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FAQ

The tax year in India is different than the US tax year. As a US tax residentwho also files taxes in India due to FD income, which year should I apply thetax credit?
You should apply for the tax credit when you are presenting the Americanincome for assessment in India.You can show it proportionately or the entire income in the India AY.
I am a US citizen who has never lived in the US and never paid US taxes. Ihave been working for 15 years. Am I just putting off a very big bill?
It depends on many factors. Are you a dual citizen and if so what is yourother citizenship Did you bother to get a social security number US passportetc Do you have promising job prospects in the US Is your spouse American ifyou have a spouse or are you planning to marry an American Do you ownproperty in the USYou can do one of three things 1. Catch up on filing and continue to stay in compliance 2. Renounce your US citizenship formally and permanently. This may require resolving past obligations but will absolve you from all future ones 3. Continue to ignore the requirements yes this is possibly a valid optionThe US has the most complex punitive and far reaching tax laws in the freeworld and holding a US passport is highly overrated. If you hold Canadiancitizenship already the best options are 2 or 3 especially if you couldpossibly leave a sizeable estate to your loved ones on your passing or yourprimarily Canadian held assets are subject to capital gains taxes. Canada hasno estate taxes and a simpler and often more favourable capital gains taxsituation…and traveling with a Canadian passport will probably even be lesshassle than with an American one. You also dont want to be an American if youhave any sizeable lottery or gambling winnings because those are tax exemptin Canada as well.Fortunately your Canadian income tax is deductible and because personal incometaxes are higher in Canada in all likelihood you will fall below the basicexemption in the US and will owe little to no taxes…assuming you are Canadian.Plus if you are assessed showing no taxes owed you will likely be absolved ofall penalties. However catching up on many years of returns and all the otherpaperwork will require legal assistance at a cist of between 1000 and 10000for most people regardless of amount of tax owing.There are a large number of Americans who were not even fully aware they wereAmerican by virtue of being born to Canadian parents in American territoryusually a hospital on the US side of a border community. Even if they arefully lifelong Canadian citizens just because they breathed their first breathin the US and that is the extent of their attachment to the US they aretechnically saddled with the burden of filing US tax returns and reporting allof their bank accounts to the US government. Because the US government haslimited reach in Canada and has gradually imposed more and more taxrequirements over time by far most of these “accidental Americans” arent evenaware of their obligations much less in compliance.The truth is the vast majority of such “Americans” in Canada and most othernations purposely avoid looking into their obligations not “willfully” toavoid taxes because they likely owe none but out of fear of drawingattention to themselves and suddenly becoming subject to all the legal hasslesand expenses ie. Avoiding paying lawyers and accountants not avoiding theIRS. By taking the “colonel Klink” approach I know nnnothIIING They avoidcreating a US paper trail and thus are out of reach of government eyes. Theinfomal advice I have heard is that if your ONLY record of US citizenship is abirth certificate and all you ever plan to do in the US is go on vacationthen pick option 3. You are out of reach of the IRS and you are best to leavethat Pandoras box closed.The next best choice is 2 as described above. Renounce US citizenship if youplan to have some tangential ties to the US vacation propertytimeshareconduct business there take out a TN1 for temporary work live in Florida orHawaii every winter etc but you plan to live your life almost exclusivelywhere you do now. That way you will tie up all loose ends so that the US papertrail you create wont raise any red flags and you get to avoid some of themore nasty obligations in the futureFinally and only if you are seriously considering becoming very involved inthe US permanently moving there for work or upon retirement establishing abusiness with its primary headquarters in the US marrying an American etcThose are situations that are a LOT less trouble to deal with as a US citizencompared to the relatively minor hassle of filing US returns once you arecaught up.
Is Standard deduction benefit under US-India Tax Treaty available for someonegoing from F1 to H1B visa in a tax year?
Yes students and business apprentices from India can claim the standarddeduction provided that you or your spouse do not file a return where youitemize deductions. For most aliens the standard deduction is only available if you file form1040 which would mean you are a US citizen or resident. If you do not qualifyas a US resident then you file form 1040NRhttpwww.irs.govpubirspdfp519.pdf which still allows itemized deductions but not a standarddeduction on the form. That creates some confusion for nonresident students from India because theform does not have a place to allow the standard deduction. What you need todo is on page 3 schedule A of form 1040NR on line 14 under miscellaneousdeductions enter the amount of the standard deduction and in the descriptionwrite standard deduction under Article 212 of USIndia tax treaty. There is a worksheet in Publication 519 from the IRShttpwww.irs.govpubirspdfp... that will help you calculate your standarddeduction. One final thought is that even though the F1 visa days in the US dont counttoward substantial presence you may still be able to qualify for dual statusunder the first year choice rules since you were in the US for more than 31days assuming you intend to stay in the US for 2021. If you were married onor prior to Dec 31 2021 and intend to stay during 2021 or your spouse is aUS resident or citizen for 2021 you can file as a resident alien for theentire year.
The US government has a $3.8t/year budget. If the 122m US tax payers paid aflat $1/day tax, it’d generate $44t/year. Why are we $20 trillion in debt?
See the problem with understanding the national debt and the tax system isfirst you have to be able to do arithmetic correctly. Your arithmetic iswildly wrong.Take a course somewhere please.The nation is in debt in large part because it ran two extremely expensivewars in the early 21st century and government policy was to refuse to raisetaxes on corporations and the wealthy despite all of that extra expenditureor to cut spending either and then there was a global financial collapse inlate 2021 due to yet another one of those inevitable free market bubbles thistime once again a bubble in real estate. That collapse caused a lot ofpeople to lose their jobs.When people don’t have jobs and they eventually go off of unemployment whichis pretty limited in the first place in the US they run out of money to spendin many cases. When people aren’t spending money in a mostly service andconsumer based economy then this becomes a deadly spiral still more peoplelose their jobs because no one is spending money so smaller employers don’thave the money to pay employees so they let some of them go.The government has to do everything it can to halt that spiral.People and corporations alike also don’t pay as much in taxes on average inbad times which means that the Federal government automatically runs adeficit if it doesn’t cut spending if the government runs a deficit thenthe national debt builds up over time.The government borrows at low interest rates to finance the deficit by sellingbonds on the open market through the Federal Reserve Bank so what you reallywant to be considering is the debt service the interest that is paid annuallyon the debt compared to the Federal budget.Counterintuitively in the circumstances of a serious economic downturn whatthe government really must do is to spend like mad to turn the economicsituation around. It is necessary to make a bet that the future will bebetter. That was the content of FDR’s most famous line “There is nothing tofear but fear itself”.It’s also key to remember that the government is a very big part of theeconomy and a very big employer. So cutting government spending during aneconomic downturn will hurt matters. Once the economy picks up the deficitnaturally drops once inflation picks up you are paying the debt back indollars that are worth less. That’s how nations get out of debt in part theytighten fiscal policy in the good times and inflation effectively reduces thedebt over a period of years.Your figure of 20 trillion is a bit high I think you’re including theinternal government debt there. But you should take that figure and divide itby the total population then think of it as a very long term loan. Thoughtof in those terms it is much more understandable.If things go well in the future it can be paid down. If not then everyone inthe US is in serious trouble anyway.
My friend pays US taxes despite residing in Canada for many years. She doesn'tearn any money within the US. Why does she have to pay the Americans taxes?
She is far from alone as there are estimated 8 million US Persons citizens orGreen Card holders who reside outside of the US. The vast majority are notwealthy individuals.She may not distinguish between the obligation to FILE and being assessed aTAX BILL the first is unavoidable the second may often not exist. You friend is obliged to FILE reports to two different agencies a US Federal Income tax to the IRS AND b Foreign Accounts reporting to FinCEN every year. In most cases the tax bill to the IRS is zero due to tax treaties to avoid double taxation. However US taxation is very complex and on a schedule that is usually not in sync with foreign taxation so complying under threat of severe penalty is very onerous to the ordinary expatriate.FILING OBLIGATIONS TO IRS AND TO FinCEN paperworkRegardless of location of residency Americans have worldwide lifelongobligation to officially provide worldwide financial information to twoseparate US Federal entities to FILE US income tax to the IRS every year even if your US tax would be zero and to REPORT on any nonUS bank accounts to FinCen if at any point your total nonUS holdings reached 10k or more. FATCAUS FEDERAL TAX OFTEN ZERO DUE TO FOREIGN INCOME TREATMENT rarely a tax billHowever the tax due to the IRS may be reduced even to nil if you are anofficial resident of another country and are eligible to either one of two taxregimes Either Foreign Earned Income Exclusion. You choose not the be subject to US taxes for income under a threshold prorated for any period physically present in the US in any given year. This amount is currently around 90k maximum. Note that this is best for salaried expatriates as nonearned income foreign fund investments foreign capital gain on real estate foreign pensions ARE NOT eligible for the FEIE Or Foreign Tax Credit. This regime allow you to apply the income tax paid to a foreign tax authority as a credit to the calculated US income tax. This is a better choice if most of your income is NOT from salary. If your foreign income tax in a treatylinked country is greater than the calculated US income tax your US tax is reduced to zero. If your foreign tax is less than the US‡ then you have to pay the IRS the difference.ProblemsUnfairness for US Expatriates and Dual Nationals 1. Unearned foreign income from foreign investments may be taxed by both the foreign tax authority AND the IRS. Thus foreign pensions capital gains and investments may suffer from the cumulative taxation of two countries 2. NonUS investments such as in collective investment instruments are dissuasively taxed relative to mutual and stock funds in the US. Foreign capital gains are taxed at higher “ordinary income” rates. If one wishes to invest in foreign stocks it’s best to use a USbased fund investing in ADRs of foreign companies. One can also invest in individual foreign stocks but you would have to deal with the multiplicity of reporting and accounting tasks. 3. It costs to prepare US taxes sometimes over a thousand dollars depending upon the complexity of your US tax situation. For Americans resident overseas of limited means the actual cost of complying may be in the hundreds to thousands of dollars even if the net IRS tax bill is zero 4. In some countries access to timely and relevant US tax information and advice is poor. 5. Out of sight out of mind is NOT an option as the US has forced foreign banks to comply with warrantless financial information reporting arising from FATCA 6. Accidental “US Persons” are targeted not just people with a US SS or passport. Israelis Indians etc. have received penalty notices only to find out that one parent may have been an American or that they had been born in the US but left as a baby. 7. Sanctions are drastic on foreign banks who don’t comply with acting as screeners for the IRS in identifying US Persons. Americans and their spouses have had their foreign bank accounts blocked until they provide proof that they are not subject to US taxation or compliant with FATCA reporting requirements 8. Tax evasion is a Federal felony in the US versus an administrative infraction in other countries. The IRS is the best resourced fiscal agency in the world and never forgets. 9. If an American wishes to give up US citizenship it is not easy or free of cost or fiscally definitive Your tax compliance status with the IRS must be complete. All your US assets would be subject to an Exit Tax tantamount to a tax on gifting to a foreigner If the IRS deems unilaterally that you will have renounced your US citizenship mainly for the purpose of avoiding US taxes it may pursue you for up to 10 years after renunciation10. Expatriate American taxpayers have little effective politicalrepresentation. Unlike some countries that have a specific parliamentariangroup for expatriate voters Americans can ONLY vote in the most recent USlocal district. Thus their concerns are usually submerged by their formerlocal US communities‡ concerns. Even though the vast majority of expatriateAmericans are not wealthy many are stressed out by the cost and complexity offiling US taxes as well as local taxes the populist inaccurate politicalpropaganda that they are wealthy tax cheats. In fact there are far higherlevels of tax “optimization” by US corporation using tax havens than by themillions of ordinary expatriates.
I reinvested 90% of my capital gains (US Stock market) for this tax year, howwill I be taxed?
Were the holding periods long term or short term Were these held in a regularbrokerage account or in a retirement accountI noticed you used the word reinvested so its probably worth mentioningthat you get taxed on gains when you sell your equities and reinvesting thegains you may have made does not generally provide you with some sort of taxbenefit.
Is there any way to write off a capital loss in US taxes faster than $3000 peryear?
Only if you can obtain capital gain income by selling some asset that you holdfor investment or business purposes for more than your basis in the asset.Stocks bonds business equipment rental property would all create a capitalgain assuming you could sell them for a gain. Since most assets tend to appreciate in value slowly it would be hard togenerate a significant capital gain in a short period of time unless you werefortunate enough to get stock in a hot IPO or received equity compensation ina startup that became valuable quickly. Unless you can generate some capital gain you are going to be limited to the3000 per year deduction.
What are new tax rules (for tax years ending after 12/31/17) for deductibilityof entertainment expenses and business travel meals for US corporations?
Here is a summary excerpted from the AICPA Journal of Accountancy December20 2017Entertainment expenses The act disallows a deduction for 1 an activitygenerally considered to be entertainment amusement or recreation 2membership dues for any club organized for business pleasure recreation orother social purposes or 3 a facility or portion thereof used in connectionwith any of the above items.Qualified transportation fringe benefits The act disallows a deduction forexpenses associated with providing any qualified transportation fringe toemployees of the taxpayer and except as necessary for ensuring the safety ofan employee any expense incurred for providing transportation or any paymentor reimbursement for commuting between the employee’s residence and place ofemployment.Meals Under the act taxpayers are still generally able to deduct 50 of thefood and beverage expenses associated with operating their trade or businesse.g. meals consumed by employees on work travel. For amounts incurred andpaid after Dec. 31 2021 and until Dec. 31 2021 the act expands this 50limitation to expenses of the employer associated with providing food andbeverages to employees through an eating facility that meets requirements forde minimis fringes and for the convenience of the employer. Such amountsincurred and paid after Dec. 31 2021 will not be deductible.
How are cryptocurrencies taxed in the US for 2021 tax year? I thought it wastaxable only on profit (after conversion back into USD.) Coinbase tax reportis listing every conversion to a different altcoin as a short-term taxableevent.
The tax situation for cryptocurrencies in the U.S. is quite confused. IRSguidance is generally to treat cryptocurrencies bought for investment purposesas a capital asset in much the same way that you would treat a stock purchaseor buying an expensive painting.That may work for buyandHODL investors but it’s sort of nonsense if youwere actively trading and it’s ridiculous if you were just using bitcoin as ameans of exchange like buying stuff for a discount through Purse .There’s an argument to be made that at least for 2021 certain kinds ofexchanges of cryptocurrency should be treated as “like kind exchanges” underthe tax code which are not taxable events. That’s really a quite cogentargument for buying or selling those cryptocurrencies which do not have USDmarkets where you have to buy bitcoin as an intermediary and then exchangebitcoin for the desired coin.Unfortunately for the coming year Congress’s rushed tax code eliminates thiskind of “like kind” treatment for 2021 leaving it only as an option for realestate developers swapping land.If you’re planning to do a lot of crypto trading in 2021 then it may be betterfor you to treat cryptocurrencies as a commodity under the tax code and makesomething called a Section 1256 election. This allows you to just total up thedollar value at the start of the year and the dollar value at the end of theyear and pay tax on the difference without all the buyingandselling inbetween. You get a tax rate between that of longterm and shortterm capitalgains. This is what people who deal with regular currency trading often do.Technically you’re supposed to make that declaration before you start tradingbut maybe you have that letter in your files from last January and you forgotabout it .How aggressive or creative you want to get with the tax code is up to you andyour accountant and tax lawyer of course.
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