With the golden ticket of H1B visa comes the clear path toward the American Dream. And of course, with the American Dream comes the American Reality—the brick-and-mortar behind-the-scenes that go towards building a life in the USA.
Tax returns are very much a part of this reality, and while reaping the system’s benefits may be smooth-wading through, the paperwork at the end of it is not.
However, filing your tax returns doesn’t have to be all drudgery and doom. Being organized is critical, and we help you out below with an extensive list of all the possible documents and forms you may need to file individual income tax returns.
Who Qualifies for Tax Returns in the US
However, before diving in, let’s quickly look at who exactly qualifies for paying taxes and receiving the returns that come with it.
To refresh, any individual who meets the ‘Green Card Test’ or the ‘Substantial Presence Test’ is considered a resident alien and thereby is liable to pay taxes in the same manner as any US citizen.
Here’s a breakdown of the two tests:
- The Green Card Test—if you have not renounced your alien registration card (a green card), and neither has your privilege of immigrant status been terminated by the USCIS or a federal court, you pass the Green Card Test.
- The Substantial Presence Test—you pass the SPT if you have been residing in the US for at least 31-days of the current year and 183-days total over the current year and the two years preceding it. More specifically, this count must include all days in the current year, one-third of the days present in the year before the current year, and one-sixth of the days present two years before the current year.
Now, let’s look at precisely what you need to file a complete and accurate tax return. To make things easy, we’ve grouped the documents according to their function.
Personal Information and Dependent Information
Basic information forms the crux of tax returns in the US, so it is essential to keep the following documents handy:
- Previous tax returns and statements for reference.
- Social Security or Tax ID numbers for both you and your dependents, if any.
Furnishing proofs of earnings is an integral part of filing your taxes. As an Indian professional residing in the US, it is important to note that you are liable to declare your global income (from every source) in your tax returns.
That means earnings on mutual fund dividends, interest earned on stocks, bank deposits, and fixed deposits, among others, are all taxable. Below is a list of documents you may require while filing:
- W-2 forms from employers.
- Form 1040 to declare taxes paid in previous years and to declare foreign income.
- Form 1099 series, each ending with a different suffix for different revenues earned. For instance:
- 1099-INT (interest income)
- 1099-G (government payments and tax refunds)
- 1099-K and 1099-MISC (freelance gig payments)
- 1099-R (pension income)
- 1099-S (stock sale income)
- 1099-B (property sale income)
- 1099-DIV (dividends)
- 1099-SSA (Social Security benefits)
- Form 1095-A for Health Insurance Marketplace Statements.
- Records of cryptocurrency transactions and interest earned.
- Expense records such as bank or credit card statements.
- Records of rental assets and income earned.
Documentation for Deductions
Deductions lower tax bills; therefore, taking the time to understand and document the expenses, you can claim to lower your taxable income, which is an excellent practice to follow.
Compiling the applicable documents below could help reduce the taxes you pay:
- Records of donations to charity.
- Homeownership documents such as mortgage payments and property tax statements.
- Medical expense statements such as hospital and doctors bills and health insurance payments.
- Childcare and educational expenses include daycare fee payments and tuition fees or loan payments.
- Proofs of retirement account contributions.
- Records of state and local income taxes paid.
Documentation for Credits
Tax credits are as valuable as deductions and help reduce your tax liability. It is important to have the necessary documentation in your tax return to claim these.
Here are some of the most common tax credits you can claim:
- Child Tax Credits that are worth up to $3600 per child. Hold on to Letter 6419 for the same.
- For foreign income tax credits, fill in and attach Form 1116 to your return to reduce the brunt of taxes paid on income earned back in India.
- Adoption Tax Credits for families that have adopted children.
- Dependent Tax Credits in case you are supporting a dependent while unemployed yourself. This credit reduces liability to offset the cost of paying for a dependent without a steady income.
Income Adjustments and Declarations
With personal and financial changes such as job changes, getting married, or having children, it is advisable to reconsider your withholding.
Individuals are encouraged to fill out a fresh W-4 form each year to change the amount of their income that is taxable. In addition, to increase your tax refund and lower the taxes you owe, consider organizing the following documents and submitting them with your tax return:
- Moving expense records.
- Medical Savings Account contributions.
- IRA contributions.
- Interest paid on student loans.
In a country with regulations far different from what we’re used to in India, preparing for tax season is taxing, saying the least. However, organizing your receipts, statements, and forms is an excellent first step to take.
However, filing on your own without knowing how to claim credits or deductions or whether you’re even eligible for them is doing a great disservice to your bank balance.
AOTAX has been helping Indian IT professionals in the US for more than 15-years and is well-versed in the challenges you face and how to get the best returns in your situation. Let us help you with our planning, advisory, and consulting services to ensure you only have to enjoy the American Dream while we take care of the American Reality. Sign up for free today to get a feel for how we work and what we can do for you.