5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES

by | Feb 28, 2019 | income tax, Tax benefits, Tax credits, Tax Planning, Tax Preparation

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES? 

Tax Benefits ,A considerable amount of your money can get into medical related expenses when it comes to taking care of parents or relatives. Here are the five Tax Benefits

According to Caring.com, a company that specialized in Bankrate, about 40% of caregivers spend about $5,000 a year on caregiving. Similarly, about 25% of people spend more than $10,000 per year on caregiving.

Though it is not the primary concern paying for caregiving expenses can help you avail some tax benefits. One of the key points that you need to be aware of is that your elderly parents are declared as dependents.

Here are some of the benefits that you can claim if you take care of your dependent parents or relatives.

  • Medical Expenses

Having elderly parents can result in quite a considerable sum of money being spent on medical expenses. You have the option of claiming them as Itemized Deductions in Schedule A of your income tax.

  • Itemized Deduction comes in handy if you have exceeded the standard deduction limit.
  • The total medical related expenses must be more than 7.5% of your total adjusted gross income for a fiscal year.
  • The expenses include hospital care, visit(s) to doctors, cost of prescription drugs and so on.
  • January 2019 onwards, you will be able to claim only unreimbursed medical expenses if they exceed 10% of your adjusted gross income.

  • Income Simulation

The IRS has set a few criteria that your parents must meet before you can declare them as dependents on your tax returns. Here are some of them.

  • Your parents should not have an income that exceeds the exemption amount for the year in question.
  • The IRS decides the exemption amount and the value might change year on year.
  • In the event, your parent(s) have income from dividends or interests, a portion of their social security might also be taxable.
  • The IRS publication 501 consists of the exemptions for the current year.

  • Providing Support

If you provide support to your parents for at least half of the fiscal year, there are a few tax benefits that you can avail. The following are some factors that you need to consider before determining the support amount.

  • You would need to find out a fair market value for the room. If someone were to rent the room out, how much would they pay for it?
  • The next step would be to include expenses related to food. One needs to be careful and not include utility bills, medical bills or other general expenses that you incur.
  • The amount that you want to claim as support should exceed the income of your parent(s) by a minimum of $1.
  • A comparison between the income that they receive, social security or other income and the support that you lend will paint a clearer picture of support requirements.

  • Care Credit

Dependent care is a non-refundable tax credit that you can benefit from. In the event that your parent is a qualifying individual, you can claim for it. Here is all that you need to be aware of.

  • Parents who are physically or mentally unable to take care of themselves are qualified individuals.
  • You should have an income and certain work-related expenses to show, so as to qualify for the tax credit.
  • You should be able to identify your care provider properly.

  • Supporting Siblings

In the event that you support your parents along with siblings, you can claim the amount as well. The only condition being that each sibling must contribute to at least 10% of the total support expenses.

The above tax benefits will aid you in taking care of dependent parents or relatives.

10 Things you should know about College tax Savings Plan for?

10 Things you should know about College tax Savings Plan for?

by | Feb 26, 2019 | Education, tax deductions, tax filing, Tax Planning, tax return

10 Things you should know about College tax Savings Plan for?

College Tax Savings Plan Let’s face it. College and education, in general, are getting expensive. This means that saving for your children’s future can be a daunting task. It is only natural that one looks for as much help as possible.

Should you look at investing in a 529 college savings plan? American parents who have kids, save on an average $18,135 for college. And about 30% of these savings go into a college savings plan. While the average savings in the plan was $2,280 in 2016, it has nearly doubled to $5,441.

General savings account for another 22% for college-related funds. While 14% are investment related savings. More parents are opting to invest in a college savings plan and here are some important facts that you should be aware of.

  1. Anyone can open a 529 college savings plan and invest in one of the instruments.
  2. Though people usually associate a 529 plan with college tuition, it does much more than that.
  3. Amendments to the tax laws recently, allow individuals to withdraw up to $10,000 from a 529 for the purpose of K-12 tuition expenses.
  4. The plan is not limited only for kids or teenagers. You can open an account and start saving for graduation or higher studies.
  5. A single tax filer can contribute as much as $15,000 for a year as tax-free in a 529 plan. For married couples filing jointly, the amount is $30,000.
  6. You also have the option to contribute $75,000 into a 529 plan up front for 5 years. For married couples filing jointly, the amount is $150,000.
  7. 529 plan is similar to mutual funds in some ways, as you have the option to purchase them on your own or take the help of a financial advisor.
  8. You can buy a 529 plan depending on the age of your kid, however, you should also look at the past returns and volatility. Some plans can be very aggressive for you, while others can be quite conservative.
  9. Before you start saving into a 529 plan, it is essential to go through all the terms and conditions. You should be aware of the plan’s ins and outs along with any limits that the provider imposes.
  10. Another crucial aspect that you should not miss at any cost is the enrolment fees of the plan along with any annual fees.

Since there are different 529 plans that you can choose from, it is important to delve into the details. Try to look for a plan that offers state-level tax breaks. You should also look at the expense ratio of the plan. A higher ratio would eat into your profits.

There are some cases where your kids might not need to use the 529 plan. What happens to the fund in such cases? Well, you can always transfer the fund to someone in the family. If that is also not possible, you can withdraw the fund yourself. But keep in mind, that you will have to pay a 10% penalty for not using it for educational purposes.

A fundamental of any investment is the minor fluctuation with the market. And 529 plans aren’t immune to that. Thus, it is important that you look into the assets that a fund is investing it.

If you have a short term in your hands, take four or five years for an example, and you invest it entirely in stocks, that might be a bad idea. A big swing in the market can nullify your funds. Thus, take the duration and risk appetite into consideration before investing.

3 things to do if you did not file your FBAR/FATCA

3 things to do if you did not file your FBAR/FATCA

by | Feb 23, 2019 | FATCA, FBAR, Tax Payers, Tax Planning, Tax Preparation

3 things to do if you did not file your FBAR/FATCA

The major requirement under The FBAR/FATCA is to find out the financial assets of the U.S. citizens outside the country. All financial institutions outside the U.S. need to find out the records of customers with the U.S as their place of the birth & report about their assets to the U.S. Department of the treasury.

FBAR stands for Foreign Bank Account Report which must be filed with the Financial Crimes Enforcement Network (FinCEN) by U.S. citizens who are authorized signatories or financial interest holders in any foreign financial account, where the account can be either a bank account or a mutual fund.

Filing for FBAR is different from general filing for tax returns with IRS and is generally done electronically by E-Filing system.

Unfortunately, there are cases of U.S. citizens being unaware of the filing for FBAR and being penalized by the Government. So, if you have missed out filing for FBAR by any chance you can follow the below-mentioned procedures.

Streamlined Filing Compliance Procedures–

This method is applicable:

  • If you have unknowingly missed foreign assets declaration
  • Made any mistakes while filing FBAR forms
  • If you are non-tax compliant for all foreign accounts which will be mentioned in your FBAR declaration.

In this method, the taxpayer is allowed to amend or make changes in the last 3 years of tax returns & the last 6 years of not reported FBAR declarations.

Offshore Voluntary Disclosure Program–

In this method, the IRS provides another opportunity to the non-tax compliant citizens to disclose their foreign financial assets voluntarily before the IRS finds out and implements criminal prosecution.

However, there are penalties associated with this method but can be reduced to a certain extent.

Delinquent International Information Return Submission Procedures-

  • The taxpayers who opt for this method need to file the International Information Return by providing a statement of all facts which justify the reason for the failure of non-compliance.
  • Usually, those citizens who have reasonable causes for non-compliance & have not been contacted by IRS yet for any penalties can use this method.

The FATCA also instructs citizens to self- report about their non-U.S. assets to the IRS (Internal Revenue Service). The entire motive behind this law is to prevent tax evasion. Several methods are used by the citizens to avoid paying taxes like making a tax-advantaged investment, plans or opening tax-advantaged accounts.

The Health Savings Account (HSA) is one of the best examples of tax-advantaged accounts in which the contributed funds are tax-exempted. Since these accounts are not liable to taxation citizens contribute more & more to these accounts.

As per current statistics reports, there are approximately 22 million HSA accounts holding over $45 billion in assets. The HSA accounts have grown by 8.3 billion dollars which results in a year over year increase of 22% in assets.

Another such tax-advantaged plan is the Child Tax Credit. This credit amount is given to the taxpayer at the end of the tax year for every dependent child below the age of 17 and satisfying other mandatory criteria like citizenship test, family income test, relationship test etc.

The new Child tax credit for tax years after 2017 is up to $ 2000 per qualifying child with a refundable amount up to $1400. As per recent reports, around 60 million children from 35 million families are saving taxes using the Child tax credit. In the U.S, the state and local tax deduction is one of the major tax expenditures.

However, all these procedures & methods enlisted are not simple and will need professional guidance as well. Hence, to have a hassle –free financial life it is always advisable to be compliant with the tax payments.

Is NRO/ NRE/ FCNR Interest taxable in the US

Is NRO/ NRE/ FCNR Interest taxable in the US

by | Feb 19, 2019 | income tax, NRO, tax deductions, tax filing

Is NRO/ NRE/ FCNR Interest taxable in the US?

NRO/NRE/FCNR ,With more and more people shifting to the US for a better future, the above question becomes even more pertinent. Are the interests earned from NRO/NRE/FCNR accounts taxable in the USA?

The simple answer to the question is Yes. The interests that you earn from such accounts is taxable in the USA. However, it is not as simple as it might sound and it as a complete process that you must follow.

The following steps will help you ensure that you are able to determine the income from other sources such as NRO/NRE/FCNR accounts earning interest. And that the income is taxed appropriately so that it doesn’t come to bite you at a later date.

Determining Status

Any income generated from the above means is taxable in the USA if you are a US person. Thus, the first step involves determining whether or not you are a US person. You must meet any of the following conditions for the same.

  • Are a citizen of the USA.
  • Are a former legal permanent resident but due to some reasons wasn’t properly expatriated.
  • Are a legal permanent resident.
  • Are a national of another country but have cleared the Substantial Presence Test.

In short, if you are a Green Card holder, OCI, PIO or a legal resident of the USA (holding L1B, H1B, H4 EAD or other work visas of the USA)you must pay taxes on the above-mentioned income.

Dollar Amount

Every year the IRS publishes the year-end treasure rates for various currencies. These can hold as a good starting point to consider the conversion rate. You can use this rate to convert your Indian income from NRO/NRE accounts into the US Dollar.

For example, if you have earned about INR 15,000 as interest from your NRO/NRE account, and consider an exchange rate of 75, the dollar equivalent would be $200. INR 150,000/72 = $200.

You can then use this amount for tax purposes.

Taxes in India

Any interests that you earn on NRE accounts is not taxable in India. This means that banks will not deduct any amount from your earnings directly.

Similarly, any interests that you earn on your FCNR account is not taxable in India.

However, things change a little bit when it comes to NRO accounts. Any interests that you earn on NRO accounts are charged at 30% plus applicable taxes.

Depending on how your bank operates, it can either be deducted from your account directly, or you might have to file at the end of the year.

Taxes in the USA

Once you are a US person, you are expected to file your taxes and returns. In other words, you will have to file Form 1040 using any of the tax filing services or directly with the IRS.

Irrespective of which method you use, it is important that you fill the Schedule B in the Form 1040. Schedule B includes the income generated from your Indian assets or accounts.

In case you have paid taxes in India, you would need to mention that in your tax returns. This is applicable for NRO accounts. As far as NRE and FCNR accounts go, you will have to mention the income from the accounts and that will be added to your annual income in the USA for the fiscal year.

For the year 2016, as many as 21,428,230 filings were there for Schedule B out of which 18,781,052 were electronically filed.

Depending on the tax bracket that you are a part of, you will have to pay appropriate taxes. And for the taxes that you have paid in India, the DTAA will ensure that you do not pay taxes twice.

3 Tax Investments that I can make AFTER 12/31?

3 Tax Investments that I can make AFTER 12/31?

by | Feb 18, 2019 | Investment & Income, Tax Planning

3 Tax Investments that I can make AFTER 12/31? 

Tax Investements,Let us consider that you have some idle cash lying in your bank account. Where would you invest them, so as to get tax benefits and make the most of the money? With so many options out there, it can be a bit overwhelming.

Of course, you can go on a trip or buy something new for the house. But would it be the ideal way to utilize your funds? Certainly not. To make matters easier for you, we have come up with a list of smart tax investments that you can make post 31st of December.

HSA

The HSA or Health Savings Account is a good way to park any additional cash that you might have in your possession. Here are some of the crucial details.

  • The IRA allows you to park about $10,000 per year in HSA.
  • The HSA account is available for families that have health plans with high deductibles.
  • Your investment amount sits in the HSA account and grows until you decide to withdraw the money.
  • You can withdraw the HSA found once you reach the age of 65 without any penalties, thus allowing you to even use the funds for retirement.
  • The contributions that you make towards HSA can be deducted for taxes.
  • The money in the account grows tax-free and so is the withdrawal.

Roth IRA

A lot of individuals qualify for Roth IRA but do not utilize the available option. Roth IRA is a great investment option for the following reasons.

  • You can contribute as much as $6,000 per year or $7,000 if you are above 50 years old.
  • The investments in Roth IRA are post-tax dollars.
  • The money grows tax-free in Roth IRA.
  • When you withdraw the money in retirement, it is tax-free since you would have already paid taxes on the contributions made.
  • There are certain earning thresholds which bar individuals to invest in Roth IRA directly. For example, the phaseout for Roth IRA for 2019 begins at $122,000 for single taxpayers and $193,000 for married filing jointly.
  • Importantly, you can continue investing in both Roth IRA and 401(k).

Traditional IRA

Investments in traditional IRA is similar to that of Roth IRA baring some differences. In the end, it is your personal preference when it comes to choosing which IRA is better. The following details should help you choose better.

  • You can contribute $5,000 per year into the traditional IRA.
  • Claiming traditional IRA will bring down your adjusted gross income and thus your tax liability.
  • The contributions can grow tax-deferred and you can even withdraw the funds without paying any taxes if they are done a bit late.
  • You can set up a traditional IRA, even if you have another retirement plan in place.
  • You have the option to pass on the assets to beneficiaries after death.
  • The age limit for contributing to the traditional IRA is 70 1/2 years.
  • While everyone can open a traditional IRA, the tax deductions vary. Single taxpayers who already have an employer-based retirement plan and earn $56,000 or less are eligible for a full deduction. Married filing jointly status individuals have a similar threshold of $89,000.

These investment options let you save money in the form of taxes and yet allow your assets to grow over time. In the year 2017, HSA grew by $8.3 Billion. In numbers perspective that is about 22% year on year growth. You can also invest and let your corpus grow.