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/

Step by Step process to pay off your Income Tax Bill

Step by Step process to pay off your Income Tax Bill

by | Dec 18, 2019 | income tax, IRS, Tax Exception, tax filing, Tax Liabilities, Tax Payers, Tax Refund, taxes

Step by Step process to pay off your Income Tax Bill

Discovering that you owe a lot more taxes to the IRS than you can afford can be a very concerning situation. To find out that you do not have any tax refunds is bad enough and if you must pay additional taxes to the IRS, it is pretty much the worst nightmare.However, such a predicament is not the end of the road or the world. You can pay off your income tax bill by following a few simple steps, without taking a lot of stress.

  • Your Tax Liability

Knowing the amount of taxes that you are liable to pay to the IRS is the very first step. Before you submit your tax returns during the tax season, it is essential that you go through your returns more than once. A little bit of scrutiny here can save you from a lot of pain. It is quite common to forget a deduction or accidentally add the same item twice.

Forgetting a checkbox or a question can at times turn out to be expensive in this matter. Thus, cross-check your return thoroughly before clicking on the submit button. You can compare your current return with that of the previous year to see if there are any major changes. This holds good if there hasn’t been a dramatic change in your tax situation.

And if the IRS sends you a letter for tax dues, do not jump to any conclusions immediately. There is a probability that it might be wrong. If you feel so, you can ask them for clarification.

  • Minimize any penalties or interest

Penalties and interest can worsen the already grim situation. If you have a large tax bill to pay off, interest or penalties can bloat this number. Fortunately, you can minimize them using any of the following methods.

  • Underpayment Exception

There might be a situation where you underpaid your taxes this year but had paid your taxes accurately the previous year. If the taxes of the previous year were considerably lower and you paid your current taxes by the due date, you don’t have to pay penalty on your underpayment of taxes.

  • Pay ASAP

Should you owe any taxes to the government and you do not see a way out, paying it off at the earliest is your best bet. Even if you do not pay the entire amount, pay off as much as you can.

  • Abatement of Penalties

The IRS is known to reduce or even remove the penalties on a taxpayer if they write a letter to the IRS and make them aware of the situation. Do not forget to ask for an abatement in your letter to the IRS.

  • Installment Agreement Request

If there is no other way for you to pay the taxes, you can file Form 9465, which is Installment Agreement Request. You are essentially setting up an installment of your tax liabilities. And filing the form online will prevent you from paying the payment user fee. The installment is applicable if:

  1. The taxes you owe are less than $10,000.
  2. A taxpayer can prove that they are unable to pay the dues.
  3. A taxpayer can pay the taxes within 3 years.
  • Compromise

You can negotiate with the IRS for Offer In Compromise (OIC). In this method, you must offer as much as your net worth is. An OIC resembles bankruptcy in a lot of ways and must only be considered if there is absolutely no other way.

The above steps will help you pay off your income tax bill to the IRS. It is important not to panic and look for a solution if you owe taxes to the IRS.

Reference:          

https://blog.taxact.com/steps-pay-off-tax-bill/

 

 

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

 

 

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.

5 reasons to opt for a professional to file your taxes

5 reasons to opt for a professional to file your taxes

by | Dec 2, 2019 | income tax credit, tax filing, Tax Planning, Tax Refund, tax savings, taxes

5 reasons to opt for a professional to file your taxes

Doing taxes on your own can be overwhelming, to say the least. You must consider the W-2, deductions, write-offs, maybe a collection of 1099s to take care of, etc. This can even more overwhelming considering the fact that you still have a job at hand and several other life decisions. Is there an easy way out? Well, you must file your taxes, there are no shortcuts in that. However, to make your life a bit easier, you can opt for a professional to file your taxes instead.

Here are some of the prominent reasons why you should opt for a professional to file your taxes.

  • Freelancing or side business

The Tax Cuts and Jobs Act introduced recently brings about a lot of changes to the tax regime. If you hold a regular job and have a side hustle along with it, getting professional help for your taxes might be your best bet. People who run businesses are more likely to be put into the 20 percent deduction bracket. Freelancers and people owning businesses might find it a bit difficult to do their taxes on their own.

  • Property Flip

On paper the only two documents that you would need to file for taxes if you have flipped a house are 1098 and 1099-S. However, it is not as straightforward as it might sound. Between the buying and selling of a house, there are a number of transactions that can take place. Opting for professional help in such cases is a smarter choice.

  • Life Changing Events

The occurrence of a life changing event can bring in a myriad of emotions to the table. Life changing events can include graduation, marriage, the birth of a child, divorce, moving on, losing a job or starting with a new one, etc. Such occurrences can complicate your taxes. For starters, it chances your status of filing along with many other things. You must look at different tax benefits, tax credits, etc. to minimize your tax liabilities and to maximize your returns. If you do not want to be bogged down by these complexities, you can take the help of professionals to do your taxes.

  • Student Loans

The equation changes a bit if either you or your spouse has a student loan to take care of. One of the biggest benefits of filing your taxes with the married filing jointly status is that you can expect the lowest tax liabilities. The taxes that you would have to pay individuals would easily overshadow the ones that you would pay with married filing jointly status. And the repayment schedule of student loans depends on the monthly income of the borrower. In certain cases, repaying your student loan on your own can be more beneficial than doing it together. Getting in touch with a professional will help you get over some of these conundrums.

  • Adopting a Child

As noble as the thought of adopting a child is, there are several tax benefits also associated with it. There are quite a few tax incentives for adoption along with tax credits. A sit down with your tax professional will help you make the most of the tax credits available. The downside being, there are higher chances of your taxes being audited. This makes it even more essential to work your taxes out with a professional, to ensure there are no gaps that the IRS can find.

The above are some common scenarios where the need for a tax professional is accentuated. If you have even the slightest of the doubts, do not hesitate to contact one.