How to create your investment portfolio with your tax refunds in the US?

How to create your investment portfolio with your tax refunds in the US?

How to create your investment portfolio with your tax refunds in the US?

Investing has become quite an easy task today and with so many options available it is easy for common people to utilize their savings for achieving the dreams and accomplishing long term goals. How to become an investor if there are no savings? This is a thought which can creep into your mind when you think about investing. Without a considerable amount of savings, the investment portfolio seems to be a distant dream. But, in the US you have a simple way out. You can use your tax refund as an option to initiate investing in the stock market.

Stock market scenario

During the year 2012, according to the reports generated by IRS the average tax refund in the US was 2,803 and this amount is enough to start investing with the help of a brokerage account. Investment can be done by a very little less amount itself. Today the market condition is quite good and it is being addressed as a “bull market” which means a market in which the prices of the stocks of companies are rising and people are interested in buying shares. Investments into shares can be a good decision right now as the performance of the stock market is quite good now. In the last 4 years, there has been an average annual return of 17% in the stock market which makes investing a good decision for common people.

This performance of the stock market is much better as compared to that of other investment options such as money market funds, bonds, real estate, certificates of deposit, etc. But, along with the high returns, there is a huge risk associated with the stock market even. The major risk which is associated with the stock market is the fluctuation in the returns. The returns obtained keep on changing rapidly from one day to another or even from one month to another. However, in the long run, if you are interested in achieving long term goals the best investment option is the stock market. With proper risk assessment and risk analysis, the stock market can turn out to be a great investment option.

Use of tax refund for making investment

  1. When you receive your tax refund for a year, you can open an Individual Retirement Account (IRA) with the help of your investment brokerage firm or your bank itself. With the help of the IRA, you can invest and obtain tax benefits. When you are putting money into your IRA, your taxable income reduces and you pay less tax.
  2. When you have opened your own IRA, you can pick mutual funds for making investments. A mutual fund is known as a collection or assortment of bonds, stocks, and cash alternatives. Mutual Fund helps in managing money from different investors and even the small investors can manage their funds with the help of professionals.
  3. There are numerous funds with different objectives that are available and you can easily pick a fund of your choice according to your long term goals. You can select funds for stocks or funds for bonds or even funds for a mixture of both stocks and bonds.
  4. The fund which you wish to select for investment depends on the amount of risk you are willing to take when it comes to your money. We can illustrate this with the help of an example such as stocks involve a higher amount of risk but bonds are less risky than that of stocks. But, stocks provide higher returns as compared to bonds and you will need higher returns for accomplishing your long term financial goals. So, it is your choice to take up the risk with stocks for higher returns or to play safe with bonds.
  5. The amount of risk you can take depends on how much time you have for the accomplishment of your financial goal. If you have a long time left for retirement then you can go ahead and take certain risks.
  6. Using your tax refund as an investment is the beginning; after opening up your IRA account you can opt for investments to be made automatically for making contributions to the IRA account every month.

Hence, with these investment avenues, your finances will change and you would become an investor with long term financial goals. So, you should file your taxes on time and utilize your tax returns as an investment option.




How to start investing in the US being an NRI?

How to start investing in the US being an NRI?

How to start investing in the US being an NRI?

For the NRIs in the US, an investment can be the best method to build long term wealth. If you are an NRI and are planning to invest in the US, you don’t need to be wealthy or super-rich; a common man can start investing with a minimum amount of funds but in a wise manner.

Some of the best investment options in the US which can be ideal for NRIs can be listed below.

  1. Index Funds
  2. Target-Date Retirement Funds
  3. Retirement Account

Index Funds

An Index fund is a category of mutual fund which has a portfolio that has been constructed in a way such that it can match the components of a financial market index i.e. the Standard and Poor’s 500 Index (S&P 500). Index funds help the investor in providing wider market exposure, fewer expenses involved in operating and low turnover associated with the portfolio.

By investing in an index fund, an NRI would be involved in a form of passive investing. Here the portfolio manager would not be actively involved in picking up the stocks and making up strategies on how to buy and sell them. Rather, the portfolio manager would build up a portfolio in which the holdings would mirror the securities which are of a specific index. In simple terms, an index fund is a portfolio of stocks or bonds which are designed in such a way that it can be similar to the composition of a financial market index.

Index Funds are a very good choice for diversification. They provide strong long term returns and are an ideal option for buy-and-hold investors. There is a “three-fund portfolio” which can be used to make an investment in every sector in the market.

  1. Total U.S. Stock Market Index Fund consists of large-cap, mid-cap, and small-cap U.S stocks.
  2. Total International Stock Index Fund which comprises of developed and developing international markets.
  3. Total Bond Market Index Fund that includes corporate bonds and Government bonds.

Target-Date retirement fund

The target-date retirement fund is another ideal investment option for NRIs in the US. An investor can choose a fund that is nearer to his planned retirement date. The fund manager should plan and put the money into better and conservative assets as the investor’s retirement date approaches.

Target-date retirement funds can be more expensive when compared to Index funds. But, still, they are cheaper and involve less amount of risk as compared to that of the option of selection of individual stocks for investment.

Retirement Accounts

In the US, federal tax and state income tax is charged on any income which is obtained from an investment.  To reduce bills that are related to tax, NRIs must start contributing towards a 401(k) plan or towards an individual account which is meant for retirement. If an NRI has an individual retirement account, he will pay tax on the cash in the account for only once.

With the help of a 401(k) plan or contributions made towards IRA the taxable income of NRI decreases. The contributions made by the NRI become tax-deferred as taxes are paid on the amount being withdrawn. Roth 401(k) and IRA need to make tax payments in the current year, but the amount of contribution made and the earnings made in life-time grow free. If the employer of an NRI is offering equal contribution, then he can consider making contributions to the 401(k) plan first. Otherwise, it is wiser to contribute to the Retirement Account at lower fees.

The right time to begin investing

The right time to begin investing is from now as more opportunities will be available to earn income from dividends and also to capture the growth in the share price. Moreover, when you are reinvesting your income; your passive income starts compounding.

In the US, investing is the best option to start saving for your retirement. The sooner you start investing the less you are delaying your retirement planning. The rate of interest in banks is almost low and does not generate much compound interest. Also, inflation rates affect the rate of interest in the savings account. So, by investing early you are paving the way for obtaining consistent returns with fewer efforts.

Hence, there are numerous investment avenues available for NRIs in the US. To start investments in the US as an NRI, you do not need too many funds. You can start your investment from today with minimum funds and minimum effort but with strategies and far-sightedness.


How Much To Save Up For Your Retirement In The US?

How Much To Save Up For Your Retirement In The US?

How Much To Save Up For Your Retirement In The US?

A lot of us look up to retirement so that we can hang our boots and finally relax or take a break from all the running around. However, how well your retirement goes depends on a few important factors. The quintessential one being how much you save for your retirement.

Should you plan your retirement well in advance and align your savings and investments accordingly, the chances are high you will have a stress-free retirement phase. To aid you in the entire process of making your retirement a much happier place, here are some tips.

The amount that you need to put away for your retirement depends on the following factors.

  • Your age when you start investing for your retirement.
  • Your paycheck when you decide to save for your retirement.
  • The age at which you wish to retire.
  • The returns that you are expecting on your investments.

There is a simple correlation when it comes to saving for your retirement. When you start saving for your retirement early, you will end up setting aside a smaller chunk of the salary. And the reserve also holds good. The later you start, you must invest a larger chunk of your paycheck towards your retirement.

How Much Is Enough For Retirement?

Your lifestyle plays a crucial role in deciding the amount of money you would need for your retirement. If you wish to retire at 60 years and expect to live for another 30 years, you will need enough money to support you through that entire duration. You should consider the needs along with wants as well. A simple monthly budget will help you understand the amount. But unexpected medical expenses are something that you must also consider.

Estimating Your Requirements

There are several online calculators that you can use to estimate the amount you must set aside for retirement. As a general rule of thumb, when you are 35 years old, you would need to save about 1 to 4 times your annual income for your retirement. Similarly, when you are 50, the savings must be at 5 to 10 times your annual income. You can reach out to a trusted financial advisor if you need details on specifics.

Optimize Your Income Taxes

There are different ways to fund your retirement. Once you start optimizing your income taxes, you will find additional room for savings for retirement. Here are a couple of ways to do the same.

  • Withholdings

A lot of taxpayers withhold a lower amount from their taxes while declaring their W-4 Form. Eventually, the IRS refunds the amount at the end of the tax season. Should you opt to withhold exactly as much taxes as you owe, you will end up with some savings. You can then invest this additional amount into a tax-deferred retirement plan. Thus, do not forget to update your W-4 if there is any change in your filing status, income, employment, etc.

  • Refunds

And should you decide not to alter your withholdings, you can expect a refund from the IRS at the end of the tax season. You can use this refunded amount to fund your retirement. Depending on the amount that you receive, you can either put the entire amount into a tax-deferred investment account or a portion of it. If the refund is a considerable amount, you can opt to use only a portion of it.

Start saving for your retirement at the earliest and you will have to put away a smaller amount every month. This will give you a head start and the possibility of saving a higher amount as well.


Is lottery/gambling winnings taxed for an NRI in the US?

Is lottery/gambling winnings taxed for an NRI in the US?

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.


Cancer Patient’s Tax Considerations for NRI’s In The US

Cancer Patient’s Tax Considerations for NRI’s In The US

Cancer Patient’s Tax Considerations for NRI’s In The US

The diagnosis of cancer can be heartbreaking for an individual as well as the family. Getting adequate financial assistance during the time is one of the first things that would occur to an individual. While health insurance plans do cover some of the expenses, cancer patients have a lot of expenses that they must cater to. Cancer patients can reduce their tax liability with the help of substantial tax breaks, as they can deduct some of the expenses that they have paid from their pockets.


Taxpayers who use itemized deductions instead of standard deductions can still deduct medical expenses related to cancer. They can deduct expenses related to medical care, hospital stays, medication, diagnosis, provided that these expenses exceed 7.5% of their adjusted gross income (AGI).

Taxpayers can also claim mileage used for medical treatment at 20 cents per mile along with expenses related to attending seminars on education and diagnosis of cancer.

To deduct their health insurance, self-employed taxpayers don’t have to itemize deductions. They can directly deduct their health insurance premiums from their income.

How to Avail the Tax Break

According to the IRS, expenses that qualify for tax deductions under medical expenses include the cost of cure, cost of diagnostics, cost of treatment, cost of prevention, etc. Treatment for cancer is usually very expensive starting from chemotherapy to surgery. And your health insurance policy plays a crucial role in the amount that you can claim under the tax break.

For certain rare types of cancers, patients need to undergo special treatment such as mesothelioma. Travel is an integral part of such treatments and it might be considered for tax breaks.

The IRS lists out all the expenses that qualify for the tax break, which even includes the health insurance premiums which taxpayers pay with pre-tax dollars. To make it even more accessible, there are no restrictions on the mode of payment. You can pay for the care by cash, check or even credit card for the financial year that you want the tax deductions for.

For cancer patient’s tax considerations, there is one important thing that one must keep in mind. The IRS has increased the standard deduction for all the categories. The enhanced limit now stands at $12,200 for single taxpayers and $24,400 for taxpayers filing jointly. And the same for the head of a family is now $18,350.Thus, it still is at the hands of a taxpayer if they want to opt for standard deduction or itemized deductions. The usual condition where it makes sense to opt for an itemized deduction if it exceeds your standard deduction threshold.

When your itemized deductions exceed the standard deductions, you can benefit from the tax considerations for cancer patients. And medical expenses related to treatment or cure of cancer would go under the itemized deduction category, along with expenses such as state and property taxes, contributions to charity, interest paid on the mortgage, etc.

There is another condition that you must satisfy to avail of the benefits mentioned above. If you wish to itemize your deductions pertaining to medical expenses, you can do so only if it exceeds 7.5% of your AGI or adjusted gross income. For 2019, the limit is pushed further to 10% of the Adjusted Gross Income. For the year 2018, if someone had an AGI of $100,000, they would be eligible to deduct medical expenses, if the total expenses exceeded $7,500. The calculation is quite simple, 7.5% of AGI or $100,000, which deduces $7,500 as the threshold amount.Thus, you can claim the medical expenses and reduce your tax liability along with it.