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International Tax Planning with Form 1040NR for the Non-Resident Alien



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we're looking now we're looking at a

form that is I think one of the more

complex forms it's not a very long form

but it's covers most of the aspects of

international tax law and so we're gonna

go through the form and hi labels points

where take some extra work so this form

1040 NR is used by non-resident aliens

and also used by foreign trusts and some

foreign trust or not grantor trust

they're non-grantor trusts and instead

of a uniform 1041 as a domestic trust

they file the form 1040 n R and so it's

kind of odd because you think on the

where it says your name up here they

would be a name for our trust right and

I can only assure you this causes

treatment this amount of chaos we having

a foreign trust father to form 1040 in

or or for in the state as you see here

with this box even though you check the

box not going to work will with the

computer so but you have to do it anyway

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residence in Canada or Mexico they have

a special arrangement with the United

States defy that for a long time

married residents of South Korea another

special arrangement

of a single non-resident of a married

non-resident so that's the filing status

and the filing status is is is an art

form with this with this form with this

tax law because the filing status

doesn't always have any determination on

the amount of tax and you want to think

about the filing status because there's

other implications such as gift tax in

estate tax because a non-resident alien

estate tax exemption is not five million

plus like it is for an American or a

resident alien it is only sixty thousand

dollars and that is diluted by his

worldwide or her worldwide net worth so

anyway onto this form so the first part

pretty straightforward we know about

exemptions and now it gets hard income

effectively connected with the u.s.

created business unfortunately that is a

very complex tax law and there's a lot

of parts that are complex one is the

concept of business income versus

investment income then effectively

connected with the United States is in

itself a complex tax law so what if we

first start with effectively connected

and that would mean that the person has

either a office here if it's like a

manufacturing self-employed has an

office here if it's a person providing a

service they are providing the services

here but providing services there does

not necessarily make it efficiently

connected it doesn't make it you a

source but does not make it effectively

connected with a business because you

could be in the United States providing

the service such as you're a banker with

a UK bank with a bank based out of

London and you come to the United States

to meet your clients I know

once a month for a week so at the end of

the year you have 12 weeks of work in

the United States that would mean that

one plus of your income would be you a

source income even though you were being

paid by a bank in England that would not

show up on this part of the reach of

other return it would you would publish

up someplace out but I have to tell you

it's not clear and it does give you some

planning opportunities as to which is

ever best for your client

taxable interest it's not taxable

interest a taxable interest effectively

connected with the business so it's not

interest just off a bank account if you

don't have a business

same with dividend income this definite

dividend income connected with your

business now the income on this page

comes down to the net income down here

and as tax just as we'd have on the 1040

is on him as on the brackets that I

graduated was healin next page we're

dividend income is Jenny taxed at 30% so

all these things have to tie into the

business so just by themselves they

don't necessarily go here form 1040 two

we talked about the form 1040 2's the 30

years or the form 1040 2's if the form

person gets informed him 42s he's not

required to file the form 1040 in form

1040 2's has all the tax that is

required to be withheld and that's why

the Dei

that we ate is so important to get

correct education expenses these are

once again they have the income has to

be late back to this and can we

effectively connected with a u.s.

business so a lot of these things I mean

they don't necessarily make make sense

and they're not going to apply that

often really non-resident alien don't

forget this is the non-resident alien so

that means he's not here more than I was

of a 120 days over the last few years or

hundred in eighty and if I have 884 days

or hundred and 85 days in the current

year

itemized deduction the same thing these

are related to the effectively connected

foreign tax credit if it is a person's

paying tax that say in Mexico on this

income he gets a foreign tax credit here

other taxes self-employment tax just

like us we and it's these are things

we've all seen before

10:42 goes right in here so sometimes

the amount of tax withheld is 1042 is

excessive or the long tax was held we're

going to get to that on the next page so

the next page on the next page this is

itemized deductions the page after next

the next page is where we have the

income that's taxed at the gross amount

so back to the dividend income if

dividend came out of a corporation and

if the normos and Eaglin did not live in

a treaty company they were holding tax

rates 30% if by chance there was

mistaken it was really income

effectively connected with the business

the income wouldn't go here they were

thorny tax and the income would go back

on page one and the mana tax withheld

would have gone on page two what you

list in form 1040 2's tax withheld so

these are the items of income to a

foreign person in this case for an

individual income not effectively

connected with the creative business so

it's the investor somebody who is your

pure investor this interest income

dividends from foreign corporation a

foreign corporation does have us source

dividend income if they're engaged in

the US business appengine income social

security things that or what we call

fixed and determinable income capital

gains and losses usually a foreign

person does not pay tax on capital gains

the of course not attack two losses

either there are two exceptions one when

the counter gain is

connected with the business on page one

into when a u.s. Bhupathi interest and

we see that right here on this form you

as property interested me probably have

all see that in the escrows now they

asked us if we were involved with the

real property and if there is a foreign

person selling real property then let's

talk to fulfill the books a federal

level and the state level I'm sure we've

all seen that their reasoning the forms

in our own dealings and then this is

information to help the IRS determine

the classification of the person this

will be important for a tax treaty

classification national is an

interesting concept we don't often have

that nice days they do in other

countries that would mean that he's a

tax resident one nation and he could be

really as citizen of one country in a

national of a different country and

that's why the iris has campus or

countries can't be or countries where

are you a resident for tax purposes

that's important when you're claiming

yourself not was the United States the

iris is going to think about that if he

ever plied for a green card we have a

citizen of course so they were looking

for the long-term resident who's left

the country have we had visas but trying

to get into your status for income taxes

have you change your visa to non

immigration status these things can go

to the Immigration Department T so when

you come into the country next time it

will have a consequence people working

from Canada and Mexico once again

special laws then the days and nights

states of course are looking for a

determination on whether or not you or

you are u.s. resident that's when they

go back to the three years and you're

and so there's your test as you probably

all know and there's also a green card

test if I income tax in prior years now

they come down to the trust are you

filing for a trust that would be a

foreign trust

and they cause have all types of stuff

going on when you're sure it's not a

grant or trustee received money from the

US person that's a big clue - then let

us grant or trust unless the person is

deceased this is nice this is

interesting here the IRS is helping you

with tax planning you can actually use

the alternative method for any amount

they want to know if you're using the

alternative method so when you're

receiving income for services the

general rule the general rule is your

tax were you located will you provide

these services there are some exceptions

and those exceptions are very esoteric

the key to paying less tax on your us or

service income is great record-keeping

and you want to cost pass that on to the

client income exempt from tax that has

to do with tax treaty and there's a pre

menís amount of differences between tax

treaties and so when you get somebody

from the United Kingdom you want to pull

out the United Kingdom tax treaty you

don't want to rely upon what you read in

maybe a French or Canadian tax treaty he

treaty is substantially different

subject to tax in the foreign country

that's interesting like a like the

question above they really want to know

if you're a resident in a foreign

country or or if the individual is one

of those people that travels from nation

to nation and it's not a tax resident

and anyone can be and that's the goal of

emitting of many non Americans they

don't spend more than six months in any

one country so this is the main part of

the form this is but every line has its

own little bit of nuance and the

instructions are very good if we can get

to a nice page on the instructions it's

a special page it's not the instructions

so this is up here this is the

government tax map I you can see the URL

up here I use this a lot so for example

I wanted to look up the alternative

method for this video I put in our turn

to method and they have as a tip this is

a tax planning tip so you don't can get

you know here in the tax planning clip

tip in the instructors to the four

10:40 in order to get the tax planning

to tip and this URL and this is a great

URL just to keep in mind to search with

so now we're open for to some questions

and just keep in mind that this is one

of the more - a more complicated form so

when somebody comes into your office you

want to be sure that you have really how

a kid is enough time to do a complete

job because when they gets involved with

the treaty especially the time would be

substantial