How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

By hiring qualified tax professionals for your tax preparation, you are free from the stress of preparing the tax returns alone. The expertise of qualified professionals would ensure that you obtain all the deductions and credits which you are eligible to receive. You can gain peace of mind, avoid making mistakes while filing tax returns, and also save your time by hiring qualified tax professionals. 

Currently, the pandemic COVID-19 has created mayhem all around and has affected the economic condition of the entire country. Several businesses have been shut down and millions of Americans have lost their sources of livelihood. In such a deteriorating situation, obtaining a considerable amount of tax refund would be very helpful to ease the financial stress for some time.

If you are preparing your tax returns with the help of a qualified tax professional, your tax preparer would suggest you several methods to e-file by which you can obtain maximum tax refunds.

So, let us have a look at some of the methods to e-file suggested by your tax professionals for getting maximum tax refunds.

a.Claim all available tax deductions

Your tax preparer would suggest you to dig into all available tax deductions. There are many common deductions available such as charitable donations, medical costs, interest on mortgage and education expenses, etc. The deductions would be subtracted from your AGI (Adjusted Gross Income) thus, lowering your taxable income.  As your taxable income would be low, you would have to pay fewer taxes and you can obtain higher refunds.

However, there are some deductions which you might not be aware of or are very easily overlooked such as State Sales Tax, Student loan interest, Out-of-the pocket charitable contributions, Certain jury duty fees, Child and dependent care, Reinvested dividends, State income tax paid on returns of last year, Earned Income Tax Credit (EITC), etc.  You must keep good records of your deductions especially in case of charitable contributions. Moreover, your tax preparer would suggest you to ensure that you are claiming deductions for those organizations which have the status of “Tax-exempt” with the IRS.

b.Maximize your contributions made to IRA and HSA

Your tax preparer would suggest you maximize your contributions which you are making towards the IRA and the HSA. Traditional IRA contributions can help reduce your taxable income. The contributions made towards Roth IRA do not qualify for tax deductions but they can qualify for Saver’s credit if you can meet the income guidelines. In case, you are self-employed you can be able to contribute towards a certain self-employed retirement plan till 15th October 2020. 

Your pre-tax contributions to an HSA can also help lower your taxable income. Your tax preparer would suggest you to contribute more towards your HSA before the timelines are closed. You should have enrolled in a health insurance plan which has high deductibles that either meet or exceed the required amounts of the IRS. 

c.Use of best filing status

One of the major factors which can maximize your tax refunds is the choice of your filing status. You must inform your tax preparer about any of your major life changes before e-filing. Your relationship status on 31st December of a year determines your entire year’s filing status and you must use it while filing your tax returns. These options for filing status include Single, Married and filing jointly, Married and filing separately, Head of household or qualifying widower. If you could file your tax returns using two statuses such as “Single” and “Head of Household”, your tax preparer can calculate your taxes and find out which one would be beneficial for you in terms of more returns.

 

d.File your tax returns on time

Your tax professional would always suggest you to file your tax returns on time. This increases your chances of getting a maximum refund. The only exception to this is the case in which you have filed for an extension in the timeline to file your tax returns. The IRS charges penalties for not being able to file your income tax returns on time. Your penalty would be around 5% of your unpaid taxes for each month late up to 5 months from your tax filing deadline. Moreover, if you are not paying your taxes on time the IRS would charge penalties and interest on it. If there are penalties and interest levied by the IRS, then it is quite obvious for you to obtain low tax returns.

e.Report all your income

Many people do not report all income on their return. This can be intentional or unintentional but the IRS would charge penalties for this. If IRS uncovers your unreported income then it would charge penalties and interest on your unpaid taxes. Your tax professionals would suggest you to spend some extra time in reviewing your returns and make sure that you are not forgetting any source of income. Usually, the sources of income that are overlooked are the interest income, income from dividends, contract work, 529 contributions, charitable gifts, etc. You can maintain a spreadsheet and keep on updating your income sources every year to avoid mistakes while tax preparation.

Conclusion

Hence, with the help of these tips and methods, you are sure to maximize your refunds during these difficult times. If there is an error after filing your tax returns which would affect your refund amount, you can amend your return by filing Form 1040X.

Health Insurance Tax Deductions for an NRI in the US

Health Insurance Tax Deductions for an NRI in the US

Health Insurance Tax Deductions for an NRI in the US

As we all know, health expenses can be highly expensive so having health insurance and being able to claim a tax deduction would help save tax up to a certain extent.  However, for an NRI residing in the US claiming health insurance for tax deductions depends on certain conditions. It depends on the health care services and the expenses incurred by the NRI in health insurance. 

NRI Health insurance premiums and medical expenses can be tax-deductible only if they are paid out-of-pocket. Moreover, the financial condition of the NRs and from where health insurance has been received are two important factors in determining if the costs would be tax-deductible or not.

 Can Health Insurance Premiums for NRIs be deductible on Federal taxes?

The Health Insurance Premiums for NRIs are classified as deductible on Federal taxes as these are the monthly payments made for the coverage which can be termed as “Medical Expenses”. There are various sources from which health insurance can be obtained by an NRI and the scope of these expenses being tax-deductible.

a.When health insurance is sponsored by an employer

The premiums for the health insurance policies sponsored by the employer are not tax-deductible. Employers would deduct the premium payment from the NRI’s payroll on a pre-tax basis. So, the employee contributions are already taking the tax-saving advantage and further deduction is not allowed.  Moreover, the contributions made to HSA (Health Savings Account) are paid by the NRI on a pre-tax basis and would not be tax-deductible.

b.COBRA insurance

In the case of COBRA insurance, an NRI can continue the employer-sponsored coverage even though he is no longer working in that organization. The premiums for COBRA insurance are tax-deductible because an NRI would pay that entirely by himself on an after-tax basis.

c.When health insurance has been purchased through an insurance marketplace

 In this scenario, the health insurance premium of the NRI would be tax-deductible as these would be termed as “Medical Expense”. Suppose, an NRI is eligible to be enrolled in his spouse’s health insurance program which is employer-sponsored but he opts out for that coverage then he will be unable to avail the tax deduction.

 

d.Medicare

The premiums for Medicare plans depending on the plan the NRI selects such as Medicare Part B, C, or D plus Medigap would be eligible for a tax deduction. In the case of Medicare Part A, the expenses would not be tax deductible if the premiums have been paid by Social Security. 

How to claim tax deductions for health insurance?  

There are two options offered by the IRS to claim tax deductions for health insurance by the NRIs. 

  1. Standard Deduction
  2. Itemizing the Medical Expense

In both cases, the AGI (Adjusted Gross Income) of the NRI would be reduced and the tax to be paid would be mitigated.

If an NRI is opting for Standard Deduction, then he would not be opting out for Itemized Deductions by default.  By Standard Deduction, the process of tax preparation becomes quite easy and simple. The rates for Standard Deduction in case of NRIs can be listed below.

  1. Single Taxpayers – $12,400
  2. Married taxpayer filing return jointly – $24,800
  3. Married taxpayer filing return separately – $12,400
  4. Head of Household – $18,650

In case an NRI decides to opt for itemizing the health insurance, then currently in 2020 he can only deduct those medical expenses which are allowable and exceed 10% of his AGI. 

An NRI can easily decide on choosing Standard deduction or Itemization of Medical Expense by having a look at his Schedule A 1040 Form. This would give him a chance to compare his itemized expenses with Standard Deduction and decide on which one to opt for. 

Health Insurance Deduction for Self-Employed NRIs

In case of an NRI being self-employed then his threshold for permissible medical expense deduction lowers down to 7.5%. Suppose, the AGI of an NRI is around $100, 00 then medical expenses which would exceed $7,500 would be eligible for tax deductions.

Those NRIs who are independent contractors can also claim the health insurance deduction under the Self-employed category. By this, a self-employed NRI’s AGI can be directly reduced by health insurance premiums.

What can and cannot be deducted from tax?

The IRS would allow for any medical expense that has been paid from the pocket prescribed by the doctor for a tax deduction. Some of the common expenses included under this list are Medical tests, Dental Insurance, Therapy, Crutches, Hearing Aids, Birth Control, Prescription drugs, etc. In addition to these expenses, some other expenses which include travel costs for health care are also tax-deductible.

However, some expenses are not tax-deductible such as co-pays, Premium tax credits, expenses related to cosmetic surgery or hair transplant, or expenses related to non-prescribed drugs, etc.

As an NRI in the US, can you claim a Tax Deduction for your Health Insurance?

As an NRI in the US, can you claim a Tax Deduction for your Health Insurance?

As an NRI in the US, can you claim a Tax Deduction for your Health Insurance?

In today’s times, health insurance has become a basic necessity of life. With the spread of dreadful diseases across the world and the cost of medical facilities soaring high, health insurance is a must for every individual. By a health insurance policy, the insurance provider would meet the medical expenses that are incurred during any type of treatment undergone by the health insurance policyholder. For availing this, the policyholder will have to pay the health insurance premium regularly. As an NRI in the US, can you claim a Tax Deduction for your Health Insurance.

NRIs who are living in the US and are working sought to purchase health insurance to avoid any financial emergencies at the times of medical emergencies. 

NRIs enrolled in an employer-sponsored health insurance plan

  1. When an NRI in the US has taken a health insurance plan which is sponsored by his employer then the premiums which are paid for the health insurance plan are already tax-free. However, if the premiums for the health insurance plan are made by a payroll deduction plan and the premium payment is done by pre-tax dollars then a tax deduction cannot be availed.
  2. Payroll deduction plans are those in which the employers of the NRIs withhold money from their paychecks for the benefits. These plans can include those for Medical insurance, life insurance premium, and retirement savings, other taxes, etc.

 

 

Tax deductions for unreimbursed expenses of NRIs

  1. In the case of NRIs purchasing their health insurance on their own by using after-tax dollars, some tax deductions can be done on the health insurance premiums.
  2. In the year 2019, NRIs would be allowed to deduct any qualified unreimbursed health care expenses that they have paid for themselves, their spouses, or dependents if the expenses exceeded 10% of their AGI (Adjusted Gross Income). 
  3. However, in the year 2017 and 2018 if the healthcare expenses were more than 7.5% of the AGI of the NRI then it would qualify for a tax deduction.
  4.  Apart from the health insurance premium, other expenses which can be included in this category by the NRIs are any expenses which are out-of-the-pocket such as expenses involved in surgeries, doctor’s visit, mental health care, vision care, etc.
  5. If an NRI is interested in making deductions for the medical expenses it is advisable to itemize the deductions. The NRI must ensure that his total itemized deductions would exceed the standard deduction amount. 

Tax deductions for self-employed NRIs

  1. For self-employed NRIs living in the US, the entire health insurance premium can be claimed as a tax deduction. This deduction claimed by self-employed NRIs can be said to be a write-off to their personal income tax and will not be deducted when the NRIs are filing on the behalf of any of their businesses. For instance, a sole proprietor must enter the deduction amount in Form 1040 and not in the Schedule C Form.
  2. But, if an NRI is self-employed and also has another job at the same time then he can preclude from this tax deduction.
  3. If a self-employed NRI receives health insurance coverage through his spouse’s health insurance plan which is employer-sponsored, then he can also preclude himself from the tax deduction that can be availed by self-employed NRIs.
  4. Self-employed NRIs are not eligible to claim more deduction than the amount of income they are making through their work.
  5. Self-employed NRIs can choose any one of their businesses as the sponsor for their health insurance plan. It is not permissible for self-employed NRIs to add up their income generated by different companies to claim the maximum deduction. So, it would be wiser if a self-employed NRI would choose his most profit earning business as the sponsor for his health insurance plan.

Reducing of tax bills by NRIs

If an NRI does not qualify to make tax deductions for his health insurance either because of the cost threshold or due to the choice of taking the standard deduction, then he can choose another alternative method for reducing his tax bills.

By electing an HDHP i.e. high-deductible health plan, NRIs can avail the benefits of paying less premium for health insurance plans than normal plans. Through this, NRIs would be able to open a Health Savings Account (HSA). The money which is put into the HSA can be utilized for paying off the health care expenses which are out-of-pocket. The contributions made by an NRI towards the HSA are tax-deductible and when these are used for eligible expenses the withdrawals also become free. In some cases, the health insurance premium can be paid off by using the funds in the HSA. 

However, HDHP can offer tax benefits to the NRIs but they are only advisable for the younger masses that do not need health care cover except some health emergency. It is not advisable for those masses that already have pre-existing health issues or are expecting health expenses shortly. 

 Hence, tax deduction by NRIs for health insurance can be made by thinking wisely and by taking into account the major criterion such as the type of employment and type of health care expenses incurred by the NRIs.

References

  1. https://www.investopedia.com/are-health-insurance-premiums-tax-deductible-4773286
  2. https://www.investopedia.com/health-insurance-premium-4773146
  3. https://www.investopedia.com/terms/p/payroll-deduction-plan.asp 

 

Extended Timeline For US Tax Filing

Extended Timeline For US Tax Filing

Extended Timeline For US Tax Filing

While the entire world is struggling to combat the effects of the dreadful COVID-19, the US Government has come up with new initiatives to provide some relief to the public who are paying the taxes. The Treasury Department in the US and the IRS have jointly announced last week that the US Government is extending the tax –filing deadline to 15th July 2020. This decision has been taken by the US Government to give the taxpayers extra time to handle their taxes amidst the outbreak of COVID-19.

The COVID-19 outbreak was declared as a National emergency last week by the President of the US. Also, the President had invoked the Stafford Act which gives him the power to mobilize the federal resources. The taxpayers would get an additional period of 90 days for filing their taxes and the IRS will not charge any interest or penalty for this time extension. However, for those taxpayers of the country who have already filed their taxes this year would not be affected in any means by these changes made.

File Tax Sooner If A Refund Is Due

Even though the US Government has extended the timeline, those taxpayers who don’t owe any money to the IRS can consider filing their tax by the original deadline of 15th April 2020. This would be wiser as the taxpayers would be able to collect their refunds sooner. This would be very helpful for those citizens who have already started seeing their economic condition and earnings being affected by the outbreak of the pandemic COVID-19. 

Moreover, it is just that the Federal Government has provided this extension in tax filing but different states in the country have formulated different guidelines concerning the tax filing extension. It is advisable for those taxpayers who are planning to delay their federal taxes to understand in detail about the tax filing extension that their State Governments are offering as well.

The Due Date For Tax Filing In Case Of An Extension

There might be some taxpayers who may be concerned about their ability to pay the taxes even by 15th July 2020 due to the loss of a job or other financial issues related to the outbreak of COVID-19. These taxpayers can contact the IRS and discuss their options. The IRS has short-term and long-term payment plans which would help the taxpayers to pay their taxes conveniently. Short-term plans would give taxpayers around 120 days to pay the taxes whereas long-term plans taxes can be paid in installments over several months.

 Earlier, when the tax filing deadline was 15th April and a taxpayer who would get an extension will not have to file his tax returns till October. However, now with the IRS pushing the tax filings date to 15th July 2020, it is quite not sure how long the taxpayers would be able to get if he is filing for an extension. But with the various options made available by the IRS, it is quite sure that taxpayers would have some relief.

Deadline For Quarterly Estimated Tax Payments 

Many people are required to make quarterly estimated tax payments to the IRS in case of their income not being subject to the taxes of payroll withholding. This estimated tax payment is made by the division of the year into four payment periods with each period having its payment due date. Now, since IRS has extended the timeline for filing the taxes to 15th July 2020 it is quite uncertain that what would be the impacts upon the deadline of quarterly estimated tax payments. 

Some Important Steps To Consider Before The Previous Deadline  

Filing of 2017 tax return 

 If there is a refund due of the year 2017 for a taxpayer and the tax return has not been filed, then it must be filed by 15th April through the Form 1040 or Form 1040-SR to claim the money failing which IRS would keep the money.

 Max out 401(k) by 31st December 2020 

The contributions made towards the traditional 401(K) help in reducing the total taxable income of an individual. Many employers also contribute to the savings made by an individual; so, if there is enough contribution made then there are opportunities to obtain some money as well.

Contribution towards IRA and HSA

 The contributions which are made to an IRA and HSA are eligible for a tax deduction. This contribution must be done by the April deadline every year. Now, even though the tax filing deadline has been extended to 15th July 2020 there have been no announcements made on the deadline for IRA or HSA contributions. So, it is advisable to accomplish this task by the April deadline to avoid any further hassles.

 

Conclusion

Hence, with the global economy coming to a standstill and numerous lives being affected due to the pandemic COVID-19, this action by the US Government is applauding. This would reduce a lot of pressure on those expecting to owe money to the US Government. However, if there is a refund expected then it must be claimed immediately so that the cash can be utilized during this period of emergency.

References

https://www.fool.com/taxes/2020/03/24/the-tax-deadline-has-been-extended-should-you-wait.aspx

https://www.cpapracticeadvisor.com/tax-compliance/news/21130318/irs-extends-2020-income-tax-filing-deadline-to-july-15

https://www.usatoday.com/story/money/2020/03/20/taxes-2020-irs-delay-april-15-tax-filing-deadline-july-15/2883840001/

https://www.cpapracticeadvisor.com/tax-compliance/news/21129714/when-is-the-new-irs-tax-filing-deadline-for-2020-coronavirus-delay

https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/important-tax-deadlines-dates/L7Rn92V1d

https://www.nerdwallet.com/blog/taxes/april-deadline-taxes/

 

 

 

 

 

Should capital gains taxation affect me?

Should capital gains taxation affect me?

Should capital gains taxation affect me?

Capital gains taxation a lot of things that we own for either personal use or for investment purpose usually qualifies as a capital asset. Some common examples of capital assets include house, property, bonds, and stocks held as an investment, home furnishings, etc.

When you sell any of these capital assets and make some profit on them, the capital gains taxation come into the picture. The basis of capital gains taxes is that when you sell or exchange your capital assets, you do so at a higher price than you had bought them. Similarly, if you sell a capital asset at a lower price than you paid to buy the same, it would be tagged as a capital loss.

Classification

Capital gains are either classified as long term capital gains or short term capital gains. Here are some details about each category.

  • Long Term Capital Gains

If you hold on to a capital asset for a minimum of 1 year and then decide to sell or exchange it, any gains that you make would be long term capital gains. And the applicable taxes also vary depending on the type of capital gain. For long term capital gains, most individuals would end up paying no more than 15% as taxes.

There is a possibility that some or all your capital gains might be even taxed at 0% if your income is less than $78,750. The standard rate of 15% is applicable if your income ranges between $78,750 and $434,500 for single taxpayers and between $78,750 and $488,850for taxpayers who are married and filing jointly.

Citizens with annual income exceeding the above, the capital gains tax works out to be 20%. Certain capital assets such as collectibles, selling stocks of small businessses, etc. are taxed at a maximum of 28%.

  • Short Term Capital Gains

Any assets that you sell or exchange within a year of buying or acquiring it qualifies as sort term capital gain. In the case of any short term gains, the gain is added to your annual income and taxed accordingly.

One of the major benefits of categorizing these gains is that you are entitled to lower taxes. If the same amount were to be taxed like your income, you would end up paying higher taxes. However, with short term and long term capital gains, you can reduce the tax liability by a considerable margin.

As a rule of thumb, short term capital gain taxes tend to be on the higher side. Since it is dependent on the annual income, the maximum taxes can go up to 37%. On the other hand, long term capital gains can be up to a maximum of 20%.

On the other hand, if you sold a capital asset at a lower price than what you acquired it for, you would incur a capital loss. And it is important to know that you can use those losses to offset any of your capital gains. They can offset gains up to $3,000 with the help of capital losses.

If you stay in the house that you are putting up for sale for a minimum of two years, capital gains up to $250,000 for individuals and $500,000 for married couples is tax free. Thus being aware of the taxes can save the day for you.

If you own any of the capital assets mentioned above, you are entitled to pay capital gains taxes on the selling of these assets. The presence of capital gains taxes impacts you in more ways than you realize. For starters, unless it is short term capital gains, you will end up paying fewer taxes.

Reference:

https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

https://taxfoundation.org/capital-gains-taxes/

https://www.irs.gov/taxtopics/tc409

Buying a property in India? Here’s all you need to know about taxation norms

Buying a property in India? Here’s all you need to know about taxation norms

Buying a property in India? Here’s all you need to know about taxation norms

Whether you have bought a property in India or are planning to buy one, here all you need to know about taxation norms, it is quintessential that you are aware of the tax implications. This will help you plan your taxes and make the most of the available tax breaks. And most importantly, it will keep you away from surprises which might burn a hole in your pockets.

Property Taxes in India

In simple terms, any taxes that you must pay for your property would be tagged as property taxes. Primarily there are two types of property taxes in India,

  • Maintenance Taxes
  • Sales Taxes

Buying Property in India

Before you can proceed with buying a property in India, you must be aware of the eligibility criteria. There are no restrictions when it comes to buying a property for resident Indians. Indian nationals or people with Indian origin can buy property in India even if they live abroad. However, you cannot buy a property if you have moved to Iran, Nepal, Bangladesh, Bhutan, Afghanistan, Pakistan or Sri Lanka.

If you are neither a resident of India nor Indian, you cannot buy a property in the country. To be a legal resident, you must have spent at least 183 days in a financial year.

Who Must Pay Property Taxes?

A buyer of the property would end up paying most of the taxes in the form of sales tax. And if you are selling a property, you would be entitled to pay any capital gains taxes. And the owner of a property is responsible for paying out any maintenance taxes applicable.

Types Of Property Taxes

Here are the different types of property taxes that one must bear during ownership.

  1. Sales Tax

The sales tax comes into the picture while both buying or selling a property. And the tax collected is used for the following purposes.

  • Registration charges
    • The buyer of the property must pay the registration charges in front of a registration officer. The registration charges are set by the respective states and are usually at 1%.
  • TDS
    • TDS or Tax Deducted at Source comes into the picture when the property transactions qualify to be ofhigher value. The TDS must be paid by the buyer of the property and is applicable for transactions that exceed INR 50 lakhs. The buyer must deduct the TDS from the total transaction value and submit the same to the income tax department.
  • Service Tax for properties that are under construction
    • For properties that are under construction, you might have to pay service taxes. The central government is responsible for these taxes and not the local authorities. The charges are usually 3.75% to 4.5% of the total property value.
  • Capital gains tax
    • If you sell a property and make profits in the transaction, you are liable to pay capital gains tax on the same. Properties held for 2 years, long term capital gains are applicable and the properties which are held for a lesser duration, qualify for short term capital gains tax. Currently, the short term capital gains tax is at 15% and long term capital gains tax is at 20%.
  • Stamp duty
    • The Stamp duty charges are paid to the state government and depend on a variety of factors such as the location of the property, the property, its age, etc. The stamp duty charges vary depending on the state and can range between 35 to 10%.

Being aware of the above property tax types will help you plan your taxes and take appropriate actions so that you are not caught off guard.

Reference:

https://transferwise.com/au/blog/property-tax-in-india

https://www.nkrealtors.com/blog/save-taxes-on-the-sale-of-property-in-india/

https://economictimes.indiatimes.com/nris/tax-implications-for-nris-on-purchasing-property-in-india/articleshow/42085833.cms