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1) I am an Indian Citizen having US Green Card and working…

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1) I am an Indian...
1) I am an Indian Citizen having US Green Card and working in USA . I wanted to start some saving on monthly basis out of my after tax pay check every month . So i just opened a Recurring Deposit Bank A/C in India in which i will online deposit $100 every month till 5 years and will get total amount at maturity after 5 yrs i.e., Principal + Interest around $6500 . Do i need to show it in any way in my US Federal or State Return , if yes , then how ?
(2) If i bought some Life Insurance Saving Plan in India whose premium is like $200 every quarter for 10 years with the sum of Insurance like $50,000 death benefit . When policy will mature after 10 yrs , i will get around $9000 which will be totally tax free in India . Please guide me do i need to report it in any way here in USA , if yes , then how ? After maturity , i will bring back or repatriate this whole amount to USA from India .
Please guide me in detail , thanks .................
Submitted: 6 years ago.Category: Tax
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3/9/2012
Tax Professional: Lev, Tax Advisor replied 6 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,857
Experience: Taxes, Immigration, Labor Relations
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Hi and welcome to Just Answer!

(1) As an US resident for tax purposes - you are required to report all your worldwide income on the US tax return - regardless if that income is earned in the US or abroad.

Interest income is reported on form 1040 line 8a in the year when it is credited to your account - www.irs.gov/pub/irs-pdf/f1040.pdf

If you pay any taxes abroad on the same income - you may claim a credit for foreign tax paid - see line 47.

(2) Life Insurance proceeds upon maturity will be taxed on earnings only. Premiums that you contributed are distributed tax free.

Any interest credited on your life Insurance are taxed in the year when credited.

Because all transactions are in the foreign currency - you need to convert them into USD based on the currency rate at the time the transaction occurred.

Let me know if you need any help.

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Customer reply replied 6 years ago

(1) In regard with my 1st Question above : I will keep on just paying $100 per month in this Recurring Deposit Account till 5 yrs and will not get any interest take out during this period of 5 yrs (Interest might be accumulated inside this account) . I will get the whole amount of account maturity at the end of 5th year for my use . So will i report only $500 (Maturity amount i.e., $6500 - $6000) in my US Return in that 5th year when it will mature and i dont need to do anything in the earlier 4 yrs when i am paying $100 every month in this recurring deposit account ........... ?

(2) What does it mean " Premiums that you contributed are distributed tax free " ?

(3) Is there any problem if i keep the amaturity amount in India or bring back the maturity amount to USA ? Will i need to complete any other formality in this regard ?

(4) Do i need to inform the IRS in any way about why am i sending $100 every month in an account in India ?

Tax Professional: Lev, Tax Advisor replied 6 years ago

(1)

you may only defer recognition of taxable income if the interest is accumulated inside IRA or other qualified account. You may not defer recognition of tax liability on all other account types. As long as the interest is credited to your account - it becomes taxable.

(2)

Example - you paid life insurance premiums - total $10,000.

Assuming you did not die and receive at maturity $12,000

$10,000 that you paid are distributed tax free and $2000 will be taxable.

(3)

You do not need to report the transfer from India to the US.

However depending on the amount you might be subject of FBAR reporting.

you should report a foreign account by

-- completing boxes 7a and 7b on Form 1040 Schedule B - http://www.irs.gov/pub/irs-pdf/f1040sb.pdf .

-- you are a subject of FBAR reporting if a foreign account value is above $10,000. The form to use is TD F 90-22.1 - this form is mailed separately. There is no tax associated with these reporting.

-- Form 8938 - foreign financial assets with an aggregate value exceeding $50,000 will report information about those assets on new Form 8938, which must be attached to the taxpayer's annual income tax return.

(4)

No reporting for $100 transactions - unless your account is subject of FBAR reporting - see above.

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Customer reply replied 6 years ago

Thanks for replying ..............

I had a bank account in India which never had more than $2000 at any time and i reported the Interest of $15 credited in that account during 2011 in my US Return Form 1040 for 2011 filed few weeks ago . I mentioned this Interest of $15 on Line 8a of Form 1040 with bank name and country . Does it mean that i fulfilled the IRS requirement or did i do something wrong ?

I am going to accept your answer ...............

Tax Professional: Lev, Tax Advisor replied 6 years ago

Yes - you did everything correctly

Because you have less than $10,000 - no FBAR reporting for you.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,857
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Customer reply replied 6 years ago

Follow up question :

Does it mean that i have completed the Part III of Schedule B ?

FYI : I mentioned the bank name and country , but did not mention the Account Number and bank city address .

Tax Professional: Lev, Tax Advisor replied 6 years ago

You need only to check "YES" on the first box on line 7(a) on schedule B

Check "NO" for the second box.

You are NOT required to file Form TD F 90-22.1 because your amount is less than $10,000 and do not need to provide any information about your account.

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Customer reply replied 6 years ago

Will it be any problem if i have reported Interest amount and bank name with country name on Line 8a of Form 1040 , but have skiped or forgot to check " YES" on the first box on line 7a on schedule B and Check "NO" for the second box ?

thanks for your co-operation . I will be posting my next new question to you in an hour ............

Tax Professional: Lev, Tax Advisor replied 6 years ago

Most likely - there will not be any issues.

Because that doesn't result any additional tax liability - I doubt that the IRS even will notice the discrepancies.

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Customer reply replied 6 years ago

This is my new question ....................

As i know now that a person is required to FBAR reporting by submitting TD F 90-22.1 to the Dpt. of Treasury if the aggragate value of his all foreign accounts is more than $10,000 at any time of the year and such person is also required to attach Form 8938 with his Annual Tax Return if the aggregate value of his all foreign financial assets is more than $50,000 at any time of the year . Please clarify the following :

(1) What is the difference between all foreign accounts & all foreign financial accounts ?

(2) Are these above limits of $10,000 and $50,000 are applicable to each person separately like for husband and wife individually for each even if they file taxes as Married Filing Jointly ?

(3) What about those bank accounts which are in joint names of both Husband & Wife and how the individual limit will be calculated in that case ?

(4) What if i open some bank account or Life insurance saving policy in India in the name of my 10 yrs old son , how will that be reported ?

Tax Professional: Lev, Tax Advisor replied 6 years ago

(1) What is the difference between all foreign accounts & all foreign financial accounts ?

There is no difference for your situation.

(2) Are these above limits of $10,000 and $50,000 are applicable to each person separately like for husband and wife individually for each even if they file taxes as Married Filing Jointly ?

Yes - these are individual requirements - each of you might be required to file separate FBAR form.

(3) What about those bank accounts which are in joint names of both Husband & Wife and how the individual limit will be calculated in that case ?

If you have a signature over that account - the full value of the account value is counted toward your limit and your spouse's limit - no division.

(4) What if i open some bank account or Life insurance saving policy in India in the name of my 10 yrs old son , how will that be reported ?

The same way - you will have a signature authority over that account - and it is counted toward FBAR requirements even if income reported on your son's tax return.

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Customer reply replied 6 years ago

(1) Sorry i missed assets word in my above 1st question . Yes , right now there is no difference for my situation , but i want to know to be aware for further course . Please let me know what is included in all foreign accounts & all foreign financial assets accounts ?

(2) I have a son of 10 yrs old . Please let me know about any Tax Return or IRS related formality in regard with him .

Tax Professional: Lev, Tax Advisor replied 6 years ago

(1)

Q. What is a financial account? - see http://www.irs.gov/businesses/small/article/0,,id=210249,00.html

A. A "financial account" includes any bank, securities, securities derivatives or other financial instruments accounts. The term includes any savings, demand, checking, deposit or any other account maintained with a financial institution or other person engaged in the business of a financial institution. Financial account also generally includes any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

Q. What is a foreign country? - http://www.irs.gov/businesses/small/article/0,,id=210244,00.html

A. A "foreign country" includes all geographical areas outside the United States, the commonwealth of Puerto Rico, the commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets OR foreign accounts.

See here - http://www.law.cornell.edu/uscode/text/26/6038D

(b) Specified foreign financial assets

For purposes of this section, the term "specified foreign financial asset" means-

(1) any financial account (as defined in section 1471 (d)(2)) maintained by a foreign financial institution (as defined in section 1471 (d)(4)), and

(2) any of the following assets which are not held in an account maintained by a financial institution (as defined in section 1471 (d)(5))-

(A) any stock or security issued by a person other than a United States person,

(B) any financial instrument or contract held for investment that has an issuer or counterparty which is other than a United States person, and

(C) any interest in a foreign entity (as defined in section 1473).

(2)

Assuming your son is your dependent and have only investment income (not earned income) - he is required to file the tax return if his income is above $950 (for 2011)

FBAR reporting requirements are same as for you.

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Customer reply replied 6 years ago

I am going to accept your answer . Please clarify below :

(1) OK , so as i understand that Foreign Financial Assets Accounts include all the Foreign Accounts as well as the stocks , securities , mutual funds , etc. but not include House Property or Physical Gold , .......................... am i right ?

(2) OK , So there is no age criteria for children to file their tax return or their income to be included in a parent income till a specific age and a child has to file his Federal as well State Return from that year in which his earned income or investment income or both exceed $950 in a year , .......................... am i right ?

Tax Professional: Lev, Tax Advisor replied 6 years ago

(1)

that is correct

(2)

you never include child's income into your income.

but under some conditions - you may report child's income with your tax return.

$950 in a year - is filing requirements for unearned income only

for earned income - filing requirements are started from $5800.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,857
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
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Customer reply replied 6 years ago

I have accepted your answer . Please clarify the follow-up below query :

If i have a bank account in my son's name but obvious i will be signature authority till he becomes adult or i have some insurance saving policy in child name but obvious i will be signature authority till he gets 18 yrs old or legally adult , then whose income will the interest on such bank account or bonus in such Insurance saving plan be considered - mine as parent or my son's income and who will be liable to report it assuming he is just 10 yrs old at present ?

Customer reply replied 6 years ago

I have accepted your answer . Please clarify the following follow-up below query :

If i have a bank account in my son's name but obvious i will be signature authority till he becomes adult or i have some insurance saving policy in child name but obvious i will be signature authority till he gets 18 yrs old or legally adult , then whose income will the interest on such bank account or bonus in such Insurance saving plan be considered - mine as parent or my son's income and who will be liable to report it assuming he is just 10 yrs old at present ?

Tax Professional: Lev, Tax Advisor replied 6 years ago

Income credited to the account which is in your son's name is ***** ***** income and should be reported on his tax return.

You should not include your son's income into your taxable income - even you claim your son as a dependent.

For FBAR reporting purposes - because you will have a signature authority - these accounts should be reported (if your total value is above $10,000)

For reporting your son's income and his possible tax liability - you might want to review this article - http://www.hrblock.com/taxes/tax_tips/deductions_credits/kiddie_tax.html

Let me know if you need any help.

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