advantaged avenues, employee stock purchase plans, etc. You should start contributing to these avenues as much as you can. If you are making smaller contributions now it would be helpful rather than making huge contributions at a time which is quite nearer to your retirement. By doing this now, you are saving now and also taking an initiative towards boosting your wealth also. This extra compounding will help increase your corpus for retirement.

2.Your own home

 Your tax refund can have a remarkable increase in the mortgage interest and property tax deductions. When you are purchasing your house, you must check the settlement statement of your house properly and find out the deductible items.  In your closing statement, you can find out different deductible items such as property taxes, prepaid interest, points, etc. When you are acquiring your own house, those points that are paid are deductible during that year. If there are any points paid for the refinancing of the loan, then they should be written off over the loan’s length. Again if you are refinancing, you must not forget to write off the remaining points from the previous loan.

3.Charity

 Charity can also get you some tax deductions such as donating clothes, household goods, linen, sports items, etc. Donation of books and magazines made to the library can also get you tax deductions. You can make a note of the donated items and can deduct these at the time of tax filing.

Hence, tax refunds can be maximized by carefully keeping a note of the various deductibles that are available and those that have been availed by you. You can, later on, use these to maximize tax returns at the time of tax filing.

How to start investing in the US being an NRI?

How to start investing in the US being an NRI?

by | Jan 3, 2020 | 401(k), federal income tax, global income tax, Investment & Income, NRI, tax return

How to start investing in the US being an NRI?

For the NRIs in the US, an investment can be the best method to build long term wealth. If you are an NRI and are planning to invest in the US, you don’t need to be wealthy or super-rich; a common man can start investing with a minimum amount of funds but in a wise manner.

Some of the best investment options in the US which can be ideal for NRIs can be listed below.

  1. Index Funds
  2. Target-Date Retirement Funds
  3. Retirement Account

Index Funds

An Index fund is a category of mutual fund which has a portfolio that has been constructed in a way such that it can match the components of a financial market index i.e. the Standard and Poor’s 500 Index (S&P 500). Index funds help the investor in providing wider market exposure, fewer expenses involved in operating and low turnover associated with the portfolio.

By investing in an index fund, an NRI would be involved in a form of passive investing. Here the portfolio manager would not be actively involved in picking up the stocks and making up strategies on how to buy and sell them. Rather, the portfolio manager would build up a portfolio in which the holdings would mirror the securities which are of a specific index. In simple terms, an index fund is a portfolio of stocks or bonds which are designed in such a way that it can be similar to the composition of a financial market index.

Index Funds are a very good choice for diversification. They provide strong long term returns and are an ideal option for buy-and-hold investors. There is a “three-fund portfolio” which can be used to make an investment in every sector in the market.

  1. Total U.S. Stock Market Index Fund consists of large-cap, mid-cap, and small-cap U.S stocks.
  2. Total International Stock Index Fund which comprises of developed and developing international markets.
  3. Total Bond Market Index Fund that includes corporate bonds and Government bonds.

Target-Date retirement fund

The target-date retirement fund is another ideal investment option for NRIs in the US. An investor can choose a fund that is nearer to his planned retirement date. The fund manager should plan and put the money into better and conservative assets as the investor’s retirement date approaches.

Target-date retirement funds can be more expensive when compared to Index funds. But, still, they are cheaper and involve less amount of risk as compared to that of the option of selection of individual stocks for investment.

Retirement Accounts

In the US, federal tax and state income tax is charged on any income which is obtained from an investment.  To reduce bills that are related to tax, NRIs must start contributing towards a 401(k) plan or towards an individual account which is meant for retirement. If an NRI has an individual retirement account, he will pay tax on the cash in the account for only once.

With the help of a 401(k) plan or contributions made towards IRA the taxable income of NRI decreases. The contributions made by the NRI become tax-deferred as taxes are paid on the amount being withdrawn. Roth 401(k) and IRA need to make tax payments in the current year, but the amount of contribution made and the earnings made in life-time grow free. If the employer of an NRI is offering equal contribution, then he can consider making contributions to the 401(k) plan first. Otherwise, it is wiser to contribute to the Retirement Account at lower fees.

The right time to begin investing

The right time to begin investing is from now as more opportunities will be available to earn income from dividends and also to capture the growth in the share price. Moreover, when you are reinvesting your income; your passive income starts compounding.

In the US, investing is the best option to start saving for your retirement. The sooner you start investing the less you are delaying your retirement planning. The rate of interest in banks is almost low and does not generate much compound interest. Also, inflation rates affect the rate of interest in the savings account. So, by investing early you are paving the way for obtaining consistent returns with fewer efforts.

Hence, there are numerous investment avenues available for NRIs in the US. To start investments in the US as an NRI, you do not need too many funds. You can start your investment from today with minimum funds and minimum effort but with strategies and far-sightedness.

 

Top 10 Tax Refund Takeaways From 2019

Top 10 Tax Refund Takeaways From 2019

by | Dec 15, 2019 | 401(k), capital gains, IRA, Tax Extension, Tax Liabilities, Tax Payers, Tax Planning, tax return, Taxation, taxes

Top 10 Tax Refund Takeaways From 2019

As winters approach, Tax Refund Takeaways 2019, taxpayers across the country have even less time to plan for their taxes. In no time Spring will be looming and you do not want to be caught in the crosswinds. This festival season, you can set aside some of your time and plan for your taxes, if you haven’t already done this. It is to ensure that your tax liability is low and that you have a better chance at a higher tax refund. Here are the top 10 takeaways considering the proposed changes in taxes in 2019.

1.401(k) and HSA

You can contribute towards traditional IRAs up to the 15th of April of next year. However, you will miss out on the provisions for 401(k) and Health Savings Account if you do not make any contributions till the 31st of December. Taxpayers can deductions up to $7,000 for contributions towards health insurance plans.

2.Delay Your Mutual Fund Purchase

If you wish to buy mutual funds during this time of the year, you might want to rethink the decision. Especially if you want to hold them in a taxable account. The problem with buying at this time is that you would have to pay taxes on the year end dividends. This is applicable even if you just purchased the shares.

3.Capital Loss Harvesting

Should you own any stocks that are at a loss, you can sell them and deduct up to $3,000 on the federal taxes that you owe. The only thing that you need to be careful about is that you do not violate the wash-sale rule. According to the rule, you cannot purchase the exact same stock or something substantially similar within 30 days of selling the stocks.

4.Opportunity Funds

You have the option to defer paying capital gains tax if you choose to reinvest in Qualified Opportunity Funds. The Tax Cuts and Jobs Act of 2017 brought the Opportunity Funds into existence. The fund aims at creating jobs and opportunities in communities that are distressed.

5.Charity

On reaching the age of 70 ½ years, senior citizens must take minimum distribution if they have 401(k) or IRA. If you do not need the amount for living, you can send it to a charity. Essentially it is a check issued by the IRA to the charity.

6.Traditional To Roth IRA

Any amount that you withdraw on retirement from a traditional IRAs taxable but any distribution from Roth IRA is fax-free. Roth IRAs also do not have minimum requirements, which can be beneficial to reduce your taxes. You can convert your traditional IRA to Roth IRA, but you need to be cognizant of the fact that the converted amount can be taxed.

7.Opt For Capital Gains Tax

If you belong to the 10% or 12% tax bracket, you can consider selling your stocks that are in green. You can sell stocks that have seen significant appreciation as you do not have to pay any capital gain taxes for the mentioned brackets.

8.Charity

You can club your charitable contributions together for more effective tax planning. You can club your contributions for two years and file in a single year. This will allow you to claim itemized deductions for alternate years.

9.Flexible Spending Account

You cannot carry forward any balance that is in a flexible spending account. It might be a good idea to put the amount to use before it expires.

10.Tax Advisor Services

To maximize your tax refunds, reaching out to tax advisor might be a good idea. And the earlier you meet, the better chances you have of getting a good advisor and good refunds.

Knowing the basics of taxation and ways to reduce liability is helpful in the long run and something that all tax payers must be aware of.

Reference:

https://money.usnews.com/money/personal-finance/taxes/articles/10-year-end-tax-tips

 

 

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.

 

 

 

 

 

New W-4: Adjusting Your Tax Withholding Just Changed

New W-4: Adjusting Your Tax Withholding Just Changed

by | Dec 11, 2019 | income tax, tax form, Tax Refund, tax return, tax savings, taxes, W4 Form

New W-4: Adjusting Your Tax Withholding Just Changed

The IRS has recently introduced a new Form W-4. Due to this new Form, adjusting your withheld taxes from your paycheck would take a bit longer than usual. The only group that will not be affected by this form is taxpayers who are married and filing jointly.

Form W-4‘s format is long and essentially gets rids of a few allowances that the IRS earlier allowed for you and your family members. The form now asks for even more accurate information, which might even force you to take a look at the previous year’s tax return. It is in line with the Tax Laws that President Trump brought into effect in 2018.

As a taxpayer, it is essential that you get your withheld taxes correct. If you withhold a bit too much, you will impact liquidity or the salary that you take home. And if it is a bit too less, you will owe taxes to the IRS by the end of the year.

Who Needs The W-4?

The new form does not apply to workers unless there is a change in their tax status form the previous year. If your tax status remains the samefrom the last year, you don’t have to file the new W-4 Form. However, new employees and the ones who have had experienced a major life event such as getting married or giving birth to a child must file Form W-4.

The form is also applicable for taxpayers who aren’t too happy about their 2019 taxes. Whether you owe taxes of Uncle Sam or got smaller than expected refund, you must file W-4. Though it might seem a bit complicated, it actually simplifies the process that existed earlier.

 Benefits For Married Couples

Married couples are one of the demographics, that benefit the most from the newly introduced form. As long as both the individuals follow some instructions, the new Form is relatively easier for married couples.Married couples now merely must check a box in the returns. This box indicates that both of them are working and the amount of withheld taxes will be calculated based on that. This process is way simpler than the earlier one, where one had to follow a lengthy worksheet with nine steps to determine how much taxes should a couple withhold from their paychecks.

Though this process is simpler, there is a catch in Steps 3 and 4. Should a couple select the working box, the higher earning spouse must fill out Steps 3 and 4. These ask the taxpayers details about dependents, deductions, any additional withholdings and an additional source of income.The previous step is essential in more than a few ways. Since it plays a crucial role in deciding the taxes that are withheld. If both individually fill additional income Step 4, the amount of taxes withheld from the paychecks will be considerably higher. Similarly, a couple decides to fill in details for dependents or deductions individually, the taxes withheld will be lower. Though it might sound attractive at first, you might end up with a hefty tax bill at the end of the tax season.

Ensure No Surprises

Since it is a new Form, filing it up diligently will ensure that you don’t have to encounter any surprises. One of the easiest ways is to keep the details of the previous year handy. Details such as other sources of income, deductions that you had claimed and tax credits that you received for dependents.

Spending a few minutes to understand and fill the form will ensure that you are neither overdoing or underdoing your withheld taxes.

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.