Seven Facts about Dependents and Exemptions

Posted by Sanket Shah | General | Friday 19 May 2017 2:46 pm

There are a few tax rules that affect everyone who files a federal income tax return. This includes the rules for dependents and exemptions. The IRS has seven facts on these rules to help you file your taxes.

1. Exemptions cut income. There are two types of exemptions: personal exemptions and exemptions for dependents. You can usually deduct $3,900 for each exemption you claim on your 2013 tax return.

2. Personal exemptions. You can usually claim an exemption for yourself. If you’re married and file a joint return you can also claim one for your spouse. If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer.

3. Exemptions for dependents. You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative that meets certain tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information, for rules that apply to people who don’t have an SSN.

4. Some people don’t qualify. You generally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.

5. Dependents may have to file. People that you can claim as your dependent may have to file their own federal tax return. This depends on many things, including the amount of their income, their marital status and if they owe certain taxes.

6. No exemption on dependent’s return. If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person as a dependent on your tax return. The rule applies because you have to right to claim that person.

7. Exemption phase-­out. The $3,900 per exemption is subject to income limits. This rule may reduce or eliminate the amount depending on your income. See Publication 501 for details.

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You may face higher taxes this year

Posted by Sanket Shah | General | Friday 19 May 2017 2:41 pm

Some people filing their 2013 US tax returns are probably in for a nasty surprise. Here are some tax changes that could have a significant impact on what you will owe when you file your 2013 tax return:

Phase-­out of the personal and dependent exemptions:

Starting with 2013 tax returns, more folks will see a reduction in the personal and dependent exemptions they could claim in past years. Taxpayers with Adjusted Gross Income (AGI) levels of $250,000 for singles, $300,000 for married, $275,000 for head of household and married filing separately of $150,000, will see the loss of some or all of their previously allowed personal and dependent exemption deductions.

That means a couple with two dependent children with AGI over $500,000 could pay an additional tax of $6,200, or more.

Higher tax rates for long-­term capital gains and dividend income:

For people in the higher­-income groups below, the rate on capital gains and dividend income increases from 15 percent to 20.

A married taxpayer with a taxable income of $500,000, along with $30,000 in capital gains and $30,000 in dividend income, would pay an additional $3,000 of income tax.

Phase­-out of itemized deductions:

Taxpayers with higher incomes will also lose a portion of the deductions they claim for things like mortgage interest, real estate taxes and charitable gifts. Taxpayers with the same AGI levels as above — singles at $250,000, married jointly at $300,000, head of household at $275,000 and marries filing separately at $150,000 — will see their deductions reduced by an amount equal to 3 percent of their adjusted gross income that is above these thresholds. This can wipe out up to 80 percent of the deductions some taxpayers would have been allowed to claim in 2012.

A couple with about $40,000 in itemized deductions with AGI about $500,000 could pay an additional tax of $2,376.

Higher tax rates on ordinary taxable income:

For workers with higher incomes, the higher tax rate of 39.6 percent will replace the 35 percent rate. That new higher rate applies to single filers with taxable income above $400,000; married filers with income over $450,000; married filing separately over $225,000; and heads of household with taxable income over $425,000.

For instance, due to this tax hike a married couple with a taxable income of $500,000 will owe an additional $2,300.

Medicare surtax on self-­employment income:

Beginning in 2013, an additional 0.9 percent was levied on people whose combined salary and income from self-employment is above $200,000 for singles and $250,000 for married. This was another tax increase aimed at raising revenue to offset the cost of the new health care laws.

If you are married, and have net income from self-employment of $500,000 in 2013, this additional tax will cost you $2,250 this year.

Medicare surtax on investment income:

A part of Obamacare, this tax is designed to raise federal revenue to offset the cost of things like the government subsidies provided to lower income people who buy health insurance on the new health exchanges.

The Medicare surtax amounts to an additional 3.8 percent on net investment income (Like interest, dividends, tax exempt bond interest, royalties, rents, capital gains, etc.). This tax applies to taxpayers with modified adjusted gross income that exceeds $250,000 for married filers and $200,000 for singles. In total, high­income people must pay a tax rate of 23.8 percent on capital gains and dividends.

So for the married taxpayer mentioned above — with $20,000 in capital gains, $20,000 in dividend income and $10,000 in interest — would pay an additional $1,900 of income tax due to this change.

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Deducting Medical and Dental Expenses

Posted by Sanket Shah | General | Friday 19 May 2017 2:39 pm

If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:

1. AGI threshold increase. Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10 percent of your adjusted gross income. The threshold was 7.5 percent of AGI in prior years.

2. Temporary exception for age 65. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016.

3. You must itemize. You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction.

4. Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.

5. Costs to include. You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

6. Expenses that qualify. You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long­-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.

7. Travel costs count. You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013.

8. No double benefit. You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax­-free.

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IRS will soon examine U.S. taxpayers with undeclared Indian bank accounts.

Posted by Sanket Shah | General | Friday 19 May 2017 2:38 pm

Reporting on a California State Bar Tax Section Meeting, Tax Notes reports that the IRS will soon (as early as the week of 11/11/13) ) begin examining U.S. taxpayers suspected of holding undeclared accounts in Indian banks, according to Nicholas Connors, a supervisory revenue agent with SEP.

Read the full Tax Notes here.

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New standard mileage rates beginning January 1, 2015

Posted by Sanket Shah | General | Friday 19 May 2017 2:36 pm

The Internal Revenue Service on December 10, 2014 issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

57.5 cents per mile for business miles driven, up from 56 cents in 2014

23 cents per mile driven for medical or moving purposes, down half a cent from 2014

14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously).

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Ten Facts about Capital Gains and Losses

Posted by Sanket Shah | General | Friday 19 May 2017 2:27 pm

When you sell a ‘capital asset’, the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property you own and use for personal or investment purposes. Here are 10 facts from the IRS on capital gains and losses:

1. Capital assets include property such as your home or car. They also include investment property such as stocks and bonds.

2. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. You must include all capital gains in your income. Beginning in 2013, you may be subject to the Net Investment Income Tax. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts.

4. You can deduct capital losses on the sale of investment property. You can’t deduct losses on the sale of personal-­use property.

5. Capital gains and losses are either long-­term or short­-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long­-term. If you held it one year or less, the gain or loss is short-­term.

6. If your long­-term gains are more than your long­-term losses, the difference between the two is a net long­-term capital gain. If your net long-­term capital gain is more than your net short­-term capital loss, you have a ‘net capital gain.’

7. The tax rates that apply to net capital gains will usually depend on your income. For lower-­income individuals, the rate may be zero percent on some or all of their net capital gains. In 2013, the maximum net capital gain tax rate increased from 15 to 20 percent. A 25 or 28 percent tax rate can also apply to special types of net capital gains.

8. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

9. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened that year.

10. You must file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your return.

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India – 391 FFI’s Now Registered For FATCA

Posted by Sanket Shah | General | Friday 19 May 2017 2:19 pm

You can find a full list of the Indian foreign financial institutions (FFI’s) that have registered for FATCA compliance and are in approved status as of August 25 2014 over here:

http://apps.irs.gov/app/fatcaFfiList/flu.jsf

The FFI List is updated the first day of each month. It includes all foreign financial institutions and branches that are in approved status at the time the list is compiled.

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Surrendering Green Card – New Form I­-407

Posted by Sanket Shah | General | Friday 19 May 2017 12:57 pm

In February 2015, the Department of Homeland Security, U.S. Citizenship and Immigration Services issued a new Form I­-407 for the abandonment of an individual’s United States green card (technically, “lawful permanent resident” status).

The new Form I­-407 now provides a separate section to obtain the consent of parents of minors who relinquish the green card. As in the old form, the new form asks for reasons for abandonment of the green card, but this question now appears to be more formally presented and appears to require a more detailed statement.

Giving It Up: No Fee — Yet!

Green card holders are taxed in the same manner as US citizens: they are both subject to US income tax on their worldwide income regardless of the source of that income and regardless of where the green card holder or citizen is living at the time it is earned. However, they are not treated exactly the same when it comes to relinquishing their US status. The US citizen who renounces his US citizenship, must now pay a fee of $2,350 for the privilege of doing so. On the other hand, there is still no fee for relinquishing one’s green card.

Internal Revenue Service is Notified When You Give Up the Green Card

Interestingly, the instructions to the new Form I-­407 specifically advise applicants that: “The Department of Homeland Security is required to provide the Internal Revenue Service (IRS) with the names of individuals who choose to abandon their LPR status. If you file this form with us, we will provide only your name and the filing date to the IRS. (Internal Revenue Code section 6039G(d)(3))”.

Dire consequences can result if an individual does not properly relinquish his green card and file all required paperwork with the IRS.

Please note, that simply because the green card has expired for immigration law purposes, it does not likewise “expired” for US income tax purposes thereby relieving them of the duty to pay US taxes.

Your Name May Appear On the “Name and Shame” List

Code Section 6039G implements the so­-called “Name and Shame” list. This is a quarterly publication in the Federal Register by the IRS listing the names of individuals about whom the IRS has received information of a loss of citizenship during the preceding quarter. This list is required to include the names not only of former U.S. citizens but of certain former green card holders. Under 26 U.S.C. § 6039G(d) (3), “the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of section 7701 (b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.”

The Federal Register provides that “for purposes of this listing, long­term residents, as defined in section 877(e)(2), are treated as if they were citizens of the United States who lost citizenship”. So, if you’ve held your green card for at least 8 of the preceding 15 tax years, your name will appear on the “Name and Shame” list when you return the card.

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