People are acutely aware of their fiscal obligation towards the Government, if only for the lure of ‘refunds’ that may be due to them. Every year IRS embarks on a major PR campaign to educate and inform the public of their fiscal responsibility.
Though many in America wait for the April 15th deadline for filing taxes, some – especially for those a big refund is due – begin the process right in earnest. Uncle Sam’s reach extends to everyone living and making money in the US, including Expatriates, Non Resident Indians (NRIs), and those on student, temporary and H1 Visas. For residents and expatriates, one has to account for the ‘global income’ while filing taxes. Regular tax practitioners are overwhelmed by intricacies of tax filing when it comes to credits, accounting for global income etc.
The big question that I get asked often: if I am an Expat in the US with additional income and assets in India, can I do my US taxes myself using tax software or online tools alone, or should I use a tax consultant? This question is especially relevant in current tough economic times when every penny counts. Here are the top 15 tips and facts to keep in mind:
If you are a U.S. citizen or resident, you are generally subject to U.S. income tax on your worldwide earnings. Those on temporary work visas including H1, L1 and Student visas are also subject to U.S Taxes.
U.S. Tax codes are complex. All the more if you want to ensure you take all deductions including credit for foreign taxes paid
Most Free Tax software packages cater to “simple” tax returns, like for those filing a 1040EZ. Tax package vendors make money on add-on’s: State tax package, international, mortgage and other deductions etc etc
Good tax consultants are expensive though some are worth the money they charge.
If you are planning to hire a tax consultant, do it as early as possible. Between mid-March and April, even the best consultants may be swamped. They will not be able to dedicate as much time for each individual client
Not all tax consultants know of the intricacies of international income taxes.
Expats working for foreign companies, Software service firms, especially those employing a lot of H1 Visa holders and expats provision for lot of tax benefits and avoidance measures that they and employees can avail.
Making sure an individual foreign employee of avails of all these benefits is an art more than a precise science. Not all tax consultants are aware of these provisions.
If you had income in a foreign country you may have paid or been charged foreign income tax. The foreign income tax is normally withheld in the source country from payments and distributions. Make sure you are not a victim of double taxation.
Expat chat-groups and discussion forums and blogs may have helpful tips. However, some of those can be misleading since each individual’s situation is different. Use such references with caution.
Individuals in the Green Card queue, awaiting US immigration should play it especially straight since any audit by IRS or “Tax Garnishment” can be a red flag to US immigration authorities.
Green Card Holders (permanent residents), even those living abroad temporarily should file taxes as ‘residents’ though they may be eligible to file taxes as non residents. Filing taxes as non-resident may impact you during re-entry to the US
Permanent Residents waiting to Naturalize as US citizens should also be cautious while filing taxes and not stray from the straight line
Non-resident Spouse can be Treated as a Resident. Make sure you get credit for all your dependents. This is especially useful for immigrants with spouses and children awaiting immigration outside the country.
Foreigners living overseas, and others living in the US who are ineligible to apply for a Social Security Number (SSN) may be eligible for and Individual Taxpayer Identification Number (ITIN preparation). Dependents of US residents living abroad should apply for the ITIN and become eligible to be claimed as dependents for tax purposes
Medical Expense Reimbursement Plan: A proven way to slash the high cost of health insurance and out-of-pocket medical expenses not covered by insurance. Self Employed Professionals, Dentists, doctors, and lawyers in private practice, real estate and insurance sales professionals, financial planners, engineers, consultants, and other business owners should seriously look at this planning tool.
A few Important Facts about Dependents and Exemptions. Some tax rules affect every person who may have to file a federal income tax return – these rules include dependents and exemptions.
Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct ,650 on your 2010 tax return.
Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the social security number of any dependent for whom you claim an exemption.
If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Tax Credit payments you received.
If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
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