There some essential financial information a fresh NRI relocated to USA should always keep in mind.
Even long-time NRI residents in the US sometimes feel insecure regarding various complex legal and tax rules one needs to abide by in the United States.
So, in both the cases, you must have some basic knowledge of the below mentioned rules and regulations governing the fiscal policy of the country.
Here are some of the essential financial points you should remember when you are in the US.
1. Income tax in USA
First and foremost, it is advisable to hire a competent tax consultant to aid you in your tax filings. As goes the maxim, prevention is better than cure, so you’ll save a lot of cash & peace of mind by hiring a tax consultant who will be your guide against any kind of financial follies you may commit.
It should be kept in mind that the US Tax Authority, that is, the USA Internal Revenue Service (IRS) has more stringent tax laws than the Indian tax laws. Moreover, claiming to have no knowledge of US Tax Laws will not help you in any way, since it is not accepted as a valid reason and the IRS may send you to judicial confinement for faultfinder.
To avoid this messy situation, you should keep in contact with a financial expert in the US Tax Laws or have someone with such expertise to do all the works.
2. Filing the FBAR
It is compulsory to file a report of Foreign Bank and Financial Accounts for all US citizen or residents.
Any US citizen should file this report having a monetary interest in, or signature or some sort of authority over any financial account(s) in a foreign nation, if the sum of these financial accounts has more than $10,000 at any given time during the current fiscal year.
US Citizen staying out of their country are also included, and they too must abide by this rule of Law. Reporting this information has to be done every year to the Department of Treasury within the date of June 30 of the accessing year.
Any person holding even a partial signature authority over an account must file this report. Though you may not have to pay any taxes, it is compulsory to file a FBAR report. It does not matter, if you have the complete power of attorney over any overseas financial account or you are having the signature authority to an employer’s account.
Failing to report the FBAR can cause you to shell out thousands of dollars in fine. People having such account and that have not reported yet to the tax authorities must do so at the earliest with help of and support of Legal Tax Attorney. [It must be noted that the form TDF 90-22.1 must be received (not just mailed or posted) by the Treasury Department by June 30 every year]
A person having foreign assets of more than $50,000 should file the 8938 form, commencing from 2010. This form must be mentioned in your personal tax return. The form is given here for your convenience: www.reginfo.gov/public/do/DownloadDocument?documentID=202248.
Look for the complete form which is going to be released very soon. It may require more detailed information to get those report filings to be accepted since you are of foreign origin having wealth & assets overseas. Financial assets here are those assets which you may be keeping on rent and not residential property or your land.
3. Be Punctual in paying your taxes
Taxpayers must report their worldwide earnings. Taxes needed to be filed in the US include worldwide income – even India falls into the category and the amount of tax credits you paid in India is often beneficial.
You must remember to file your taxes in India as well if you have any business investment there.
4. Don’t get allured with the PFICs
It is good to keep away from investing in some financial products in India or abroad until & unless you are no longer a US Citizen, since these kind of investment will make you entitled to pay increased amount of taxes under Passive Foreign Investment Companies (PFICs). It will also make your filing costly and confusing.
Some of them are:
- Mutual Funds (MF)
- Exchange Traded Funds (ETF)
- Unit Linked Insurance Plans (ULIP)
5. Do a thorough research before going after the Green Card
A green card holder has to abide by some of the toughest taxation laws of the US (for eg. PFICs). A green card holder needs to follow these rules till the end of his life, regardless of his residence.
US Estate Tax Return & tax obligations are to be followed until you give up the status of being a green card holder.
If you want to leave US officially, you will have to pay-up the exit taxes to withdraw your Green Card or your US Citizenship, even though you are a long-term green card holder.
6. Application for PIO (Person of Indian Origin) or OCI (Overseas Citizenship for India) Card
These are exclusive statuses which provide you a lot of convenience, and entitle you to more rights in India, keeping everything you have in the US as well.
This card makes your frequent travel to India more hassle free and comfortable. Moreover, you will have the freedom to invest in various financial products of India. It also allows you to get employment and many more such privileges than what green card gives you.
But this card has some limitations too, like you cannot purchase an agricultural plot in your name.
There are many such financial rules & regulations a new expatriate in United States of America must be aware of to avoid any backlash with the US Authorities. I suggest you study more on this issue to make yourself well-informed & make your endeavor in the US more successful and glorifying.
This article has been written by Shawn Ambrose, who is an amateur financial writer from California associated with several finance, law & business sites. He has guest authored for various websites based on debt-consolidation, bankruptcy, mortgage, insurance etc.