14 Tax Breaks for Filing as Self-Employed NRI in the US

14 Tax Breaks for Filing as Self-Employed NRI in the US

by | Feb 18, 2022 | tax filing

Of course, being your boss comes with its own set of perks and perils: you can wear your pajamas to your home office or take a day off anytime you like. However, these advantages look bleak when you sit down to file your taxes, don’t they?  

Moreover, tax filing as self-employed gets complicated if you are a self-employed non-resident Indian (NRI) in the US. So, we’ve put together a guide to help NRIs claim their tax breaks and reap the benefits.

Recommended: Tax Tips for the Self Employed NR Indians in the US

What are the Tax Implications for Self-Employed NRIs in the US?

What-are-the-tax-implications-for-self-employed-NRIs-in-the-US

There are over 3.1 million NRIs in the United States, and most of them are self-employed. The Tax Cuts and Jobs Act (TCJA) of 2017 provides a 20% tax deduction on qualified business income (QBI). 

NRIs and US residents can claim this deduction on their QBI. Thus, any income you earned while in the US is eligible for this deduction which expires in December 2025. In addition, there are 28 other deductions you can claim during tax filing as self-employed. Below we list out 14 such deductions: 

14 Deductions and Benefits of Tax Filing as Self-Employed Individuals in the US

14-deductions-and-benefits-for-filing-taxes-as-self-employed-individuals

Freelancers and small business owners often worry about paying a significant chunk of their earnings to the IRS as taxes. However, they can avail of 28 other deductions and reduce their tax burden while filing as self-employed. 

In addition, they can reinvest the saved money to grow their businesses. 

Let’s take a look at some of these deductions:

1) Self-employment tax deduction

Self-employed individuals must pay 15.3% of their income as self-employment tax. The 12.4% goes to social security and 2.9% to Medicare. 

This tax is paid by employees and employers jointly. However, you have to pay the entire amount as a self-employed individual. The good news is that you can deduct half of it from your taxes while filing as self-employed.

2)  Home office deduction

If you work from home, you can claim a tax deduction for it. However, there are two formulas for calculating the amount: standard and simplified. For the standard option, you must keep track of all expenses such as electricity bills, repairs, and so on.

There is a pre-determined IRS rate for the simplified formula that changes each year. The current rate is $5 per square foot, and your home office should be no more than 300 square feet.

The best way is to calculate which formula provides the most benefit for you and apply it accordingly. For example, you can debit mortgage interest and depreciation if you own the home.

3) Deduction for internet and phone bills

Nowadays, almost all businesses are online and have a website. In this tax benefit, you can claim the costs of running the website, including internet connectivity. 

Moreover, if you work from home and have a single phone line, you can deduct 100% of long-distance business phone calls. Nevertheless, if you have a second line for work only, you can claim back the entire phone bill from your taxes.

4) Health insurance premium

If your spouse’s healthcare plan does not cover you, deduct your healthcare premiums from your tax bills. However, if your plan covers your spouse, dependents, and children under the age of 27, you will gain extra benefits.

5) Meal deduction 

The burger you ordered for work lunch is not tax-deductible. However, meals ordered during business travel or to entertain a client falls into this category. 

The cost of entertainment, on the other hand, is not covered. Only food and beverages purchased from a restaurant qualify for this deduction. Currently, a full deduction is allowed, but it will expire after December 20, 2022.

6) Travel deduction

This deduction is available for business trips to meet new clients or learn new skills. While it covers the entire cost of transportation, only 50% of meals are covered. Moreover, the travel should be away from one’s work city and purely for business reasons.

7) Vehicle use deduction

If you are a baker, you can deduct the cost of driving your car to deliver your sweet treats. Instead, you can opt for the standard rate of 58.5 cents per mile. 

Alternatively, you can opt for actual expenses that require you to record the times you drove your car for work. You can also claim tax incentives on vehicle repairs, insurance, and depreciation. Choose the formula which gives you the most benefit.

8) Interest deduction

The interest you pay on your business loan may be credited back to you through tax refunds. Nevertheless, you should use it for business purposes. For example, if you use the money for a quick trip to Hawaii, you will not receive tax benefits.

9) Education deduction 

Being a student for life not only keeps you young but also generates tax benefits. As a result, taking courses to improve your current business skills will earn you a tax deduction. However, if you are a travel agent, a drawing course on Craftsy is not tax refundable.

10) Deduction for business insurance

Insurance is taken to protect your business, office space, and equipment, such as fire insurance, car insurance, and credit insurance, which is also tax-deductible.

11) Rent deduction

Renting office space, office equipment, or canceling a business lease is tax-deductible. However, you cannot deduct the rent if you own the space.

12) Deduction for startup costs 

Startups can claim a maximum of $5000 for a business. In addition, startups can deduct their market research costs, travel expenses, attorney and accountant fees, and advertising costs in this segment. If their startup is an LLC or corporation, they can deduct an additional $5000 in organizational costs.

13) Advertisement deduction

Money spent on Facebook and Google ads, as well as on billboards, are tax-deductible.

14) Deduction for retirement plan contributions

This deduction is an investment in your future security. When you purchase a Simplified Employee Pension plan, the premium is tax-deductible.

Recommended: Here’s all you need to know about SEP IRAs for the self-employed. – AOTAX.COM

These and other deductions are detailed in Schedule C of Form 1040, downloadable from the IRS website. Take advantage of it now and reap the rewards later. First, however, keep all records, receipts, and documents for the mentioned expenses if you are filing as self-employed. If the IRS conducts an audit, these will be used to support your claims.If you are a self-employed NRI in the United States and are unsure how to file your taxes, contact AOTAX. With over 15 years of experience in US taxation laws, we have helped over 2 million tax compliant. Our tax experts will assist you in tax filing as self-employed.

Checklist for an NRI filing return in USA and India for the same year

Checklist for an NRI filing return in USA and India for the same year

by | Dec 22, 2018 | Tax Planning

Checklist for an NRI filing return in USA and India for the same year

NRI filing return,It is quite a common scene. Indians travelling to the USA in the search for better opportunities and a better future. If you are one of them, there are quite a few things that you need to keep in mind for filing return in the USA. The first of them being, the liability of taxes. And things can get a bit more complicated if you leave India in the middle of the year.

Should you pay your taxes in India or in the United States of America. This is a confusion that most NRIs have. The simplest way to handle such queries is to find out the residential status of an individual. The residential status of an individual for India or USA defines the tax liability that he or she must adhere to.

US Resident

In order to find out whether or not an individual is a US resident, they must take the Substantial Presence test. An individual must have either of the following criteria to meet the test.

  • Physically present in the US for at least 31 days.
  • Physically present in the US for at least 183 days in the previous three years.

If you want to check your residential status, you would need to count the number of days that you were physically present in the US. Should you qualify for either of these, you would be deemed as a US resident. If not, he/she would be a non-resident alien.

India Resident

To find out if your status is an Indian resident or not, you must qualify for any one of the following two conditions.

  • A person must have stayed in India for at least 182 days for a fiscal year.
  • A person has stayed for at least 365 days together over a period of 4 years.

For being an Indian resident, an individual can use either of the following conditions as well.

  • A person has been a resident of India for at least 2 years in the past 7 years.
  • The person has stayed for at least 730 days or more than that during a period of 7 years.

Apart from identifying whether or not you are a resident of a country, there are some other conditions as well. Here is when you would need to file taxes return.

US Tax Filing

Individuals who are residents of the USA, green card holders or a lawful US resident need to file for their taxes. Also, if you are a non-resident alien and have a source of income in the USA, you need to file taxes. A non-resident alien is taxed only on the US income whereas a resident is taxed on the global income.

India Tax Filing

The Indian tax laws say that a ROR must pay taxes on their Indian as well as global income as per the applicable tax slabs. Should an individual qualify as a ROR or resident, they would have to pay taxes to the Indian government.

There are chances or instances where one might have to pay taxes in both the USA and India. However, you need not to worry about such situations. Both the countries have a DTAA or double taxation avoidance agreement. This ensures that individuals do not end up paying taxes in both countries. If at all you have already paid taxes in one country, you can claim for tax credits.

Another example would be if a person stays in India for 90 days and moves to the USA, he must pay taxes only on his Indian income to the Indian government and likewise applicable taxes in the USA.