Posted by Sanket Shah | General | Thursday 5 July 2018 3:11 pm
Please find an article on “Exchange of Information, FATCA/CRS, PMLA, KYC for Banks” authored by CA Ashok Shah and myself which was published in the CTC Journal of June 2018.
Posted by Sanket Shah | General | Thursday 3 May 2018 3:12 pm
FOREIGN TAX CREDIT IN USA ON SALE OF SHARES IN INDIA
Under U.S. tax law, a foreign tax credit is available for foreign-source income and gains that were taxed in the foreign jurisdiction.
The general U.S. source rule provides that subject to certain exceptions, the source of capital gains from the sale of a personal property is determined based on the residency of the person selling the asset.
For these purposes, “U.S. resident” is
any individual who
is a U.S. citizen or a resident alien and does not have a tax home in a foreign country, or
any corporation, trust, or estate that is a U.S. person.
is a nonresident and has a tax home in the U.S.; and
The term “tax home” means, with respect to any individual, such individual’s home for purposes of section 162(a)(2) (relating to traveling expenses while away from home). The regulations provide that an individual’s tax home is located where his or her regular or principal place of business is located. An individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States, unless such individual is serving in an area designated by the President of the United States by Executive order as a combat zone for purposes of section 112 in support of the Armed Forces of the United States.
When an individual has more than one abode available (i.e., one in the U.S. and one in a foreign country), claiming a foreign tax home may not be simple.
Here is a determination test:
Determination for Personal Property sourcing rules
IRC
Status
Tax Home in India
Tax Home in US
Tax Levied on Foreign Source
US resident
865(g)(1)(A)
Resident Alien
No
Yes
None
US resident
865(g)(1)(A)
Non Resident Alien
No
Yes
None
US non resident
865(g)(1)(B)
Resident Alien
Yes
No
10%
US non resident
865(g)(1)(B)
Non Resident Alien
Yes
No
10%
Let us understand Indian tax rules:
FY 2018 -19 tax law in India on sale of shares for an Individual:
Sale of Shares of
Long Term Capital Gain tax rate
Short Term Capital Gain tax rate
Listed Entity (STT paid)
10% (subject to certain conditions)
15%
Unlisted Entity or Non STT paid
20% (if claiming indexation benefit)10% (if not claiming indexation benefit)
Depending on the Slab rates
* Subject to surcharge and cess as applicable.
Based on the above:
If a client is living in US and HAS a home in US and NO home in India, then Foreign tax credit shall not be available for the taxes paid in India on the gain on sale of shares.
If a client is living in India and HAS a home in India and NO home in US, then Foreign tax credit shall be available if the taxes paid in India are 10% or more on the gain on sale of shares.
If a client is living in US and HAS a home in India and HAS a home in US, then first we have to determine where he has domestic ties (e.g. usual work location, familial, economic and personal ties). Based on the ties:
if it determined that he closer ties with US, then Foreign tax credit shall not be available for the taxes paid in India on the gain on sale of shares.
if it determined that he closer ties with INDIA, then Foreign tax credit shall be available if the taxes paid are 10% or more on the gain on sale of shares.
Posted by Sanket Shah | General | Wednesday 14 March 2018 3:14 pm
IR-2018-52, March 13, 2018
WASHINGTON – The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.
The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.
The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which followed voluntary programs offered in 2011 and 2009. The programs have enabled U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns.
Tax Enforcement
The IRS notes that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.
“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, Chief, IRS Criminal Investigation. “Stopping offshore tax noncompliance remains a top priority of the IRS.”
Streamlined Procedures and Other Options
A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point.
The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets. Because the circumstances of taxpayers with foreign financial assets vary widely, the IRS will continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those assets:
Posted by Sanket Shah | General | Saturday 23 December 2017 3:15 pm
The Tax Cuts and Jobs Act is now law.
The House and Senate approved the bill on Dec. 19. It passed 227-203 in the House with no Democratic votes and 12 Republican “no” votes. The Senate then passed the bill 51-48 along strict party lines, with one Republican senator, John McCain, not voting.
Because of minor changes in the bill made by the Senate, the House was required to pass the bill again before sending it to the president. The House gave final approval on Dec. 20 by a 224 to 201 vote. Again, the bill received no Democratic support and was opposed by 12 Republicans. President Donald Trump signed it on Dec. 22.
Here we compare some of the major provisions of the new law with the previous tax code.
Individual Income Tax Rates
The bill maintains seven individual income tax brackets, but changes the tax rates and thresholds. See the charts below.
Previous law: These are the tax brackets that individual taxpayers will use when filing taxes in 2018 for the 2017 tax year.
Single Filers
Tax Bracket
Taxable Income
10 percent
Up to $9,325
15 percent
$9,326-$37,950
25 percent
$37,951-$91,900
28 percent
$91,901-$191,650
33 percent
$191,651-$416,700
35 percent
$416,701-$418,400
39.6 percent
Over $418,400
Married, Filing Jointly
Tax Bracket
Taxable Income
10 percent
Up to $18,650
15 percent
$18,651-$75,900
25 percent
$75,901-$153,100
28 percent
$153,101-$233,350
33 percent
$233,351-$416,700
35 percent
$416,701-$470,700
39.6 percent
Over $470,700
New law: These will be the brackets that individual taxpayers will use in 2019 for the 2018 tax year. This new rate structure is temporary. It takes effect with the 2018 tax year, but will not apply after 2025 — unless Congress takes further action.
Single Filers
Tax Bracket
Taxable Income
10 percent
Up to $9,525
12 percent
$9,526-$38,700
22 percent
$38,701-$82,500
24 percent
$82,501-$157,500
32 percent
$157,501-$200,000
35 percent
$200,001-$500,000
37 percent
Over $500,000
Married, Filing Jointly
Tax Bracket
Taxable Income
10 percent
Up to $19,050
12 percent
$19,051-$77,400
22 percent
$77,401-$165,000
24 percent
$165,001-$315,000
32 percent
$315,001-$400,000
35 percent
$400,001-$600,000
37 percent
Over $600,000
Individual Alternative Minimum Tax
The AMT is a parallel tax system with a separate set of rules that some taxpayers must follow when calculating their tax liability. As its name implies, the AMT is an alternative to the regular tax system and requires taxpayers earning above a certain amount to calculate their taxes twice and pay the highest amount.
Because it follows a separate set of rules, the AMT disallows some tax preferences – such as state and local tax deductions and dependent exemptions – but provides for a larger AMT exemption amount.
Previous law: For the 2017 tax year, the AMT exemption amount for single filers is $54,300 and begins to phase out at $120,700, and for joint filers, it is $84,500 and begins to phase out at $160,900, according to the IRS.
New law: The AMT exemption amounts will increase to $70,300 for single filers and $109,400 for joint filers and will phase out for those taxpayers at $500,000 and $1 million, respectively, according to the nonpartisan Tax Policy Center’s (“TPC”) analysis of the bill. These changes will end after 2025.
Standard Deduction
The standard deduction is the amount that you can deduct from your income before calculating your tax liability if you do not itemize your deductions.
Previous law: The standard deduction for married filing jointly is $12,700 for tax year 2017; $6,350 for single taxpayers; and $9,350 for heads of households, according to the IRS.
New law: The standard deduction for married filing jointly would increase to $24,000 for joint filers; $12,000 for single taxpayers; and $18,000 for heads of households, according to the TPC analysis. The increased deduction ends after 2025.
Personal Exemption
A personal exemption is the amount that you can deduct from your income for every taxpayer and most dependents claimed on your return.
Previous law: $4,050 per person, which means a married couple with two dependents would receive a personal exemption of $16,200.
New law: The personal exemption is eliminated. The exemption returns after 2025.
Child Tax Credit
Previous law: Married couples filing jointly who earn less than $110,000 can receive a tax credit of up to $1,000 for each child under 17 years old that they claim as dependents on their tax returns ($55,000 is the threshold for married couples filing separately; $75,000 for single, head of household, and qualifying widow or widower filers).
New law: The credit would increase to up to $2,000 per child, and the first $1,400 would be refundable according to the TPC analysis, meaning the credit could reduce your tax liability below zero and you would still be able to receive a tax refund. The cut off for the tax credit would increase from $110,000 to $400,000 for married couples filing jointly. The expanded credit ends after 2025.
State and Local Tax Deductions
Previous law: Taxpayers who itemize their taxes can deduct state and local property and real estate taxes, and either state and local income or sales taxes.
New law: The SALT deduction will be capped at $10,000. The deduction limit ends after 2025.
Mortgage Deductions
Previous law: Taxpayers who itemize their taxes can deduct interest payments on mortgage debt of up to $1.1 million. That includes up to $100,000 of home equity debt.
New law: For current mortgage holders, there is no change. But the deductible limit drops to $750,000 for new debt incurred after Dec. 31, 2017. Also, homeowners may not claim a deduction for existing and new interest on home equity debt, beginning Jan. 1, 2018. The mortgage deduction changes expire after 2025.
Medical Expense Deduction
Previous law: Taxpayers who itemize their taxes can deduct medical expenses that exceed 10 percent of their adjusted gross income, or AGI, according to the IRS.
New law: Taxpayers can deduct medical expenses that exceed 7.5 percent of AGI in 2017 and 2018, but the new deduction level ends Jan. 1, 2019.
Limits on Itemized Deductions
Previous law: Itemized deductions may be limited, and total itemized deductions may be phased out (reduced), if your adjusted gross income for 2017 exceeds $313,800 for married couples filing jointly or qualifying widows ($261,500 for single filers, $287,650 for heads of household and $156,900 for married couples filing separately), according to the IRS.
New law: The itemized deduction limits are repealed through the 2025 tax year.
Inflation Rate Measure
Previous law: The IRS uses the Consumer Price Index for urban consumers to adjust tax bracket thresholds and other tax provisions for inflation. That includes such provisions as the standard deduction, the personal exemption, earned income tax credit and the alternative minimum tax, as the TPC explains.
New law: The IRS would switch to an inflation index known as the chained CPI. As we have written, chained CPI is considered a more accurate measure, but rises somewhat more slowly than the traditional CPI. That would mean bracket thresholds and tax credits, for example, would rise more slowly. That could have the effect over time of pushing more people into higher tax brackets and reducing the purchasing power of tax credits.
Capital Gains Tax Rate
Capital gains are the profits realized from the sale of assets such as stocks or real estate.
Previous law: The profits on the sale of assets held for more than one year are eligible for a tax break. The 2017 tax rates this way for the profits gained from the sale of such assets: “For 2017, the long-term capital gains tax rates are 0, 15, and 20 percent for most taxpayers. If your ordinary tax rate is already less than 15 percent, you could qualify for the zero percent long-term capital gains rate. For high-income taxpayers, the capital gains rate could save as much as 19.6 percent off the ordinary income rate.”
New law: No changes.
Estate Tax
Previous law: A top rate of 40 percent applies in 2017 to estates valued at more than $5.49 million (nearly $11 million for couples), according to the IRS.
New law: The top rate of 40 percent would apply to estates valued at more than $11.2 million ($22.4 million for couples). The increased levels expire after 2025.
Corporate Taxes
Previous law: The top corporate rate was 35 percent.
As with some high-income individual taxpayers, corporations are also required to calculate their tax liability using the corporate alternative minimum tax — a parallel system that reduces or eliminates some deductions and tax credits. After calculating tax liability using both the regular corporate income tax system and the corporate AMT, corporations pay the higher of the two amounts.
New law: The top rate would be 21 percent, and the corporate AMT would be repealed, to the final tax bill.
Pass-Through Business Taxes
Previous law: Businesses organized as sole proprietorships, LLCs and partnerships don’t pay corporate tax rates. Instead, the owners pay individual income taxes on their share of business income – they’re called pass-through business taxes. Those tax rates are the same as the individual income tax rates.
New law: Business owners can take a 20 percent deduction on their pass-through business income, with limits for those earning above $157,500 (single) and $315,000 (married, filing jointly).
Posted by Sanket Shah | General | Friday 19 May 2017 3:19 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-Âout. 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.
Posted by Sanket Shah | General | Friday 19 May 2017 3:04 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-Âout 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-Âterm capital gains and dividend income:
For people in the higherÂ-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.
PhaseÂ-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-Âemployment 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, highÂincome 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.
Posted by Sanket Shah | General | Friday 19 May 2017 3:02 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 longÂ-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 taxÂ-free.
Posted by Sanket Shah | General | Saturday 11 June 2016 3:17 pm
April 15. If your “tax home” or “abode” is in the United States, your filing deadline is April 15.
June 15. For some Americans abroad, the IRS has given an automatic extension of time to file your income tax return–to June 15.
An extension of time for filing returns of income and for paying any tax shown on the return is hereby granted to and including the fifteenth day of the sixth month following the close of the taxable year in the case of . . . United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico.
In other words, if you are a U.S. citizen or resident alien, and your “tax home” and “abode” is outside the United States and Puerto Rico, then your income tax return filing deadline is June 15.
October 15.You can get an extension of time until October 15, using the traditional method of filing Form 4868.
You must file Form 4868 in a timely manner. This means you must file it before April 15 (if your tax home and abode is in the United States) or before June 15 (if your tax home and abode is outside the United States.)
However a small clarification, if the automatic extension expires on June 15 then the Form 4868 extension continues on for another four month, expiring on October 15.
December 15. If an extension to October 15 is not enough time for you to prepare and file your income tax return, you can apply for and receive one more extension of time – to December 15.
Taxpayers who are out of the country can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0045
You will not receive any notification from the Internal Revenue Service unless your request is denied.
The Form 4868 instructions defines the phrase “out of the country” as living abroad:
You’re out of the country if:
You live outside the United States and Puerto Rico and your main place of work is outside the United States and Puerto Rico[.]
The words, “out of the country” has nothing to do with where you are. It means where you live.
Thus the people who are entitled to claim the additional extension of time to December 15 are people whose tax homes and abodes are outside the United States – not people who physically happen to be inside or outside the United States on a particular day.
Due date for payment of your Tax Due
April 15. The tax due on your tax return is payable on or before April 15.
June 15. If you qualify for the June 15 extended deadline to file your tax return, you can pay your tax without late payment penalties on or before June 15. However, you will owe interest on the tax due, from April 15 until the day you pay the tax. No further extension of the payment due date is possible.
