TaxMayukha

Who should file a US tax return?

US Citizens, green card holders earning in excess of 10000 US Dollars, or a non-resident alien with sources of income in the US

What are the prerequisites to filing?

Social Security no. or an ITIN (individual tax identification number) for yourself and those claimed as dependents in your filing

Is the loss on the sale of my home deductible?

A loss on the sale or exchange of personal use property, including a loss on the sale of your home used by you as your personal residence at the time of sale, is not deductible. Only losses associated on property used in a trade or business and investment property (for example, stocks) are deductible

Am I eligible for refund on Additional Child Tax Credit after coming back to India and earning in India?

No. After you moved out from USA and your earned income is not in the US (and you have not paid taxes in the US), you are not eligible for a refund via additional child tax credit. Even if you claim it, there is every possibility that IRS refuses the refund. It has become a contentious issue with the IRS when people who don’t have a US source of income seek to claim a refund via additional child tax credit.

Do you owe lesser taxes when you file as a married couple filing jointly vs as a married couple filing separately?

More often than not you will file more taxes when you file separately. However, when filing jointly your liability is higher than when you were single.

When I make tax free exchanges in India in Real Estate am I eligible for similar treatment in the USA?

You may be eligible for some provision but remember the provision in the US are tighter allowing shorter periods of time to satisfy the replacement clauses. It is important that you speak to a consultant before the event.

Do we have to report foreign financial assets, bank information and mutual fund transactions to the IRS? What will be the impact if we don’t disclose information?

i. It is mandatory to disclose information to IRS relating to foreign bank accounts details, assets, and Mutual Fund transactions

ii. Form 114 [FBAR] is the form which is used to disclose the information relating to foreign bank accounts. Though it is an informational form only, penalty will be charged in case of failure to report

iii. Form 8621 – Sale transactions from Mutual Funds will be reported in this form and gain will be considered as other income in Form 1040.

iv. Form 8938 – Based on the threshold limit, it may be required to file this form. If all the information already got filed in Form 8621 then it is enough to specify the form filed details in this Form 8938

v. The penalties of non-reporting or not complying to above requirements is stiff, and includes both a monetary penalty and jail time

When and to whom is FBAR reporting applicable?

FBAR reporting is applicable to US Citizens, Resident Aliens, Entities created, organized or formed under the US Law.
FRAR reporting is mandatory when the cumulative maximum balance of foreign financial interest in the reporting year exceeds $10,000.

When is the FBAR due?

By June 30th of the year following the tax year

If I am a substantial stakeholder of a foreign company, do additional FBAR requirements apply to me?

Yes, if a company that you are a stakeholder in is a company which has foreign accounts, this information may have to be included in your FBAR disclosures

What are all the foreign financial interest amounts reportable in FBAR?

The term foreign financial interest includes bank accounts (any type of account), securities accounts and other financial interests such as: accounts of a person in the business of accepting deposits as a financial agency, having Insurance or annuity policies, accounts with a broker who acts as broker or dealer for futures or options transactions in commodities (per rules of commodity exchange or association), and accounts with Mutual Funds or similar pooled funds and other investment funds. Remember if you are a stakeholder in a foreign company, additional information may have to be included on your FBAR disclosures.

Do I need to report real assets like cars and buildings, etc. in Form 8938?

On Form 8938 you need to report only financial assets (such as bank accounts, Mutual Funds etc.) and not the physical assets

What are the consequences of not filing form 8621?

The IRS has stated that failure to file the form will make your form defective and therefore the statute of limitation never applies, which means that they can open your returns for prior years at any time.

When does one have to file a form 5471?

If you are a greater than 10% stake holder of a foreign company, or an officer, or a director, you will have to file a form 5471.

How do I report foreign income and taxes paid in my US returns? What will be the beneficial claiming exclusions or foreign tax credit?

Income earned in other countries (other than the US) and taxes paid to that country can be shown in US returns. There are two options: One involves claiming exclusion and the other involves claiming foreign tax credit (FTC). Form 2555 has to be filed if we claim exclusion. Form 1116 has to be filed in the case of FTC.

What are the merits and demerits of claiming foreign earned income exclusion?

Merits: In general, filing an exclusion means getting more income from that foreign country
De-Merits: Carry-back or carry forward option is not available. This exclusion is available only for earned income and doesn’t apply to passive income. If you choose to revoke Foreign earned income exclusion, then you will not be able to claim the exclusion for the next 5 years. To file exclusion, we will have to submit a proper explanation statement to the IRS

What are the merits and demerits of claiming foreign tax credit?

Merits: Carry back can be done for 1 year and carry forward for 10 years.
De-Merits: Foreign tax credit cannot be claimed for taxes paid on any income which has been excluded from US taxation using the foreign earned income exclusion option

What is the caution required when choose to shift from FEI to FTC?

Once you choose to claim an exclusion, that choice remains in effect for that year and all future years unless it is revoked. To revoke your choice, you must attach a statement to your return for the first year stating that you do not wish to claim the exclusion(s). If you revoke your choice, you cannot claim the exclusion(s) for the next 5 tax years without the approval of the IRS

While claiming credit or exclusion in your US returns how do you report the amount in the US? Should one bifurcate according to the US calendar year or should it be based on the Indian calendar year?

One can either bifurcate according to the US financial year or they can show the income and tax paid according to the other country’s financial year in the US return. But the same format should be followed in subsequent years while filing. It would be better if we bifurcate according to the US financial year.

If $10,000 is foreign tax credit carryover and taxes due are $12,000. Would I will pay $2,000 only, as taxes [12,000-10,000]? Can the entire carryover be claimed in one year itself?

Based on the Adjusted Gross Income, foreign tax paid gets calculated. Hence one cannot claim the entire carryover in the next year itself. In the above example, based on the AGI, credit allowed may be limited and the balance will be carried forward to subsequent years

Can dividend received in India be claimed in FTC?

Dividend received in India is net amount received after tax deduction. This tax amount paid in India can be shown as foreign tax paid in your US return.

How I can pay tax due to the IRS/State?

i. By Check

ii. Direct withdrawal from account by giving the necessary account details while filing

iii. Direct Pay from the IRS approved Direct Pay Website

iv. Online payment - Please go to the web link: https://www.officialpayments.com/index.jsp

How quickly IRS does issue refunds?

IRS issues most refunds within 21 days

How many days does it usually take to get a refund (if any) from the US government?

When the government finishes processing the return, the status is updated on the government web-site regarding the refund. If refund is requested by direct deposit to a US bank account, it will be received within 6 weeks from that point. If a check is requested, usually it takes about 30 – 45 days for the check to be received by the tax filler at their Indian address.

How can I check the status of my refund?

You can check the status of your refund online by using the Where’s My Refund? web service. In order to view status information, you will be prompted to enter the first social security number listed on your tax return

What information is available on ‘Where's My Refund?’?

Information on Where's My Refund? is for the most recent tax year IRS has on their files. You can check on the status of your refund 24 hours after you e-file. If you filed a paper return, it will take 4 weeks.

Will ‘Where’s My Refund’? provide a refund status if I filed an amended return?

No, it does not provide information about amended tax returns. However you can check the status of your Form 1040X (.pdf), and you amended US Individual Income Tax Return using the Where's My Amended Return?” (WMAR) online tool and the new toll-free telephone line 866-464-2050 three weeks after you file your amended return. WMAR provides personalized, automated, and the most up-to-date information on the status of amended returns in both English and Spanish. You can check the status of a Form 1040X filed for the current year and up to three years prior to that.

I requested a direct deposit refund and it is now being mailed as a paper check. Why?

No, it does not provide information about amended tax returns. However you can check the status of your Form 1040X (.pdf), and you amended US Your refund should only be deposited directly into accounts that are in your own name, your spouse's name or both, if it's a joint account. Also, no more than three electronic refunds can be directly deposited into a single financial account or pre-paid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund.

Frequently Asked Questions