Tax Advice for Self-Employed NR Indians in the United States
If you are an NRI in the United States and have recently launched your own business, you should be aware of the various tax issues that come with self-employment. Some of these tax implications may even assist you in lowering your tax liability.
Let’s have a look at the many aspects of the tax rules that apply to self-employed NRIs.
It can assist you optimise your tax write-offs if you work comfortably from home. If you have a dedicated home office for your company or business, you can claim it when filing your tax returns.
Those expenses that you can deduct as part of your home office deduction can also include a portion of your house expenses, such as mortgage interest, rent, real estate taxes, utilities, insurance, and so on. Furthermore, you would be eligible for a deduction for the total costs of the repairs and painting that your home office requires.
Recruiting part-time employees
If you have grown children who are on vacation, the easiest way to keep them occupied is to hire them to help you with some of your office work. You may be able to claim a tax deduction if you hire your children to clean the office, run deliveries, enter data, answer phones, and so on. Schedule C allows you to claim earnings as a deduction; however, this deduction is only valid until the money received is appropriate for the activity performed.
If your children are under the age of 18, the wages you pay them are excluded from Social Security and Medicare taxes.
Furthermore, if your children are under the age of 21, they will not be liable for federal unemployment taxes. Even with these part-time workers, your family’s tax liability would be decreased because your children would not owe any income taxes on the money earned.
You can reduce your taxable income by choosing a retirement plan. If you are a self-employed NRI, the SEP is the best retirement system for you (Simplified Employee Pension Plan). You can put in up to $57,000 for the tax year/$58000 for the tax year 2021, or less than roughly 25% of your self-employment earnings. When compared to the $6000 maximum on IRA contributions for the tax year 2020, this is a significant difference.
Travel for Business
When you are a self-employed NRI and are traveling to another city in the US for work it is possible to claim a tax deduction for 100% of the costs incurred in the travel. Moreover, during the travel period, it can also be feasible for you to claim the expense incurred in your hotel stay and 50% of the expenses incurred in your meal. . However, this is only permissible on days when the journey is for work purposes.
Moreover, under the provisions of the CARES Act, 100% of the expenses incurred in business meals can be claimed as tax deductions rather than 50%. Starting in the year 2021, this would be possible and would last through the end of the tax year 2022.