(Part 4)
IN part 1: we defined 1) who are resident aliens, nonresident aliens or both, 2) who are exempt individuals, and 3) closer connection exception.
In part 2: we defined 1) how resident aliens and nonresident aliens are taxed, 2) when is income considered U.S. sourced, 3) withholding requirement and employee issues.
In part 3: we discussed the taxation and withholding rates of nonresident aliens.
You are considered dual-status alien for tax purposes if for the same year you are a resident and nonresident alien.
Dual-Status Alien:
• Tax liability: You are taxed on income from all sources for the portion of the year you are resident alien. You are taxed on income from U.S. sources for the portion of the year you are nonresident alien.
• Status: You cannot file a joint return unless you elect to file a joint return with U.S. citizen spouse.
• Deduction allowed: You can itemized allowable deductions but cannot use the standard deduction.
• Exemptions: You are allowed for exemptions both dependents and spouse for portion of the year you are a resident alien. For resident of Mexico, Canada, India and, South Korea, special rules apply.
• Filing for resident: If you become a U.S. resident at end of year, you must file Form 1040 individual income tax return and attach a statement showing income for portion of the year you are nonresident.
• Filing for nonresident: If you are not a U.S. resident at end of year and have given up residence in the U.S., you must file Form 1040NR nonresident alien income tax return of Form 1040NR-EZ for no dependents and attach a statement showing income for portion of the year you are a resident. Across the top of the return write “Dual-Status Return”.
• Taxable income: Income worldwide for part of year you are resident and income effectively connected to the U.S. for part of year you are nonresident, are taxed after deductions at applicable rates for citizens and residents.
• 30 percent rate or tax treaty rate whichever is lower: Your income is subject to flat rate lower of 30 percent or tax treaty on income not connected to U.S. trade or business for part of year you are nonresident.
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Disclaimer: Any accounting, business or tax advice contained in this communication is neither intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
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Al-os & Associates Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.
