How to save taxes in 3 ways this summer?

How to save taxes in 3 ways this summer?

by | Jun 14, 2019 | tax deductions, Tax Planning, Tax Preparation, tax savings, taxes

How to save taxes in 3 ways this summer?

We are surrounded with a few mundane tasks that we must carry out, irrespective of we like them or not. Tax planning is a prime example of the same.  though it is mundane and even borderline boring, it must be done. However, there is an upside to it. If you successfully plan your taxes, you can save a considerable amount of money. If that isn’t a good enough reason to plan for your taxes, nothing else will.

But where do you start from and how do you plan your taxes? To make matters easy for you, here are the top 3 tips by which you can save money on taxes this summer. If you do not want to pay extra to Uncle Sam, the following tips are for you.

Health Savings Account (HSA)

If your employer offers any health insurance plan, you can combine your health savings account along with it. In the event that your employer does not offer any health insurance plans, you can buy a health savings account on your own. The money that you put into a health savings account is pre-tax. You can then use the amount for various expenses such as medical bill for procedures, co-payment, deductibles and even certain expenses that are not covered as a part of medical insurance such as dental care or vision.

Your contributions towards HSA has several tax benefits. For starters, it is deducted pre-tax, the amount that you contribute is non-taxable. The amount that you invest then keeps on growing tax-deferred. And lastly, when you do withdraw the amount it is tax-free.

Flexible Savings Account

A flexile savings account is another smart way of handling your taxes. On the surface, it resembles the Health Savings Account to a great extent. The major difference being, that a flexible savings account is sponsored by employers only for healthcare plans. Per year, you can invest as much as $2,250 pre-tax. You can then use the amount for taking care of expenses such as deductibles. And, you do not have to pay anything on the $2,250, no state taxes or no federal taxes.

Unlike the HSA, you do not get the amount directly. And you must spend the amount by the end of the year. If you fail to do so, the amount will revert to your employer. Though, some companies now offer grace periods where you can use the funds. And in some cases, you can carry forward up to $550 for the next year.

Charitable Donations

When it comes to charitable donations, there aren’t a lot of restrictions. If you wish to donate a significant amount of money to charity, you can consider giving away your stocks or even mutual funds. Specifically, the ones that you have had with yourself for at least a year. Should you consider this option seriously, it is recommended to give away the stocks or mutual funds that are in the green or yielding profit. Charitable donations always consider the fair market value on the day of donation and not at which it was bought. This will boost your donations considerably. This will allow you to quietly walk away without having to pay taxes on your profits. To make the most of this method, you would have to itemize your deductions. But if your stocks or mutual funds are in loss, it is better to sell them off, claim the loses and donate separately.

The above methods will help you save money on taxes considerably. Which you can then spend on doing whatever you wish or invest for better returns in the future.

How to claim your TDS refund for the NRI’s residing in the US

How to claim your TDS refund for the NRI’s residing in the US

by | Apr 22, 2019 | Blog, income tax credit, IRS, NRI, Tax Payers, Tax Planning, Tax Refund, tax savings, TDS

How to claim your TDS refund for the NRI’s residing in the US

TDS refund For an NRI residing in the US, income tax is applicable for the income that is earned in India. Be it salary earned in India or for services rendered to India or on earnings from investments and assets, NRI is liable to pay income tax if the total income for the financial year is more than Rs. 2.5 lakhs.

In India, It’s not very simple when it comes to income tax rules for NRIs.As per tax rules, any payment to non-resident Indians (NRIs) is required to be made after deduction of tax deducted at source (TDS) even if the income of that person is less than Rs. 2.5 lakhs. However, NRIs are allowed to claim refund of TDS deducted at the time of income tax filing if he/she falls below the minimum taxable income i.e. 2.5 lakhs.

Here are some of the major income types on which TDS is deducted for NRIs.

  • Payments received for services rendered in India
  • Interest income earned on bank savings and deposit accounts – NRO accounts
  • Rental income from property owned in India
  • Sale of bonds, mutual funds and shares
  • Sale of property in India owned by an NRI

TDS refund can be claimed by NRIs residing in the US by filing the income tax return in India. Income tax filing is quite a simple process. As the new financial year begins, it’s also important for NRIs to know the time limit to file the income tax for claiming refund.

NRIs are required to file income tax return before 31st July of the new financial year. Any delay would attract penalty. For example, for the financial year 2018-19, income tax filing needs to be done by 31st July 2019 for claiming TDS refund.

Here are the few easy steps for NRIs to file income tax return in India

Reconcile your incomes and taxes with Form 26AS

After determining the residential status for the financial year, NRI‘s need to reconcile their TDS credit or advance taxes paid with the data reflected in Form 26AS.

Keep the necessary documents ready

Keep important documents such as PAN card, bank details, investment details, TDS certificates, passport and Form 26AS ready as these documents give you relevant information required for income tax filing.

File your income tax return through income tax e-filing portal

  • Log on to income tax e-filing portal with your e-filing account user ID and password. Download ITR2 or ITR3 form depending on your type of income.
  • If you earn any income from business in India, ITR3 would be applicable. ITR2 would be applicable if you are not earning any business income (excludes capital gain on sale of assets/property) in India.
  • Fill in all the relevant details and calculate your tax liability.
  • Once all the details are filled validate your form by entering one time password (OTP) sent to you on your registered number.
  • Save the validated XML file on your system and then upload the saved file with adding your digital signature to it.

Verify your income tax return

Once you are done with uploading your tax return file on income tax portal, ITR-V will be generated which needs to be submitted to IT department. On receipt of this, your income tax return will be processed.

It’s important to note that, refunding of TDS will take about 6 months’ time or more. However, the refund is issued with interest of 6% p.a which is applicable from the end of financial year.

NRIs residing in US can save on TDS through DTAA (Double Taxation Avoidance Agreement) as both the countries have signed tax treaties. In this case, as an NRI taxpayer you can avoid paying tax twice for the same income. DTAA either eliminates or reduces your tax implication on the income earned and taxable in India.

Conclusion

As an NRI, adhering to two different tax laws at once can be quite challenging. Knowing and understanding the process involved in the taxation can help you save tax liabilities. Keep yourself updated and seek a professional help whenever needed.

Top #10 reasons to file your taxes every year

Top #10 reasons to file your taxes every year

by | Mar 23, 2019 | income tax, tax deductions, Tax Planning, Tax Preparation, tax savings

Top #10 reasons to file your taxes every year

It is a common tendency for all of you to wait until April to file your taxes. While it is all fine as long as you file taxes, the earlier you do the better it is. Gone are the days when filing taxes was a difficult and tedious job.

Every year about 10 million taxpayers end up paying $130 on average for estimated tax penalties. Thus, filing and paying your taxes every year on time will help you avoid such penalties.

With several government initiatives and tools in place, it is easier to get through tax filing these days. Here are the top reasons why you should consider filing your taxes every year and at the earliest.

Faster Processing

It is advisable that you do not file close to the deadline. It only delays the processing and in turn, results in slowing down the entire process. You might also run into the risk of submitting while the servers are under heavy load, further slowing down the process. The file at the earliest for faster processing of returns.

Proper Documentation

While the complexity of filing returns has come down by a considerable margin, it is far from ideal. One can still get overwhelmed by the entire process. It is recommended that you start early so as to figure out of there are any additional documents that you might need to submit.

Faster Refunds

Taxpayers who file their taxes earlier are more likely to receive their entitled returns early. Since you file early, there won’t be too many returns for the IRS staff to go through or process. And thus, they can complete them at the earliest.

Additional Time to Pay Taxes

Filing your taxes early will help you determine the amount that you have to pay to Uncle Sam. It must be noted that even though you can file your returns earlier, you do not actually have to pay any taxes till the 15th April deadline. This will allow you to plan your taxes better.

Avoid Extension

There are certain circumstances, where requesting an extension for your taxes is much needed. Consider this, a person was carrying all their tax documents to the office and they get stolen on the way. Or a person lost his/her house to fire, burning down all the documents in there. These are legitimate reasons for filing an extension. Others, not so much. Instead of opting for extension and slowing down the process, it is better to get it done at the earliest.

Better Help

If you need the services of any tax agents, the most reputed ones will most likely be booked closer to the deadlines. In the event that you file your taxes earlier, you can seek professional help without having to wait.

Financial Help

If you are looking to utilize the FAFSA or Free Application for Federal Student Aid either for yourself or for someone else in your family, it is recommended to do it at the earliest. The earlier you file your taxes, the better are your chances of receiving the maximum amount out of it. The aid is dependent on the most recently filed return.

Identity Theft

Every year a lot of taxpayers are victims of tax fraud. In the year 2014, about 3 million people reported the same. It usually takes place if you wait till the end to file your taxes.

Clear Things up

Filing taxes earlier gives you ample time to fix if something is wrong with your taxes. This is one of the simplest and most straight forward benefits of filing your taxes every year and on time.

Buying a House

Your mortgage provider would want to have a ton of supporting documents from your end. These include W2 form, bank statements, tax returns and so on. Thus another added advantage of filing your taxes every year.

Annual Gift Tax Limitations

Annual Gift Tax Limitations

by | Jan 23, 2019 | tax limitations, Tax Payers, tax savings, Taxtips

Sec. 529 plan is tax-free accumulation, so the sooner the account is established and funded, the better. A special provision of Sec. 529 allows those who are concerned with the annual gift tax limitations, currently $15,000, to contribute five years’ worth of contributions ($75,000) up front. These limitations apply to each contributor, but if there are multiple contributors, such as parents, grandparents, aunts and uncles, huge amounts can be contributed up front and provide the greatest long-term growth. While it is no secret that resident Indians have to pay taxes for a fiscal year. However,  all NRI  investors must also pay taxes for a fiscal year if applicable. Irrespective of whether they earned the money directly or indirectly, if they are liable, they must pay taxes on the same. As long as the income is generated in India. Any income that is generated as a part of their investments or assets or business interests, is liable to taxes. The presence of tax laws means that there are different avenues to save money from tax liabilities as well. If you are an NRI and are looking for tax-related tips, here are some that you might find to be quite useful.
How to account for the NRE and NRO interest and FD while filing for your US taxes

How to account for the NRE and NRO interest and FD while filing for your US taxes

by | Nov 26, 2018 | Blog, Investment & Income, NRO, tax savings

How to account for the NRE and NRO interest and FD while filing for your US taxes?

According to the data available with the Indian Ministry, India ranks second among all countries for citizens who have temporarily or permanently shifted to other countries. NRE Interest The number stands at a staggering 25 million across some of the most prominent countries around the globe. And this is where the concept of NRI comes into the picture. An NRI or Non-Resident Indian is any individual who has an Indian passport and has emigrated to a different country.

This is mostly on a temporary basis either for education, residence, work or other purposes. Thus, it is extremely important to understand the different taxes that an NRI is liable to pay, so as to remain clear of both the countries. To make matters a bit easier, the Indian government allows for two types of accounts for NRI’s, namely NRO and NRE.

And depending on your residential status, you with either be taxed on your global income or income in just one country. In case, you are an NRI and receive all your income in the USA, you will be taxed on in the USA. However, if you are a resident of India, then you will be taxed on your global income. To make matters a bit easier, the Indian government allows for two types of accounts for NRI’s, namely NRO and NRE.

NRE account can be opened by depositing foreign currency. While an NRO account can be created before leaving the country with the intention of being an NRI. In either case, an individual will earn some interest on the amount deposited in the account. Thus, the most common question among NRI’s is how to account for the interest earned on NRE and NRO accounts or even Fixed Deposits that they have in their accounts.

This is where the water gets a bit muddy. There are different schools of thoughts, where some do feel there is a need to declare the interests earned on the above fronts, while others feel it is necessary to do the same. The latter is a more preferable situation to be in.

Any interest that you earn from your NRE or NRO account or even Fixed Deposits for that matter is taxable. And you must not forget to include the same while your US taxes. The same is applicable for any dividends that you earn.

Fixed Deposit acts like a capital asset, where you invest a certain amount of money and receive yearly interest on the same. Thus, its maturity is similar to selling any other capital asset, as you make money out of it. The interest adds to the base amount and thus the taxation comes into the picture. For the interest that you have earned either on FDs or NRO or NRE accounts, you must first convert the same into USD for the financial in contention.

Once you are done with the conversion, make sure to add it in the Form 1099-INT and then file your taxes. However, one must be careful with the tax rates. For instance, the interest that you have earned is INR 25,000 and you end up paying the 20% taxes to the Indian government. If you tax slab is 40% in the United States, you must pay the additional 20% taxes to the IRS. And this is in accordance to the DTAA or Direct Tax Avoidance Agreement between the two countries.If you are an NRI, you most probably have an NRO or NRE account with any of the leading banks in India. It is important to disclose the interests earned from these accounts in your tax returns to avoid any form of discrepancies and to ensure a smoother tax filing season.