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Archive for Gary Carter

Learn The Tax Rules For Non-Resident Aliens

Learn The Tax Rules For Non-Resident Aliens

This guide is dedicated to helping you comply with US tax laws if you are a foreign national (resident or nonresident alien) working or investing in the US.  We take you through the substantial presence test and show you how to determine your US tax resident status. Whether you are an H1b, L1, O1, or other non-immigrant visa holder, you will learn about the US resident tests for tax purposes, which are different than for immigration purposes.

If you are a nonresident alien, investing in US real estate or other US business activities from your home country, we give you an overview of deductions and credits available on Form 1040NR, with plenty of additional resources provided. We explain your tax filing options on a dual status or resident tax return if you have obtained permanent resident (green card) status.

You will also learn the more complex tax rules that apply if you are an F1 or J1 visa holder. Then we give you an overview of tax treaty benefits, which are particularly useful for F1 and J1 visa holders. Finally, you will learn about ITIN requirements, state tax requirements and social security and Medicare tax withholding rules. For most Americans, completing their tax return is a confusing and frustrating exercise. We can only imagine how ominous the task must seem for you, a foreign visitor. Hopefully the information you find here will make the job easier.
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Social Security Tax And Employer Withholding: Resident And Non-Resident Aliens

Social Security Tax And Employer Withholding: Resident And Non-Resident Aliens

Must You Pay Social Security and Medicare Tax?

Nonresident aliens who are F-1, J-1, M-1 or Q-1 visa holders are not subject to social security and Medicare taxes (FICA) on services are performed to carry out the purpose for which they are admitted to the United States [IRC sec. 3121(b)(19)]. This generally includes on-campus work for which authorization is granted on Form I-94, Arrival and Departure Record, or Form I-20, Certificate of Eligibility for Nonimmigrant Student Status.

A nonresident alien admitted to the US as a student is not permitted to work off campus for a wage or to engage in business unless given approval by the U.S. Citizenship and Immigration Services (CIS). This should be noted on the student’s copy of Immigration Form I-20, or Form I-688B, Employment Authorization Document.

Off-campus work due to severe economic necessity or for optional practical training is considered by the IRS to qualify for the exemption. The IRS does not consider other off-campus work performed by a nonresident alien student to be performed to carry out the purpose of a student visa.
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New Rules Mean Saving More For Retirement: The Secure Act

New Retirement Savings Rules

The Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act, was passed by Congress in late December 2019. Here are some of the features in the new legislation that will help you save more for retirement:

Money can continue to grow tax deferred
If you turn 70½ in 2020 or later, you can keep money in a tax-deferred IRA or 401(k) for another 18 months to help the account continue growing before starting to withdraw funds. This retirement benefit is now available thanks to the required minimum distribution age being raised from age 70½ to age 72.

Action: Review your retirement account distribution needs and use this extra time to help make your distributions more tax efficient. For example, if you must earn an additional $10,000 before you hit the next highest tax bracket, consider pulling more taxable income out of your retirement account to take advantage of this lower rate. Or use the extra time to consider converting some funds to a Roth IRA.
Contribute to a traditional IRA at any age
While taxpayers have always been able to contribute to a Roth IRA at any age, age 70½ was the cut-off for making contributions to a traditional IRA. You can now contribute to a traditional IRA at any age provided you have earned income.
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How To Tell If You Are A Non Resident Alien, Resident Alien Or Dual Status Alien When Filing Your Tax Returns

How To Determine To File Tax Return As An Alien

The community of tax professionals on www.taxconnections.com offers great knowledge and expertise. We noticed one of our members Gary W Carter has this fun analyzer that does not ask you your name, maintains your anonymity and tells you whether you need to file as either a non resident alien, resident alien or dual status alien when filing a U.S. tax return.

I took the quick analyzer test myself, even though I am a U.S. citizen born and living here simply because I wanted to know the value for our worldwide visitors and readers of TaxConnections Blogs. If you have the same question regarding your filing status as an alien tax filer, you will appreciate this quick and private analyzer.

Click Here To Determine Your Alien Tax Filing Status.

You Remain Anonymous!

 

A U.S. Tax Guide For Non-Resident Aliens With A Single-Member LLC

U.S. Tax Guide For Non-Resident Aliens

Reprinted here from gwcarter.com

Tax Reporting For Nonresident Alien LLC Members

A limited liability company (LLC) is a popular choice of entity for conducting business or holding rental real estate in the United States. It is a business structure that you, as a nonresident alien of the US, can legally form. It can be formed in any one of the fifty states.

An LLC is designed to protect the personal assets of its owners, similar to a corporation, but you have flexibility in how your business or rental activities are reported for tax purposes. It can also be used to hold personal use assets, such as a vacation residence.

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Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets

GARY CARTER
What Happens If You Haven’t Filed These Forms?

There are options to file delinquent forms that could be easier and less financially painful than you think. The IRS has been given large weapons by Congress with an array of huge delinquency penalties, but instead of waving them around wildly, causing noncompliant taxpayers to dive for cover, the IRS would rather coax taxpayers into compliance using the carrot approach. We will briefly explain three programs the IRS currently offers to help taxpayers get caught up: 1) streamlined filing procedures, 2) delinquent FBAR submission procedures, and 3) delinquent international information return submission procedures. For additional information, see Options Available for U.S. Taxpayers with Undisclosed Foreign Financial Assets.

Streamlined Filing Compliance Procedures

The IRS created the original streamlined procedure in 2012. This program was offered only to taxpayers living outside the United States who qualified for the foreign earned income exclusion. It was further restricted to taxpayers with unreported income of $1,500 or less.

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Form 5471: Information Return Of US Persons With Respect To Certain Foreign Corporations

GARY CARTER

Filing of Form 5471 is required by certain United States citizens and residents who become an officer or director of certain foreign corporations, and certain United States persons (as defined for FBAR reporting) who are shareholders in certain foreign corporations.* The form is used to satisfy the requirements of multiple sections of the Internal Revenue Code – primarily Section 6038, Section 6046 and Section 957. Since these sections have conflicting rules and definitions, this form is particularly challenging.

The requirements are applied to separate categories of filers, each category specifying separate, but sometimes overlapping conditions. There are five categories of filers, numbered 1 through 5. Category 1 requirements were repealed in 2004, but reinstated for a different purpose for the 2018 tax year. Here are the Instructions to Form 5471. If you’re having trouble sleeping, give this a try. You’ll be asleep in about five seconds.

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United States Tax Guide For Foreign Nationals

GARY CARTER _U.S. Tax Guide For Foreign Nationals

This guide is dedicated to helping you comply with US tax laws if you are a foreign national (resident or nonresident alien) working or investing in the US.  We take you through the substantial presence test and show you how to determine your US tax resident status. Whether you are an H1b, L1, O1, or other non-immigrant visa holder, you will learn about the US resident tests for tax purposes, which are different than for immigration purposes.

If you are a nonresident alien, investing in US real estate or other US business activities from your home country, we give you an overview of deductions and credits available on Form 1040NR, with plenty of additional resources provided. We explain your tax filing options on a dual status or resident tax return if you have obtained permanent resident (green card) status.

You will also learn the more complex tax rules that apply if you are an F1 or J1 visa holder. Then we give you an overview of tax treaty benefits, which are particularly useful for F1 and J1 visa holders. Finally, you will learn about ITIN requirements, state tax requirements and social security and Medicare tax withholding rules. For most Americans, completing their tax return is a confusing and frustrating exercise. We can only imagine how ominous the task must seem for you, a foreign visitor. Hopefully the information you find here will make the job easier.

Form 1040NR Filing Requirements

Who Needs to File a US Tax Return?

If you are a nonresident alien doing business or working in the United States, you are required to file a tax return. To “file a tax return” means to send your completed and signed tax return to the Internal Revenue Service (IRS), either through the mail or electronically. If you work or invest in a state that has an income tax, a state tax return will also be required. This is a separate document you must prepare and send to a state tax authority. See the section below about State Taxation.

You are considered to be engaged in a business even if you are an employee working for wages. If you are a student or scholar entering the US as an F, J, M or Q visa holder, and are classified as a nonresident, you are deemed to be engaged in a trade or business. Therefore, you need to file a Federal income tax return each year if you have any income subject to US income tax.  Additionally, if you are an exempt individual (explained under “Residency Status” below), you are required to file Form 8843 regardless of your income.  Here is a description of the forms you are required to file:

  • Form 1040NRU.S. Nonresident Alien Income Tax Return, or if you qualify, Form 1040NR-EZU.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, and
  • For exempt individuals, Form 8843Statement for Exempt Individuals and Individuals with a Medical Condition.

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Nonresident Aliens And Social Security

GARY CARTER - Social Security And Non Resident Aliens
General Social Security Tax Rules

Most people who earn wages in the United States are required to contribute to the Social Security and Medicare programs through payroll contributions. Contributions are required regardless of a worker’s residency status. A total contribution of 15.3% of gross wages is required for each worker, half of which is contributed by the employer. Therefore, the amount the employee pays is 7.65% (6.2% for Social Security and 1.45% for Medicare). The maximum taxable wage for Social Security is $128,400 in 2018 (this amount is adjusted each year). The Medicare tax continues on all wages, and is increased for higher income earners.

The prize for these contributions is retirement and disability benefits, but only if enough credits are earned to become eligible. A maximum of four credits can be earned each calendar year, based on earnings. In the year 2018, a worker must receive $1,320 in covered earnings to get one Social Security or Medicare credit, and $5,280 to get the maximum of four credits for the year. It takes 40 credits to be eligible for retirement benefits. The number of credits required for disability payments depends on a worker’s age and when they become disabled.

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Great News For IRS Form 3520-A Filers Effecting Thousands Of Taxpayers

Gary Carter

The IRS Office of Associate Chief Counsel (International) has agreed to investigate an erroneous penalty campaign by the IRS targeting foreign trust owners who have timely filed Substitute Form 3520-A. If you  have clients who have received one of these Form 3520-A penalty notices, we need your input.

The IRS would like specific information from taxpayers who have been targeted, so I have created a password protected information form to distribute to practitioners.  Your client (or you) should complete the form, save it, then open it to ensure the data is there before sending it back to me. Request Form from me at gwc@gwcartercpa.com

Background:

Out of frustration with the IRS, I published a blog article last summer describing my experience with one of my clients who had received a $10,000 penalty notice for Form 3520-A after properly filing the form. The comments and reactions to the article have indicated the problem is systemic and pervasive, potentially affecting thousands of taxpayers. The Taxpayer Advocate office has been unable to help.

I happened to sit next to Mark Koziel, Executive Vice President of the AICPA at a dinner in October. I described the problem to him. He sent my article to Eileen Sherr with the AICPA Tax Policy & Advocacy Team.

On November 15, the AICPA Trust, Estate and Gift Tax Technical Resource Panel met with IRS representatives from the Office of Associate Chief Counsel and described the issue. The IRS attorneys then had a call with the IRS processing and penalty groups responsible for these penalty notices and relayed our concerns. The processing and penalty groups agreed to a follow up call with the AICPA in January to address the issue, but first wanted to get details about individuals affected.

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Form 1040NR And Form 5472: A U.S. Tax Primer For Nonresident Aliens With A Single Member LLC

Gary Carter
Tax Reporting For Nonresident Alien LLC Members

A limited liability company (LLC) is a popular choice of entity for conducting business or holding rental real estate in the United States. It is a business structure you can form in any one of the fifty states.

An LLC is designed to protect the personal assets of its owners, similar to a corporation, but you have flexibility in how your business or rental activities are reported for tax purposes. Personal use assets, like a vacation residence, can also be held in an LLC.

For information on the best state statutes for LLCs, and specifically how to form an LLC in each state, see LLC University.

Single-Member LLC

You must treat your single-member LLC as a disregarded entity for tax purposes unless you elect to treat it as a corporation. That means if you are a nonresident alien individual, you report the business or rental activity of the LLC on Form 1040NR (U.S. Nonresident Alien Income Tax Return). There is only a single level of taxation.

You are not required to file Form 1040NR if your LLC owns only personal use property that does not generate revenue. However, whether or not you have a Form 1040NR filing requirement, under special reporting requirements beginning in 2017, you are required to file Form 5472 with a pro-forma Form 1120. This requirement is explained in detail below.

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