u.s. expat tax guide – india
Can US expats in India use standard or itemized deductions?
Yes, US expats in India can choose between using the standard deduction or itemizing their deductions, but they cannot claim both.
The far majority of US citizens and Green Card holders find the standard deduction to be simpler and more beneficial unless they have significant qualifying expenses that make itemizing worthwhile.
What are standard and itemized deductions?
A standard deduction is a set amount that reduces your taxable income automatically. It does not require you to provide a list of specific expenses. In 2024, the standard deduction amounts are:
- Single: US$14,600
- Married Filing Jointly: US$29,200
- Head of Household: US$21,200
If you are over 65 years of age, you get an additional deduction on top of these amounts. The standard deduction is generally the simplest way to reduce your taxable income.
Itemized deductions, on the other hand, allow you to deduct specific eligible expenses. These can include things like mortgage interest, medical expenses, charitable contributions, and more. To claim itemized deductions, you must keep records and receipts of each expense you want to deduct. Here is a full list of common itemized deductions:
- Mortgage Interest: Interest paid on a qualified home loan can be deducted. This is often one of the largest deductions for taxpayers with a mortgage.
- State and Local Taxes (SALT): You can deduct state and local income, sales, and property taxes, up to a limit of US$10,000.
- Medical and Dental Expenses: You can deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). This includes costs for doctor visits, prescription medications, and medical procedures.
- Charitable Contributions: Donations made to qualified charitable organizations can be deducted. This includes cash donations as well as the fair market value of goods donated.
- Property Taxes: Property taxes on your primary residence or any additional properties can be deducted, subject to the SALT cap.
- Investment Interest Expense: If you borrowed money to purchase investments, you can deduct the interest paid on that loan.
- Gambling Losses: Gambling losses can be deducted, but only up to the amount of your reported gambling winnings.
- Casualty and Theft Losses: Losses from federally declared disasters may be deductible.
- Unreimbursed Employee Expenses: Some unreimbursed work-related expenses can be deducted, though these are subject to certain limitations.
Can US citizens choose between standard and itemized deductions every year?
Yes, they can. However, they cannot do both in the same year, so it’s essential to decide which option will save you the most money.
When does it make sense to itemize deductions?
For many Green Card holders, itemizing deductions is not as common, but there are situations where it may be beneficial. For example, if you pay significant amounts of foreign mortgage interest, have large medical expenses, or make substantial charitable donations, itemizing could provide a larger deduction than the standard deduction.
However, most US citizens in India find that they don’t have enough qualifying expenses to exceed the standard deduction threshold. In such cases, the standard deduction is the simpler and more beneficial choice.
Can US citizens claim the standard deduction while living abroad?
Yes, Green Card holders can claim the standard deduction even if they are living abroad.
This applies regardless of whether you are living in India or another country. The standard deduction is an effective way to reduce your taxable income without having to document specific expenses.
Are there additional deductions for taxpayers over 65?
If you are over the age of 65, you are eligible for an additional amount added to your standard deduction.
This extra deduction helps older taxpayers reduce their taxable income further. In 2024, the additional amount is US$1,850 if you are filing as Single or Head of Household, and US$1,500 per spouse if you are filing as Married Filing Jointly.
How can US citizens decide between standard and itemized deductions?
The decision comes down to calculating which option results in a greater reduction of your taxable income. If your itemized expenses—such as mortgage interest, medical expenses, or charitable contributions—add up to more than the standard deduction, itemizing might make sense.
What should US citizens know about filing deductions while in India?
If you’re unsure about whether to take the standard deduction or itemize, working with a tax professional can help. They can provide personalized advice based on your income, expenses, and overall financial situation, ensuring that you make the best choice for minimizing your tax liability.
