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.

TDS implication on an NRI of the US for sale of property in India

TDS implication on an NRI of the US for sale of property in India

by | Oct 24, 2019 | income tax, tax savings, taxes, TDS

TDS implication on an NRI of the US for sale of property in India

What is TDS?

TDS implication on an NRI of the US , TDS is referred to as Tax deducted at Source. It is the income tax that is reduced from the money paid at a specific time such as payment of rent, salary, commission, interest, etc.  The Income Tax Department ensures that income tax is deducted in advance from the payments that are made by taxpayers and this is made feasible by TDS.

According to the provisions of the Income Tax Act, 1961 if an individual is purchasing a property in India then he would have to deduct the appropriate TDS from the sale value and pay it to the Government. In the case of a seller who is a resident of India and the value of the property is Rs. 50 lakhs or more, a TDS at the rate of 1% is deducted by the buyer and deposited with the Government.

However, there are certain different provisions related to TDS in case of the seller being an NRI.

Tax implications of sale of property by NRI in India

The selling of property in India by an NRI residing in the US is taxable under Section 195 of the Income Tax Act, 1961. When the seller of the property in India is an NRI, TDS at the rate of 1% is not applicable under Section 194/A of the Income Tax Act, 1961.

When an NRI is selling a property in India, there are three major points affecting taxation. Let us have a look at these 3 major factors.

  • Capital Gain Tax

 When an NRI is selling a property in India after a period of 3 years of holding, then long term capital gain tax at the rate of 22.6% is applicable on the amount earned. In case of holding the property for less than 3 years before selling it, the short term capital gain tax is levied as per the rates of the Income Tax slab.  In the case of short term capital gain, a TDS at the rate of 33.9% is applicable even if the seller is an NRI. The capital gain taxation proceeds remain the same in the case of both resident sellers and an NRI as well. The difference lies in the calculation and deduction of TDS. The Income Tax Department of India directs the buyer to deduct the TDS under Section 195 before making payment to the NRI buyer.

  • TDS

In case of an NRI selling a property in India, the buyer must deduct TDS at the rate of 20.66% on the price of the property. This is applicable in case of Long term capital gains. In the case of short term capital gains, the TDS would be deducted at the rate of 33.9%. NRIs who are selling property in India are liable for making payment of Capital Gain Tax on the capital gain obtained but TDS is levied on the property’s total sale value. So, usually, NRIs have to incur a loss if they do not claim their TDS refund on time.

  • Re-investment of the capital gain obtained

Many NRIs re-invest their capital gains to be safe from the payment of capital gain tax. An NRI who has incurred a long term capital gain can re-invest the gain into property or other tax-exempted bonds for saving long term capital gain tax.  The Income Tax Department can issue a Tax Exemption Certificate to NRIs under Section 195 of the Income Tax Act, 1961.

Claim of TDS refund by NRIs

1.DTAA

NRIs in the US can avail the benefit of lower TDS by the provisions of DTAA (Double Tax Avoidance Agreements).  NRIs in the US can obtain a tax residency certificate i.e. ‘Form 6166′ from Revenue and Customs Department. Then an application for a TDS refund can be submitted with the IRS by ‘Form 8802′.

2.Re-investment proofs

NRIs can submit their proofs of re-investment proofs in India to claim a TDS refund.  NRIs will have to submit an affidavit which states the investment of the capital gains in the purchase of capital gain bonds. Moreover, if an NRI is purchasing a new property by the capital gain obtained then an allotment letter can be submitted.

3.TDS Waiver

In case of an NRI’s total income in India is less than Rs. 2, 50,000; an application for TDS waiver can be submitted with Income Tax Officer.

Hence, NRIs selling property in India will have to pay TDS on the entire sale value of the property. But, they should claim the TDS refund by making appropriate tax planning in advance.

 

 

Updated Norms For Global Tax Filing for NRI’s Residing In the US

Updated Norms For Global Tax Filing for NRI’s Residing In the US

by | Oct 3, 2019 | Double taxation, income tax, NRI, tax reforms, taxes

Updated Norms For Global Tax Filing for NRI’s Residing In the US

The tax liability of an individual in India relies on the residential status of the individual. Taxpayers who qualify as resident Indians are taxed a bit differently than taxpayers who qualify as non-residents. While the definition of resident and non-resident has been around for quite some time, the Income Tax Department only recently has started looking into it with a lot of scrutiny. Global Tax Filing For NRI’s Residing In The US.

The following conditions will help you to determine whether you qualify as a resident or non-resident.

  • Individuals who have stayed for a minimum of 182 days in the current financial year, or
  • Individuals who have stayed for a minimum of 60 days in the current financial year and a total of 365 days in the previous 4 years, qualify as residents.

If you do not meet the above conditions, you are a non-resident Indian. The IT department has started looking into the residential status of individuals and it is the reason why quite a few NRIs have been receiving notices from the IT department. The tax implications are one of the major reasons why residential status is important. While residents are taxed on their global income, non-residents only have to pay taxes on the income that is generated or accrued in India.

New Forms

India and the USA have signed the DTAA or the Double Taxation Avoidance Agreement. This agreement ensures that taxpayers do not end up paying double taxes on the same income in both countries. There have been certain changes as far as claiming tax relief under the DTAA is concerned. Individuals who benefit from the DTAA will now have to furnish additional details before being able to claim the benefits.

Taxpayers now much provide additional details to the Income Tax department such as the Tax Identification Number of India, all the assets that they hold both in India as well as the USA. The directors or shareholders of an unlisted organization must disclose the same in their tax returns along with the Permanent Account Number of the company in question. NRIs must now also mention the number of days that they have stayed in the country versus the number of days that they have stayed out of the country.

The tax reforms intended to bring about more transparency to the tax filing process by disclosing additional details. And this is particularly for individuals who claim benefits under the treaty signed between the two countries. By implementing these changes, the Income Tax department hopes to reduce the need for further investigations by the tax authorities.

As per the new norms, residents now have to provide additional details of the salary received, its breakdown, any unlisted securities that they hold, list of agricultural land that they hold and the income generated from it, should it exceed a certain threshold, any donations made, etc.

There haven’t been any changes to ITR-1, which is primarily for individuals whose annual income doesn’t exceed INR 50 lakhs. This is for individuals who draw a salary and have a house apart from other income sources such as interests earned and income from agriculture up to INR 5,000. ITR 2, 3, 5, 6 and 7 have undergone minor changes.

ITR-2 is for taxpayers and HUFs who do not make any profits or gains from a business while ITR-3 is for individuals and HUFs who make profits and gains from business or their profession. Thus, it is essential that you take some time to access the right ITR before you can file your taxes to ensure that you do not receive any notification or notice from the IT Department.

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.

How to Become a Financially Literate NRI in the US?

How to Become a Financially Literate NRI in the US?

by | Sep 13, 2019 | income tax, tax savings, taxes, Taxtips

How to Become a Financially Literate NRI in the US?

To become financially literate NRI  means to be able to manage your money efficiently. It is basically the ability to clearly understand the concept of how money is made, how it is managed and invested, how it is spent economically. Precisely, financial literacy is the skill which lets you utilize your money efficiently and utilization of your money in accomplishing your long term financial goals.

Financial literacy is not a subject that is included in your school or college syllabus; rather it is a clear understanding of your personal debit and credit. This will need constant attention to your expenses and an urge to always sideline your income and expenses together.

Major components of Financial Literacy

The major five components which you can associate with financial literacy are mentioned below.

  • Basics on Budgeting

Creating a budget and maintaining that budget is an important concept of financial literacy. Without a proper budget, you will never be able to understand the whereabouts of where your money is coming and where it is being spent and you will end up in a financial crisis.

  • Interest and its impact

 It is an important concept and needs to be understood as it affects your finances in an intensive manner. This will help you in saving and also better utilization of your money.

  • The habit of saving

For maintaining a healthy and stable financial life, saving is very important. This will inculcate the skill of looking towards accomplishing long-term goals in the future and planning present actions accordingly.

  • Debit and credit

 Proper knowledge about debit and credit is needed to be able to handle finances diligently.

  • Beware of financial frauds

With the widespread use of technology in financial spheres like internet banking, online shopping, electronic fund transfer; your financial data is more prone to risks and should be protected.

When you are residing in a different country, you should have the basic financial literacy related to the financial sphere of that particular country. This will be helpful for you in utilizing your money, saving money and also investing in some useful avenues.

Tips to be a financially literate NRI in the US

Reconciliation of bank accounts regularly

You should make it a habit of going through your bank statement every month when they are sent to you by the bank. By this, you will know in detail about your income, spending and any diversion in a saving plan if you have one.

Utilization of financial tools

There are a large number of financial tools and applications which can help you understand the confusion associated with dollars. You can get to know in details about the income, debit, credit, etc. Moreover, financial tools will give you tips and suggestions on financial planning for improving your financial literacy.

Take online courses

There are numerous professional courses and sessions available online. You can enroll in these sessions and increase your knowledge of finances, NRI taxation policies, NRI tax saving methods, etc.

Make friends

You can join your friends from the US so as to increase your exposure. This will help you in understanding the various financial implications in the country, ways how money is utilized or saved in the US, taxation rules in the US, etc. With the help of online tools, you can have educational gatherings among friends where you can discuss finances and financial goals.

Be vigilant and aware

Since you are in at a new and unknown place now, you should be vigilant about your finances and security related to financial information. You can read books, visit libraries, watch online videos on finances, financial security and financial goals.

Hence, initially, you would definitely find certain differences and difficulties in understanding about finances at a new place. But you can start understanding the methods, rules and, laws gradually.  As an NRI, it is quite necessary for you to understand the finances of the US so that you tend to save a good amount or invest in good avenues.

 

Save money by knowing your Tax Benefits for your Dependents

Save money by knowing your Tax Benefits for your Dependents

by | Sep 6, 2019 | Deduction & Credits, income tax credit, Tax Planning, tax reduction, Tax Refund, taxes

Save money by knowing your Tax Benefits for your Dependents

If you are a citizen in the US or you are paying tax in the US, you can be able to save a lot of money by claiming dependents on your payable taxes. If you are having children and other qualifying dependents that can be used to claim tax benefits, then you are saving a lot of money.Save money by knowing your tax benefits for your dependents.According to the tax laws in the US in the earlier times, for every qualifying dependent, you are qualifying to reduce your income which is taxable by $4050.

The major purpose behind this is significant savings and if you are successful in claiming multiple dependents those savings get accumulated and in turn, you save a good amount on taxes.

By claiming dependents, the scope for other credits such as Earned Income Tax Credit, Child Tax Credit, etc. arises which can be quite beneficial for you. However, the law for the reduction of taxable income by $4050 for every qualifying dependent is not valid since 2018. But there are a number of tax benefits which you can still claim for your qualifying dependents.

Who is a qualifying dependent for the tax benefit in the US?

There are two qualifying categories of dependents who qualify for being used to claim tax benefits. Both the dependents should satisfy the below-mentioned criteria for being able to be used to claim tax benefits.

  • The dependent must be a citizen of US, US resident, US national or a Canadian or Mexican resident.
  • You are not permitted to claim a dependent that is opting for a personal exemption for him and is claiming another dependent on his own tax form.
  • You are also not permitted to claim a dependent that is married and is himself filing a joint tax return.

Your qualifying children

  • You can claim tax deductions for your own children, your siblings or even your grandchildren as your qualifying dependents.
  • The child whom you are claiming should be below the age of 19 and should have lived with you for more than half a year.
  • The child should not be able to provide more than half of his own support and you should be the only person claiming him.

Your qualifying relative

You must be the only person claiming your relative and you must be providing more than half of the financial support for your relative in a year.

The taxable income of relatives must not be more than $4050.

Let us have a look at some of the tax benefits which you can claim for your dependent children and relatives.

Child Tax Credit

If you have a child who is below the age of 17 years, then you have a child tax credit of $2000 to be earned as a tax deduction. Married parents who are filing joint returns can claim this credit if their income threshold is $400,000. If you are a single parent then your income threshold has to be $200,000 for being eligible to claim this credit.

Child and Dependent Care Credit

 In the US, childcare is expensive in nature and if you are paying for the childcare of your dependent children i.e. who are below 13 years of age, then you are eligible to claim Child and Dependent Care credit. This credit here can be defined as a reduction in your payable tax expressed in dollar-to-dollar terms. This credit would range from 20% to 35% of the expenditure incurred by you for childcare and this percentage will depend on your income.

Earned Income Tax Credit

This is an additional credit which can be availed by you if you are claiming your dependents. This tax credit can be availed by you in case of your self-employment income or wages are lower than a particular income level. This tax credit will depend upon another factor i.e. the number of qualifying kids you have.

Tax Credit for dependent relatives

 You are eligible to claim a tax credit for those qualifying relatives who are dependent on you. This tax credit is non-refundable in nature and you can claim up to $500 for each qualifying dependent.

Hence, deductions on the qualifying dependents are an excellent tax-saving option in the US. By these deductions, you can save a good amount of money and also can get back the tax refunds if any.