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FAQs

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.

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

To claim your child as your dependent, your child must meet the qualifying child test or the qualifying relative test. To meet the qualifying child test, your child must be younger than you and as of the end of the calendar year, either be younger than 19 years old or be a student and younger than 24 years old. There is no age limit on claiming your child as a dependent if the child meets the qualifying relative test.
As long as you meet all of the following tests, you may claim a dependency exemption for your child:
a) Qualifying child or qualifying relative test
b) Dependent taxpayer test
c) Citizen or resident test, and
d) Joint return test

As a prospective adoptive parent in the process of adopting a US citizen or resident, you will need a taxpayer identifying number (TIN) to claim a dependency exemption and if eligible, a child tax credit for the child who is being adopted. If as the prospective adoptive parent you do not have and are unable to obtain the child's Social Security number (SSN), you should request an adoption taxpayer identification number (ATIN) or individual taxpayer identification number (ITIN).
An ATIN is available if an authorized placement agency placed the child, who is a US citizen or resident, in your household as a prospective adoptive parent for legal adoption. To obtain an ATIN, use Form W-7A (.pdf), Application for Taxpayer Identification Number for Pending US Adoptions. For more information, refer to the Form W-7A and to Adoption Taxpayer Identification Number therein.
If the child is not a US citizen or resident, and if the child qualifies as a dependent, a TIN is still required. To obtain an ITIN, use Form W-7 (.pdf), Application for IRS Individual Taxpayer Identification Number. For more information, refer to Individual Taxpayer Identification Number (ITIN).

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.

The approved exchange rate is IRS yearly average exchange rate or OANDA yearly average exchange rate.

No; for purposes of calculating earned income credit, child support is not considered earned income.
Examples of items that are not earned income include Interest and Dividends, Pensions and Annuities, Social Security and Railroad Retirement Benefits (including Disability Benefits), Alimony and Child Support, Welfare Benefits, Workers’ Compensation Benefits, Unemployment Compensation (Insurance), nontaxable Foster Care Payments, and Veterans Benefits, including VA Rehabilitation Payments. Do not include any of these items in your earned income.

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.

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.

In India, the income earned by children is clubbed with the parent making the higher income. In the US, IRS allows you to earn approx. 1000 USD per annum tax free per child.

You can amend your return within the first three years of original filing date as applicable to you.
If you made a mistake in your return and are past the three year deadline to amend, what are the consequences of trying to rectify it?
You can still amend, but will not get any refunds associated with correcting the mistake.

Most states allow you up to 4 years from your date of filing to amend the return as opposed to the IRS giving you 3 years for federal returns.

No. A dependency exemption for a child may only be claimed on one return in a tax year.

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 dont 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.

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.

By June 30th of the year following the tax year.

By June 30th of the year following the tax year.

By June 30th of the year following the tax year.

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.

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

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.

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.

Civil and Criminal penalties are applicable

Taxpayers who have failed previously to report their taxable income including failing to disclose the interest from their foreign accounts (and failing to file the applicable FBARs) but who have not been contacted by the IRS may consider filing delinquent or amended income tax returns, or otherwise notifying the IRS of the reason for their amended income tax returns, or otherwise notifying the IRS of the reason for their non-compliance. IRS is again offering an OVDP (Offshore Voluntary Disclosure Program) for 2014. The penalty is as low as 0 % - 5%, and one can amend for up to 3 prior years of tax returns and 6 years of FBAR filings.

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.

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

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.

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

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

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.

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.

I have returned to India but still hold Green Card. Should I file a US return?

Yes. It will be treated as resident-only return if one holds a green card. Hence US tax returns should be filed and global income should be reported in the US.

Yes. You can file MFJ up to the date you surrendered GC, and for the remaining days of that year, you need to file as a Non-Resident.

Yes, if you are a US citizen or a resident alien living outside the United States, your worldwide income is subject to US income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits. If you live and work in India more often than not your taxes in India from earned income will cover your US liability.

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

i. By Cheque
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

IRS issues most refunds within 21 days.

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

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.

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.

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.

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.

What are all the information required on repatriating funds from India (Savings/NRO) to the US?

a) Amount in Foreign Currency

b) Name of the bank

c) Branch of the bank

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

e) Proposed date of remittance - DD - MM - YYYY

f) Nature of remittance

g) Father's Full Name

h) Bank account number

Under the LRS scheme upto $250,000 each

Form 15CA/ CB

Yes both from taxable and non taxable sources

Mrs.Jeni Intends to use her LRS each year and send funds abroad. In this context, Mr.Jack intends to create two trust in India, one for each child, both irrevocable trusts. The beneficiary will be his sons Niven and Mishir who will be residents of India for FEMA purposes. The querist would like to know if Mrs.Jeni uses her LRS and takes funds out under the LRS of $250K each can she make transfers to the irrevocable trusts set up by Mr.Jack

We believe that this action of Mrs.Jeni taking funds out of India, and depositing it into trust accounts abroad for the benefit of Indian FEMA residents will constitute round tripping and will not be permissible under the FEMA rules

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