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.
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.
NRI with Green Card in the US, what not to forget while filing your taxes this year
The income tax system that currently in motion in the United States of America, requires corporation, trusts, estates and individuals to pay taxes. If you are an NRI, you must also pay taxes to Uncle Sam. Irrespective of whether you are filing your taxes for the very first time or have been doing it for years, here are a few things that you must not forget.
Reporting Foreign Assets (Form 8938)
The IRS introduced Form 8938 a few years ago to get additional information regarding foreign assets of their citizens. The Form 8938 or Statement of Specified Foreign Financial Assets should be filed along with their taxes. This form requires taxpayers to disclose additional information regarding their interests and investments in foreign financial assets. With the help of this form, the IRS can identify the non-compliance of its taxpayers.
Your financial assets such as pension plans, mutual funds, insurance policies, ULIP plans and bank account balances must be declared as a part of Form 8938. The form is quite exhaustive, to say the least. You can get in touch with the company handling your finances or banker to get these details.
The IRS outlines its residents and citizens (PIO, OCI or NRI) to pay taxes on their global income and not only the income generated in the US. Anyone who has stayed in the US for at least 31 days in a fiscal year and 183 days in the previous three years, gets the tag of a US resident. If you qualify, you must declare your global income.
Global income includes any salary that you receive in India, either for consultation or freelancing. Income in the form of interests or dividends earned on bank deposits or other securities. Income generated from rent received on a property, agricultural income or capital gain on the selling of assets, all qualify.
You will be taxed on all of these in the US. While income from agriculture is tax-free, it will be taxed in the US. However, if you have paid taxes in India for any of these incomes, you can claim for the foreign tax credit as per the DTAA.
Employee Stock Option Plan
Employee Stock Option Plan or ESOP is something that you must not forget in your tax filing. The IRS considers the granted value of ESOPs when a taxpayer opts for the same. The total ESOP compensation must be added to the gross income. If you had exercised a similar option in India and have paid relevant taxes, you can opt for tax credit while filing your tax return.
The IRS requires all its citizens and residents to declare their foreign investments such as mutual funds and private equities in the tax return. These investments come under the purview of the Passive Foreign Investment Company (PFIC). To summarize, according to the PFIC, a taxpayer must declare all such investments and any gains that they earn out of them. These gains must be declared and appropriate taxes paid.
In the event that you fail to do so or did not receive any gains from them, the final sale value would be divided for the number of years and calculated. For instance, if you haven’t received any distributions over 5 years and you gain a total of $200, it would be considered as $40 for each year.
Being on the top of these will help you from coming under the scrutiny of the IRS. And of course, sets yoo up for a smoother tax filing season.
Tips for NRI’s to become compliant with FATCA and the IRS
The first step towards becoming compliant to any norm is to be aware of what it is. FATCA or Foreign Account Tax Compliance Act came into existence some years ago to counter tax evasion by taxpayers.
As per the tax code, any individual who is a resident of the USA is a green card holder or a citizen of the USA, must pay taxes. To extend it further, taxpayers need to declare their global income and pay appropriate taxes on the same.
There are quite a few high-profile tax evasions in the past, which forced the IRS to take corrective measures. Approaches of FATCA
There are two primary approaches that FATCA takes. Firstly, it expects US taxpayers to provide details of their foreign income. If they own any kind of assets outside the USA, they must report them to the IRS. By filing Form 8938, you can provide all the necessary details to the IRS.
The second approach involves foreign financial institutions providing information regarding assets of individuals. The institutions need to provide information regarding financial accounts, the assets or accounts that individuals hold in different countries. How to get FATCA Compliance
You must do the following steps to be compliant with FATCA.
– A simple declaration that mentions your PAN details.
– The country of your birth.
– The country of your current residence.
– Your nationality.
– Your current occupation.
– Your annual income.
– And whether or not you are a politically exposed individual or not.
– For individuals who have paid taxes in any part of India, they need to provide a tax identification number. What should be reported
The following are certain conditions in which an NRI needs to report their earnings as per FATCA to the IRS. Financial institutions also need to report the same to the IRS as well.
– If the total value of the income is less than $50,000 at the end of the fiscal year, there is no need to report the same. However, if the amount has exceeded $75,000 at any point in the year, the amount must be reported to the IRS.
– The above threshold is for individuals staying in the USA. For the ones who stay outside of the USA, the threshold values are even higher.
– The threshold levels differ for single tax filers and married tax filers as well.
– This declaration of income includes mutual funds and other financial accounts.
Outcomes of Non-compliance
The consequences of non-compliance of FATCA differs depending on the account types. You might have to face any of the following, depending on the kind of holdings. – Bank Account
The IRS had offered a deadline of 30thApril 2017 to present a self-signed certificate. In the event of failure of presenting the same, the accounts would be frozen.
In simple words, the financial institution would forbid the account holder from making any financial transactions.
– Mutual Fund Investors
A similar deadline was introduced for mutual fund accounts as well. As is the case with the bank accounts, the mutual fund accounts would also be blocked if they are non-compliant with FATCA. Being blocked doesn’t allow individuals to do any sort of transactions on the accounts.
NPS account holders also need to get the FATCA compliance done. The lack of which will deem their accounts blocked.
You need to download the form and self-sign it and send the same to NSDL-CRA to get the certification done.
The IRS is quite serious when it comes to tax evasion. If your financial accounts aren’t already FATCA compliant, it is high time you get them done.
5 Tax Benefits you should avail when you are MOVING for JOB / BUSINESS Purposes?
Changing jobs is a part and parcel of life. One can either look for better job opportunities or could be unfortunately part of corporate downsizing. In either case, there could be quite a few tax implications and impacts on your Tax benefits.
Being aware of them will help you overcome such situations gracefully. Here are the top tax benefits that you should not forget while switching jobs or businesses.
A vast majority of employees have a lot of taxes deducted from their paycheck. In fact, the number stands at about 100 million people receiving a fat refund cheque. With a new job, you have the option to set it right.
With your new employer, it is time to revisit your W4 form.
Allowances section in the form determines the amount of taxes that you will have to pay or the amount that is withheld from your income.
Changing jobs at times might lead to a change of location as well. If you have undergone a similar experience, you can claim the amount. Here is all that you should be aware of.
The expenses should be reasonable and associated with transportation of personal and household items to the new location.
In the event that you are unable to move immediately, you can claim expenses related to storage unit up to 30 days.
The claim can include your as well as other members of the family’s travel expenses.
Should you decide to drive to the new location, you can include fuel costs, parking bills, tolls, etc.
If the distance is far and you end up using trains or flights, you can claim them as well.
You can claim for these expenses in your current year using IRS’s Form 3903 and attach it with your tax returns.
Expenses related to Job Hunting
The IRS always allowed for job hunting-related expenses. Here are a few facts that you should be aware of.
But prior to 2018, the same deductible as a miscellaneous expense, provided you itemize it under Schedule A.
The expenses had to be in excess of 2% of your adjusted gross income.
You can now claim itemized deductions for job hunting even if the outcome was not favorable.
It is important that the line of work remains the same while doing the job search.
The usual expenses covered include any fees paid to employment services or agency, travel-related expenses or costs for mailing or printing out resumes.
Selling your house
There is a feeble possibility that you might plan to sell your house owing to a change in job location. In such cases, capital gains taxes will come into the picture. The following points will aid you.
Capital gains up to $250,000 on the sale of a house or $500,000 if married filing jointly, is non-taxable, provided you have stayed in the house for at least two years.
The gains reduce to half if you have stayed for one year only. The corrected tax-free gains would remain $125,000 for individuals and $250,000 for married filing jointly status.
Changing jobs usually means a lot of confusion and chaos related to retirement savings. Employees usually take this opportunity to withdraw their 401(k) money. You must keep in mind that withdrawing the amount before you turn 55 would result in a 10% penalty. It is recommended to transfer the amount rather than withdrawing.
The above are some tax benefits that you should not overlook while moving job or business.
Tax benefits of Hiring your Kids to work for your Business: If you hire your children as employees to save tax, you can deduct the salaries you pay them. If your child is under 18, you don’t even need to pay Payroll taxes – that is payments such as FUTA and FICA that are required for other employees.
Do you know? you can claim up-to $5000 for child and dependent care benefits!
A child and dependent care benefits is available if the taxpayer requires care for a child or disabled dependent in order to be gainfully employed. The credit percentage is between 20% and 35% depending on the AGI of the taxpayer. For the taxpayer with AGI over $45,000, the credit is the minimum of 20%. Up to $5,000 of benefits under an employer dependent care assistance plan can be excluded from and employee’s taxable wage. A taxpayer may claim the child and dependent care credit for a child who lives with the taxpayer for more than half the year, even if the taxpayer does not provide more than half the cost of maintaining the household.