Tax Planning · The Lithos Blog
Two of the most consequential money topics for Indian-origin families in America — the new federal deductions and the right way to bring assets home from India — in one calm, structured guide. No jargon, no panic, verified figures only.
Why This Guide Exists
If your family holds assets in both India and the United States, you are navigating two tax systems at the same time — and the mistakes are rarely dramatic. They are quiet: a form nobody mentioned, a transfer made in the wrong order, a deduction left unclaimed. Quiet mistakes are still expensive ones.
This guide covers three things in plain language: the new federal deductions from the One, Big, Beautiful Bill (OBBBA) that shape your 2025 and 2026 filings, the compliant way to bring money from India to the U.S., and the tax-later vs. tax-free framework that decides how much of your wealth actually reaches your children. For a deeper dive on the OBBBA provisions by family profile, we also have a dedicated companion piece: the OBBBA guide for Indianapolis families.
Standard deductions, the senior deduction, tips, overtime, car loans, and the accounts worth knowing.
NRE vs. NRO, the $1 million rule, FBAR, FATCA, and what to do if you are behind.
The 10-year rule, the two buckets, and keeping more of what you have already earned.
Part 1 · The Foundation
OBBBA permanently raised the standard deduction, and the IRS inflation-adjusted it again for 2026. This is the amount of income shielded from federal tax automatically — no receipts, no itemizing required.
| Filing status | 2025 tax year | 2026 tax year |
|---|---|---|
| Single / Married filing separately | $15,750 | $16,100 |
| Head of household | $23,625 | $24,150 |
| Married filing jointly | $31,500 | $32,200 |
Source: IRS Rev. Proc. 2025-32. The standard deduction now exceeds itemized deductions for most filers — but if you carry a large mortgage, significant state and local taxes, or major charitable giving, run the comparison before you assume.
Part 1 · The New Deductions
These four OBBBA provisions are claimed on the new Schedule 1-A, and every one of them is temporary — currently written to expire after 2028 unless Congress extends them. Temporary rules reward families who act deliberately inside the window.
An extra $6,000 deduction for each taxpayer 65 and older ($12,000 for a qualifying couple), on top of the regular standard deduction. It phases out for modified AGI above $75,000 ($150,000 joint) — which makes managing your income, distributions, and asset-sale timing genuinely strategic in these four years.
Workers in IRS-listed tipped occupations can deduct qualified tips reported on their W-2, 1099, or Form 4137. Phases out above $150,000 MAGI ($300,000 joint). It reduces taxable income — it cannot create a refund larger than the tax you owe.
A deduction for the premium portion of FLSA overtime pay: up to $12,500 for individuals and $25,000 on joint returns, with the same $150,000 / $300,000 phaseouts. Keep your payroll records — 2025 W-2s will not break the amount out separately.
Interest on a loan for a new, U.S.-assembled personal-use vehicle is deductible up to $10,000 per year — loans only, leases and used vehicles excluded, and you can verify final-assembly location by VIN. Phases out above $100,000 MAGI ($200,000 joint).
Part 1 · The Accounts
A new savings account for children under 18: up to $5,000 per year in after-tax contributions, tax-deferred growth, and withdrawals taxed on the earnings — a hybrid of an IRA and a custodial account. Babies born 2025–2028 may also receive a $1,000 federal pilot contribution. IRS guidance is still being issued, so verify the details before opening one.
2025: $4,300 self-only / $8,550 family. 2026: $4,400 self-only / $8,750 family, plus a $1,000 catch-up at 55+. Contributions are generally pre-tax, growth is tax-free, and qualified medical withdrawals are tax-free — the rare "triple advantage." More on why that matters in Part 3.
For 2026, the 401(k) deferral limit is $24,500 with an $8,000 catch-up at 50+ — but savers aged 60–63 get an enhanced catch-up of $11,250 under SECURE 2.0. One new rule: if your 2025 FICA wages from that employer topped $150,000, your 2026 catch-ups must go in as Roth.
Part 2 · Repatriation Reality
The single most expensive mistake we see is simple to name: "transfer first, explain later." Banks freeze transfers with unclear fund sources, and unreported foreign assets are what actually create IRS problems. The fix is boring and powerful — document the source, plan the structure, and comply in both countries before the wire goes out.
The Reserve Bank of India governs foreign exchange under FEMA. Transfers out of India run through authorized-dealer banks and require the right forms — including, for taxable NRO remittances, Form 15CA and a chartered accountant's Form 15CB certificate.
The U.S. taxes citizens and residents on worldwide income, and separately requires information reporting on foreign accounts and assets — FBAR and, above certain thresholds, FATCA Form 8938. Non-filing penalties are severe even when no tax was owed.
The U.S.–India tax treaty (DTAA) and the foreign tax credit work together to prevent the same income from being fully taxed twice. But the treaty reduces double taxation — it never removes the duty to report in both countries.
Part 2 · Know Your Accounts
Which Indian account holds the money determines how freely it can move. Simply speaking: NRE money travels light, NRO money travels with paperwork.
| NRE account | NRO account | |
|---|---|---|
| What it holds | Income earned outside India, deposited as an NRI | India-sourced income — rent, dividends, interest, sale proceeds, inheritances |
| Repatriation to the U.S. | Fully repatriable — principal and interest, no monetary ceiling | Up to USD 1 million per financial year (April–March), with documentation; amounts beyond that generally need RBI permission |
| Paperwork for transfers | Bank request + FEMA declaration (Form A2) | Form A2 plus Form 15CA and CA-certified Form 15CB, with evidence of the source of funds and taxes paid |
| Tax on interest | Exempt in India — but reportable and taxable on your U.S. return | Taxable in India (TDS applies) — and reportable in the U.S., with foreign tax credit available |
Source: RBI FAQ on accounts held by non-residents. Bank processes vary — start the paperwork conversation with your Indian bank early, not the week you need the wire.
Part 2 · Inheritances
The U.S. generally does not tax the receipt of a foreign inheritance itself — but large foreign transfers draw scrutiny, and the burden of proof sits with you. Walk it in order:
Inheritance, property sale, or gift? Each has different Indian tax treatment and different U.S. reporting.
Wills, probate or succession certificates, sale deeds, gift declarations — before the transfer, not after.
Your Indian bank will require "source of funds" proof and the 15CA/15CB set for NRO remittances.
Large foreign gifts and bequests are disclosed on Form 3520, and the accounts involved may trigger FBAR and Form 8938.
Part 2 · The Two Reports
Required when the aggregate value of all your foreign financial accounts exceeds $10,000 at any time in the year — bank, brokerage, mutual fund, and certain other accounts, including ones you merely have signature authority over. It is filed electronically with FinCEN, not with your tax return, and non-filing can bring civil and even criminal penalties. Check the threshold every single year.
Filed with your tax return when specified foreign financial assets exceed thresholds that vary by filing status and residence. It covers accounts plus foreign stocks, funds, and certain entity interests. The baseline penalty for failure to file starts at $10,000. Many families must file both forms for the same accounts — one does not replace the other.
Part 2 · Put It to Work
Four moves, in order. Tap each one as you complete it.
NRE, NRO, or FCNR — know which one holds the money, because it decides the ceiling and the paperwork.
Gift, inheritance, property sale, or income? Assemble the deeds, certificates, tax returns, and declarations that prove it in writing.
Form A2, Form 15CA, and the CA-certified 15CB where required; confirm Indian taxes (including any TDS) are settled before the remittance.
FBAR, Form 8938 thresholds, Form 3520 for large gifts and bequests, and the income lines on your U.S. return — mapped in advance with your tax professional.
Part 3 · The Framework
The real enemy of long-term wealth is not any single tax bill — it is tax drag: every dollar taxed along the way is a dollar that never compounds again. Which bucket your wealth sits in decides how much of it your family ultimately keeps.
You deduct contributions today, and every withdrawal is taxed as ordinary income later. Powerful during your earning years — but your heirs inherit the deferred tax bill along with the account. Under the SECURE Act's 10-year rule, most non-spouse beneficiaries must fully empty an inherited IRA within ten years, with those withdrawals landing on top of their own income.
You pay tax up front; qualified growth and withdrawals come out tax-free — and heirs of a Roth IRA still face the 10-year clock, but the distributions themselves are generally tax-free. For families whose children are doctors, engineers, and business owners in peak brackets, that difference is the whole ballgame.
Part 3 · The Tools
Pre-tax contributions, tax-free growth, tax-free qualified medical withdrawals. Families who max the contribution, invest the balance, and pay current medical costs out of pocket can even reimburse themselves tax-free years later — turning the HSA into a quiet, decades-long wealth engine.
Tax-free growth and withdrawals for qualified education costs, from tuition to fees and books. And under SECURE 2.0, a long-held 529 with leftover funds can roll into the beneficiary's Roth IRA — subject to a 15-year account age, annual Roth limits, and a $35,000 lifetime cap.
Properly structured, permanent life insurance delivers a generally income-tax-free death benefit — immediate liquidity that can settle estates and equalize inheritances — plus cash value that grows tax-deferred and can be accessed during life. It requires long-term funding discipline and carries costs, so suitability depends on your goals; guarantees are backed by the issuing insurer's claims-paying ability.
The Bottom Line
Here is the whole guide in three sentences. Claim the new deductions deliberately, because most of them expire after 2028. Move money from India in the right order — source documented, India-side forms complete, U.S. reporting planned — because clean records are the best audit defense ever invented. And decide, on purpose, which tax bucket your long-term wealth lives in, because that single decision quietly determines how much of a lifetime's work actually reaches the next generation. If your family's wealth story also includes the generational handoff itself, read the companion piece: The Great Wealth Transfer: A Field Guide for Indiana Families.
These resources support the facts and research referenced throughout this article.
The official 2026 figures under the One, Big, Beautiful Bill: standard deductions of $16,100 / $24,150 / $32,200 and more than 60 updated provisions.
See the IRS releaseThe official fact sheet on the tips, overtime, senior, and car-loan-interest deductions — amounts, years, and the income phaseouts for each.
Read the fact sheetThe official rules: who must report foreign accounts, the $10,000 aggregate threshold, and how the filing works through FinCEN's e-filing system.
Read the FBAR rulesThe Reserve Bank of India's official FAQ on NRE and NRO accounts, including repatriability and the USD 1 million per financial year facility for NRO balances.
Open the RBI FAQ
Dr. Saha works with families, business owners, and aspiring entrepreneurs on financial education, wealth strategy, real estate, and entrepreneurship — helping people build stronger foundations and make confident decisions. Meet the author →
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Filing rules, transfer rules, and legacy rules all interact. Our tax advisory team, led by a CPA, helps families put the pieces in one coordinated plan — education first, and always with your own qualified professionals in the loop.
