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Frequently Asked Questions (FAQ)

  • Q. I am a US citizen staying abroad do I need to file taxes in US?

    A. Any United States person who have financial interest in or signature authority over at least one financial account located outside of the United States and the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported to IRS by filing FBAR.

  • Q. What are my responsibilities as a green card holder if I have been absent from the United States for a long period of time?

    A. As a green card holder, you generally are required to file a U.S. income tax return and report worldwide income no matter where you live.

  • Q. I don't have money to pay my taxes what can I do?

    A. IRS has a Payment Plan and installment agreement if you're not financially able to pay your tax debt immediately. However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full.

  • Q. Who needs to apply for an Individual Taxpayer Identification Number (ITIN)?

    A. You need an ITIN if you are not eligible to get a social security number but must provide a taxpayer identification number on a U.S. tax return or information return.

Retirement FAQs

  • Q. Why should I contribute to retirement fund?

    A. Its one of the best ways to reduce your taxable income and you may save in your taxes. Moreover we are living longer and Social Security benefits typically cover less than 40% of retirement income, saving for retirement is more important than ever.

  • Q. Why should I participate in employer sponsored plans?

    A. Employer-sponsored plans offer the convenience of automatic salary deductions and the flexibility of being able to change contribution amounts and investment options at any time. Some employers offer matching contributions up to a certain percentage of the contribution amount.

  • Q. My spouse is a homemaker can I contribute to her IRA account?

    A. Yes. If you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return. It doesn’t matter which spouse earned the compensation.

  • Q. Can I contribute to an IRA if I participate in a retirement plan at work?

    A. You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work.

  • Q. What is the difference between traditional IRA and Roth IRA?

    A. In traditional IRA, you pay taxes, at the time when you withdraw the money typically at retirement. In Traditional IRA you pay taxes on earnings as well. In Roth IRA you pay taxes upfront when you put money and pay no taxes when you withdraw money. Therefore all earnings and principal are 100% tax free at time of withdrawal in Roth IRA.

  • Q. Why should I put money in Roth IRA?

    A. Roth contributions (but not earnings) can be withdrawn penalty-and tax-free any time, even before age 59 ½. Additionally your earnings grows tax free, so I believe Roth IRA is a good way to save money.

  • Q. When can I withdraw the money from my retirement accounts?

    A. You can take distributions from your IRA at any time. There is no need to show a hardship to take a distribution. However, your distribution will be included in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.

  • Q. When I am required to withdraw money from IRA?

    A. Required minimum distributions (RMDs) must be taken each year beginning with the year you turn age 70 1/2. The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy.

  • Q. Can I take loans from my IRA accounts?

    A. IRAs (including SEP-IRAs) do not permit loans. If this transaction was attempted, the IRA could be disqualified.

  • Q. Can I take loans from my 401K account?

    A. Some 401(k) plans permit participants to borrow from the plan. The plan document must specify if loans are permitted. A loan from the 401(k) plan is not taxable if it meets certain criteria.

Income FAQs

  • Q. I have earned income abroad do I need to show it in my US tax returns?

    A. If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents.

  • Q. I don't have a green card am I a resident alien?

    A. US Resident definition for tax purposes is different than that of the USCIS (United States Citizenship and Immigration Service).

  • Q. Are all income tax identically?

    A. No. Capital gains are taxed differently. Capital gain income from assets held longer than one year are generally taxed at a special long-term capital gains rate.

  • Q. What is the capital gain tax rate?

    A. Depending on your tax rate long term capital gain varies. For instance if you are between 25 - 35% tax bracket then capital gain is 15%. Whereas capital gain is 20% if a person is in the 39.6% tax bracket.

  • Q. What is AMT (Alternative Minimum Tax)?

    A. Alternate Minimum Tax (AMT) was created as an add-on tax for high-income households. AMT is not indexed for inflation therefore a growing number of taxpayers are getting subjected to AMT. The best way to understand AMT is to view it as a separate tax system. It has its own set of rates and rules for deductions, which usually are less generous than regular rules.

  • Q. Are dividends taxable?

    A. Yes ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.

  • Q. What are ordinary dividends?

    A. Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. They are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive.

  • Q. Are distributions in S corporation taxable?

    A. In most cases, S corporation distributions are a nontaxable return of your basis in the corporation stock. However, in certain cases, part of the distributions may be taxable as a dividend, or as a long ­term or short ­term capital gain, or as both. The corporation's distri­butions may be in the form of cash or property.

Deductions FAQs

  • Q. Can I deduct commute expense or mileage from home to work?

    A. No, you cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.

  • Q. Is there an age limit on claiming my child as a dependent?

    A. To be claimed as your dependent, your child must meet the qualifying child test or the qualifying relative test. While the child's age is a factor in the qualifying child test, it is not in the qualifying relative test.

  • Q. I had huge loss in stock market, can I take the loss as deduction?

    A. Yes. If you file a joint return, you can take upto $3,000 as a deduction, if you are filing single the limit is $1,500. Remainder loss can be carried forward indefinitely.

  • Q. I am a U.S. citizen married to a nonresident alien. What is my filing status and can I claim an exemption for my foreign spouse?

    A. In general, if you are a U.S. citizen or resident alien married to a nonresident alien, you are considered “Married Filing Separately” unless you qualify for a different filing status. If you pay more than half the cost of keeping up a home for yourself and a qualifying child or other relative, you may qualify for the head of household filing status.

  • Q. Are Tuition fees qualify for the American opportunity tax credit?

    A. In general, qualified expenses for the education tax credits include tuition and required fees for the enrollment or attendance at an eligible post-secondary educational institution.

  • Q. Does expenditure for a computer qualify for the American opportunity tax credit?

    A. Whether expenditure for a computer qualifies for the credit depends on the facts. An expenditure for a computer would qualify for the credit if the computer is needed as a condition of enrollment or attendance at the educational institution.

  • Q. What does not qualify for the American opportunity tax credit?

    A. Examples of items that don't qualify are Room and board, Transportation, Insurance, Medical expenses, Same expenses paid with tax-free educational assistance. etc.

  • Q. Can I claim my child daycare expense?

    A. Yes if you (and your spouse if filing jointly) must have earned income during the year. You may qualify if your spouse is a student or spouse not able to care for self. You must identify the care provider on your tax return.

  • Q. What is standard deduction?

    A. Standard deduction are for some taxpayers who do not itemize their deductions. The amount depends on your filing status.

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