2. I then contact one of my other tax experts who work with 1040NR returns too.
3. In many cases I find that capital gains other than real estate in the U.S. is excluded under the treaty. I get the name and date of the treaty. We attached the relevant section of each treaty to the tax returns.
4. We find out what the tax rates are on dividends, interest and other income.
5. I get a Power of Attorney from the client.
6. We begin with the first return filed in the U.S. to begin preparing the tax years that the IRS is requiring.
7. We request the types of Visas (i.e. F1/ F2, B1/B2)
8. We request the physical days spent in the U.S. For example December 31, 2010 to January 31, 2011 would be 32 days.
9. We find out the physical days spent in the U.S. in the previous years.
10. If real estate purchased and sold in the U.S. there are rules that must be followed. This article does not “dig” into this area.
Here is additional information that may be useful to you:
Requirements for Filing Form 1040NR/1040NR-EZ
Most non-resident aliens present in the United States for a short period of time qualify to file Form 1040NR-EZ, however some must file Form 1040NR for their nonresident tax returns.
Form 1040-EZ can be filed instead of Form 1040NR if all of the requirements below apply to the taxpayer:
- The taxpayer is not claiming any dependents; If the taxpayer is married, they did not claim an exemption for their spouse
- The taxpayer cannot be claimed as a dependent on another person’s U.S. tax return
- The taxpayer’s only U.S. source income was from wages, salaries, tips, refunds of state and local income taxes, and scholarship or fellowship grants
- The taxpayer’s taxable income (line 14 of Form 1040NR-EZ) is less than $100,000
- The only exclusion taken is the exclusion for scholarship and fellowship grants, and the only adjustment taken is the student loan interest deduction
- The taxpayer does not claim any tax credits
- The only itemized deduction taken is for state and local income taxes
- The only taxes the taxpayer owes are:
- The tax from the Tax Table in the instructions for Form 1040NR-EZ or
- Unreported social security and Medicare tax from Forms 4137 or 8919
Form 1040NR must be filed by nonresident aliens for which any of the following apply:
- The taxpayer is claiming dependents*
- The taxpayer received dividends or capital gains from U.S. stocks
- The taxpayer received income on Form 1099 as an independent contractor
- The taxpayer is claiming itemized deductions such as donations to U.S. charities, professional tax preparation fees
- The taxpayer is claiming unreimbursed employee expenses for moving, travel, continuing education, etc.
- The taxpayer has additional adjustments to income
*(Residents of Canada, Mexico, Japan, Korea and students from India are the only nonresident aliens eligible to claim dependents).
An alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.
If you are any of the following, you must file a return:
- A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. You must file even if:
- Your income did not come from a trade or business conducted in the United States,
- You have no income from U.S. sources, or
- Your income is exempt from income tax.
- However, if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501), you are not required to file.
- A nonresident alien individual not engaged in a trade or business in the United States with U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.
- A representative or agent responsible for filing the return of an individual described in (1) or (2),
- A fiduciary for a nonresident alien estate or trust, or
- A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)).
NOTE: If you were a nonresident alien student, teacher, or trainee who was temporarily present in the United States on an “F,””J,””M,” or “Q” visa, you are considered engaged in a trade or business in the United States. You must file Form 1040NR (or Form 1040NR-EZ) only if you have income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc. Refer to Foreign Students and Scholars for more information.
You must also file an income tax return if you want to:
- Claim a refund of overwithheld or overpaid tax, or
- Claim the benefit of any deductions or credits. For example, if you have no U.S. business activities but have income from real property that you choose to treat as effectively connected income, you must timely file a true and accurate return to take any allowable deductions against that income.
A nonresident alien’s income that is subject to U.S. income tax must generally be divided into two categories:
Effectively Connected Income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents. FDAP income generally consists of passive investment income; however, in theory, it could consist of almost any sort of income. FDAP income is taxed at a flat 30 percent (or lower treaty rate) and no deductions are allowed against such income. Effectively Connected Income should be reported on page one of Form 1040NR. FDAP income should be reported on page four of Form 1040NR.
Nonresident aliens who are required to file an income tax return must use:
If you are an employee or self-employed person and you receive wages or non-employee compensation subject to U.S. income tax withholding, or you have an office or place of business in the United States, you must generally file by the 15th day of the 4th month after your tax year ends. For a person filing using a calendar year this is generally April 15.
If you are not an employee or self-employed person who receives wages or non-employee compensation subject to U.S. income tax withholding, or if you do not have an office or place of business in the United States, you must file by the 15th day of the 6th month after your tax year ends. For a person filing using a calendar year this is generally June 15.
File Form 1040NR-EZ and Form 1040NR at the address shown in the instructions for Form 1040NR-EZ and 1040NR.
If you cannot file your return by the due date, you should file Form 4868 (PDF) to request an automatic extension of time to file. You must file Form 4868 by the regular due date of the return.