All you need to know about Bank FATCA reporting as a US taxpayer

All you need to know about Bank FATCA reporting as a US taxpayer

by | Nov 27, 2018 | Audits, FATCA, FATCA reporting, Investment & Income, US Government

All you need to know about Bank FATCA reporting as a US taxpayer

Bank FATCA reporting as US Taxpayer.It should not come as a surprise that the US Government looks into a wider array of things for expats and not just the taxation. FATCA is one such avenue.  There are a lot of rumours and misinformation surrounding FATCA, so let’s break it down slowly.

What is It?

FATCA or Foreign Account Tax Compliance Act came into the law books in the year 2010. It made way for reporting of information related to payments towards foreign financial institutions or foreign entities in general. The whole intent of creating this Act was to make it easier for the IRS to keep a track of all the earnings that US citizens and business have from foreign investments or bank accounts.

One thing to keep in mind is that the IRS does not govern the FATCA. In fact, the Financial Crimes Enforcement Network under the US Treasury Department takes care of the same. Though, there is nothing holding them against sharing information at the time of need.

Whom does it Affect?

Knowing whether or not FATCA affects you is important. Simply because if it does, you would need to file everything very carefully and in a timely manner. The following individuals are impacted by FATCA.

  • US citizen or resident aliens (Green card holders) must be compliant with FATCA irrespective of where they stay.
  • US persons owning a business or have a majority stake in a business.
  • Any form of worldwide agreements.
  • US investment houses or banks that have interactions and dealings with foreign financial institutions.
  • Any foreign financial institution that deals with money.

Requirements to File FATCA

US residents who have foreign bank accounts or investments must file the FinCEN Form 114 if their investments meet the threshold amount. The FinCen Form 114 was previously known as the FBAR Form and some people still use the name. There aren’t any minimum age criteria for filing the Form 114.

The threshold amount for individuals stands at $10,000. If at any point in time during a financial year the investments breach the $10,000 mark, it must be reported with the help of FinCEN Form 114. Other forms of income such as interests or dividends must also be reported regularly to avoid any penalties or fines at a later stage.

What you Need to file FinCEN Form 114

In order to fill the FinCEN Form 114, you would need to have the following information handy.

  • Your name, social security details and address.
  • If there are any joint account holders, their name, social security number and address.
  • The type of bank account that you are holding (ex. Current, savings etc.). The type of Securities that you are holding (mutual funds or stocks) and any other type of investments that don’t come under the category of bank account or securities.
  • Details of your bank account.
  • The name and address of the bank with which you hold the account.
  • The bank account number.
  • The number of joint owners of the account.
  • The highest amount of money held in the account for the taxable year in question.

Are there any penalties?

The US Government levies some hefty penalties for withholding such information or failing to declare them during your tax filing. For non-willful violations, you might end up paying up to $10,000 for every year of not filing.

If you are found to be willfully violating the rules, you might face penalties up to $100,000 or 50% of the amount of money in your account at that point in time.

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.

How is an NRI’s India ESOP’s taxed in the USA?

How is an NRI’s India ESOP’s taxed in the USA?

by | Nov 22, 2018 | Investment & Income

How is an NRI’s India ESOP’s taxed in the USA?

NRIs India ESOP’s or Employee Stock Option Plans have always been quite popular. Since you work for an organization, you would know the in and out of it. And the ESOP programs let you benefit from the same. You can own your company shares without even any upfront costs, depending on the agreement between you and your employer. However, as is the case with any source of income, ESOP’s are also taxable.

If you are an NRI staying in the United States of America, you need to be aware of the different taxation for your ESOPs. Primarily you are liable to pay taxes on ESOP’s either while exercising the facilities or while selling them. Here is all that you need to be aware of.

While Buying ESOPs

Under most circumstances, when a person exercises his/her ESOP option, theprice of the same is at a discount than the market price. Let us consider the following example. Keerthi had been working for a firm for a few years and got an opportunity in the US branch. When she exercised her ESOP’s, she had to pay INR 200 per share for 100 shares. Let us assume that the market price of the stock for that day was INR 300. Thus, Keerthi needs to pay taxes for the additional INR 100 for her 100 stocks, which is INR 10,000. Given her tax bracket, she will have to pay taxes accordingly.

However, after moving to the USA, she must declare this income in her tax filing. She must now add the prerequisite value of INR 10,000 to her global income after conversion. This must be disclosed as other income in Form 1040. Since she has already paid taxes in India, she can file for a tax credit for INR 10,000 after the conversion to USD.

One must be careful with the amount that they are claiming for tax credits. It cannot be, at any point in time, more than the tax that a person has to pay on their Indian income in the United States of America.

While Selling ESOPs

Selling of ESOPs is relatively easier to understand if you are familiar with the capital market. As is the case with buying or selling of any other stocks, ESOPs come under the purview of capital gain taxation. Let us assume Keerthi wishes to sell the 100 stocks and the current market value of the same is INR 500. As per the capital gain taxation system, if you sell any stocks at a price higher than the purchase price, you have made a profit and thus the taxes. She must pay taxes on the gain per share (INR 500 – INR200). However, she has already paid taxes based on the market price of the stock earlier. Thus, she must now pay only taxes only on INR 200 (INR 500 – INR 300) per share.

Depending on the duration for which a person holds the stocks, they will have to either pay short term capital gain taxes or long term capital gain taxes. If Keerthi decides to sell her stocks within a year of purchase, she will have to pay taxes at 15% of the gains made. Similarly, for stocks held for more than a year, she must pay 10% of the gains, if it exceeds INR 1,00,000.

The capital gain taxation remains similar in the US as well. Thus, for the taxes paid in India, you can seek tax credits.

While ESOP is a good benefit to have, being aware of the applicable taxes can make things much easier for you.

 

Form 8938-All you need to know about Foreign assets reporting

Form 8938-All you need to know about Foreign assets reporting

by | Nov 20, 2018 | Blog, Tax Planning

Form 8938-All you need to know about Foreign assets reporting

Foreign assets reporting,It was after March 2010, that taxpayers in the United States of America were required to report their financial assets in other countries apart from the USA.Form 8938, This addition was initiated by HIRE or Hiring Incentives to Restore Employment Act under the FATCA or Foreign Account Tax Compliance Act. There are two significant parts to the FATCA. Firstly, it allows global financial institutions to report any financial interest of taxpayers in other countries. And secondly, it adds provisions for US taxpayers to declare their assets outside the USA.

Before we get to the details of the ACT, it is important to know which all assets qualify as foreign financial assets. Here is a brief list of the same.

  • Any accounts held with financial institutions such as bank accounts, mutual funds, other investments, outside the United States of America.
  • If a person has any interest in an entity such as a corporation, partnership or member of a trust outside the USA.
  • If a person holds any form of securities such as stocks or bonds which are not part of an investment account.
  • If a person holds any financial interest or instrument where the issuer or counterparty is a non-US resident.

Form 8938

Now that we are cognizant of the different assets, the next obvious question is, should you file Form 8938? Technically any US resident who is impacted by the FACTA must file Form 8938 in their tax returns. However, for the time being, the IRS requires only specific individuals to file the Form along with their returns. Citizens of US, resident aliens, non-resident aliens and non-resident aliens who stay in Puerto Rico or American Samoa qualify to file FORM 8938.

Thresholds for Form 8938

In order to file Form 8938 properly, taxpayers need to be aware of a couple of values. Firstly, the maximum value of their assets for a fiscal year and the asset’s value by the end of the year. A taxpayer must then add up all the maximums and year-end value. This will help the IRS assess if an asset’s value surpasses the thresholds. If and only if the assets exceed the threshold limits set, that a taxpayer must file Form 8938.

The following are the different threshold values set by the IRS.

Unmarried Individual

For an unmarried individual taxpayer, they need to file Form 8938 if their asset’s year-end market value is greater than $50,000 or if it exceeds $75,000 during any part of the year.

If an individual is unmarried and resides outside the USA and qualifies as a bona fide resident or passes the physical presence tests, the limits stand at $200,000 for last day of the year and $300,000 during any time of the year.

Married Individuals

Individuals who are married and are filing their taxes jointly, the Form 8938 would come into the picture if the foreign assets exceed $100,000 on the last day of the fiscal year or exceed $150,000 during any time of the year.

If married individuals are filing their taxes separately, the threshold limits remain the same as that of unmarried individuals.
Along with the above information, it is important to be aware of how to value your foreign assets. To calculate the market value, one must be aware of the maximum value of the asset and convert it to USD. One must only refer to the Treasury Department’s Financial Management Service for conversion rates. And finally, you must file the Form 8938 with your Form 1040.

The above should help you identify assets, whether or not you need to file the Form 8938 and how to file the same.

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

by | Nov 19, 2018 | Tax Planning, Tax Preparation

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

On paper,the filing of taxes just limited to one day. However, in most probability, it takes much more efforts. Sometimes, even an entire year’s planning, if you wish to be on the top of taxes. US Taxes Whether you are filing taxes for the very first time or are a seasoned campaigner at that, there are few things not to forget while filing your US taxes in FY 2018. Keeping these in mind will help you file taxes more efficiently and avoid IRS from scrutinizing your filing closely.

Need to file

The first thing that you need to figure out is whether or not you are required to file for taxes. There are a few factors that decide the tax liability of an individual such as the status of filing, age, or dependency. An example of the same would be, an individual who is less than 65 years and has an annual income of less than $12,000 might not actually have to file for taxes. Thus, take a few moments to assess your tax liability and the need for filing taxes.

Be Organized

Whether you a first-timer or have prior experience in filing taxes, it is crucial to be prepared and organized. Staying calm and organized will make the entire process much smoother. If you wish to add deductions to your filing, ensure that you keep receipts or proof for the same. Maintaining a separate file for taxes is the ideal way to go. When you keep all tax-related information at a single place, it becomes easier to deal with it.

Exemptions for Dependents

As already mentioned, it is important to know what your status is while filing for taxes. The status is even more crucial for first-time tax filers or students getting into jobs. If your parents have added you as dependent on their tax filing, you must let go of exemptions. A qualifying child cannot claim for tax exemptions and neither can their parents.

Deductions

There are several clauses in the tax laws which allow citizens to deduct certain expenditures. One must not overlook or ignore these expenses or deductions. Simply because they can reduce your tax liability by a handsome margin. For the year 2017, the average deduction for single tax filers stood at $6,350 and for couples who filed together, it was $12,700. Being aware of the different deductions available can help you save a considerable amount of money in taxes.

State taxes

The tax laws vary depending on the state of which you are a resident. The state tax returns also follow a similar schedule as the federal taxes. Thus, it is important to find out whether or not your income is taxable as per your state tax laws and which expenses qualify as deductions as well. Some of these could be related to your vehicle or home while others could be related to your job.

Verify your documents

Firstly, you need to keep a close eye on your mailbox since most employers and companies send out the W-2 or Form 1099 via emails. Once you do receive them, ensure that you scrutinize the details. If something is wrong with the W-2, ensure that it is corrected at the earliest rather than waiting for the deadlines. Thus, take some time off and verify all of the supporting documents for their authenticity and accuracy. Some time spent on this upfront will save you from a lot of pain down the road.

These are a few things that you should not forget while filing your taxes for the financial year 2018-2019.