Hi nadasif,
If you earned income in January of 2004 in the U.S. (you performed
services there), you should file Form 1040NR or 1040NR-EZ by June 15
(assuming you were self-employed). You are considered a "nonresident
alien because you did not live in the U.S. at the end of last year.
For 2005 and beyond, you will not have to send in any more 1040s for
yourself if all of your work is performed in Canada. As a nonresident
alien, whether or not to file a 1040NR is dependent on where the
services are performed and not where you are being paid. If you
perform the services from the comfort of your office in Canada and not
in the U.S., you will not be obligated to file a U.S. income tax
return.
All United States citizens are obligated to keep in touch with Uncle
Sam. Therefore, your child will have to send in a Form 1040 (in
addition to his Canadian return) when he/she starts earning an income,
no matter where the income is earned.
>>> 2004
Nonresident at end of year.
"You must file Form 1040NR or Form 1040NR-EZ if you are a dual-status
taxpayer who gives up residence in the United States during the year
and who is not a U.S. resident on the last day of the tax year. Write
?Dual-Status Return? across the top of the return. Attach a statement
to your return to show the income for the part of the year you are a
resident. You can use Form 1040 as the statement, but be sure to mark
?Dual-Status Statement? across the top.
Former long-term residents are required to file Form 8854 for the last
year of U.S. residency. To determine if you are a former long-term
resident, see Expatriation Tax in chapter 4.
Statement.
Any statement must have your name, address, and taxpayer
identification number on it. You do not need to sign a separate
statement or schedule accompanying your return, since your signature
on the return also applies to the supporting statements and schedules.
When and Where To File
If you are a nonresident alien on the last day of your tax year ... "
"If you did not receive wages subject to withholding and you report
your income on a calendar year basis, you must file no later than June
15 of the year following the close of your tax year. If you report
your income on other than a calendar year basis, file your return no
later than the 15th day of the 6th month following the close of your
tax year. In any case, file your return with the Internal Revenue
Service Center, Philadelphia, PA 19255."
http://www.irs.gov/publications/p519/ch06.html
FORM 1040NR
http://www.irs.gov/pub/irs-pdf/f1040nr.pdf
FORM 1040NR-EZ
http://www.irs.gov/pub/irs-pdf/f1040nre.pdf
FORM 8854
http://www.irs.gov/pub/irs-pdf/f8854.pdf
>>> 2005 & beyond
US TAX FOR ALIENS: Publication 519: US Tax Guide for Aliens:
Chapter 2, page 11:
"A nonresident alien usually is subject to U.S. income tax only on
U.S. source income."
Table 2?1, page 11:
Summary of Source Rules for Income of Nonresident:
A. Factor Determining Source:
1. Salaries, wages, other compensation: Where services performed
2. Business income: Personal services: Where services performed
Chapter 2, page 12:
"All wages and any other compensation for services performed in the
United States are considered to be from sources in the United States."
"If your compensation is for personal services performed both inside
and outside the United States, you must figure the amount of income
that is for services performed in the United States."
http://www.irs.gov/pub/irs-pdf/p519.pdf
*The place where you perform the services is what defines your income
as foreign, not where or how you are paid.*
http://www.irs.gov/taxtopics/tc855.html
>>> Your child
In regards to your child, he/she will be obligated to file both a U.S.
and Canadian income tax when he/she earns enough income, however, as a
U.S. citizen, he will be eligible for the Foreign Earned Income
Exclusion (now $80,000). He will file Form 2555 (or 2555 EZ) along
with a regular 1040 and claim the tax exclusion on his earned income
(up to $80,000).
Topic 855 - Foreign Earned Income Exclusion - What Qualifies?
"If you live and work abroad, you may qualify to exclude all or part
of your foreign earned income from United States income tax. Foreign
earned income is defined as wages, salaries, professional fees, and
other amounts received as compensation for personal services performed
in a foreign country, during the time your tax home is in a foreign
country, and you meet either the bona fide residence test or the
physical presence test. *The place where you perform the services is
what defines your income as foreign, not where or how you are paid.*
For instance, income received for personal services performed in
France is foreign earned income, even if the employer is American and
your pay is deposited in an American bank. Wages paid by the U.S.
government to its employees are not eligible for the exclusion.
However, amounts paid to independent contractors by the U.S.
government may be eligible for the exclusion."
http://www.irs.gov/taxtopics/tc855.html
FORM 2555 Foreign Earned Income
http://www.irs.gov/pub/irs-pdf/f2555.pdf
Instructions for FORM 2555
http://www.irs.gov/pub/irs-pdf/i2555.pdf
Services Available Outside the United States:
HOW TO ORDER PACKAGE 1040-7 for Overseas Filers:
"During the filing period (January to mid-June), you can get the
necessary federal tax forms and publications from U.S. Embassies and
consulates. You can request Package 1040?7 for Overseas Filers, which
contains special forms with instructions and Publication 54.
Also during the filing season, the IRS conducts an overseas taxpayer
assistance program. To find out if IRS personnel will be in your area,
you should contact the consular office at the nearest U.S. Embassy."
http://www.irs.gov/publications/p54/ch07.html
US-Canada Tax Treaty (597) - IRS publication providing guidance on the
application of the tax treaty. PDF format (4 pages).
http://www.irs.ustreas.gov/pub/irs-pdf/p597.pdf
>>> Additional Links of Interest
Canadian Taxpayers In The U.S.
http://www.professionalreferrals.ca/article-315.html
"If you are a nonresident alien, you must file Form 1040NR (PDF) or
Form 1040NR-EZ (PDF) if you are engaged in a trade or business in the
United States..."
http://www.irs.gov/taxtopics/tc851.html
I hope I've been able to make this clear for you. If you have any
questions, please post a clarification request *before* closing/rating
my answer and I'll be happy to reply.
Thank you,
hummer
Search:
I was able to use my personal knowledge and bookmarks on the subject,
plus I searched the IRS website when needed (e.g., for links to the
forms). |
Clarification of Answer by
hummer-ga
on
01 May 2005 11:26 PDT
Hi nadasif,
>>> Regarding your last tax year in the U.S.:
"Former long-term residents are required to file Form 8854 for the last
year of U.S. residency. To determine if you are a former long-term
resident, see Expatriation Tax in chapter 4."
http://www.irs.gov/publications/p519/ch06.html#d0e2992
Long-term resident defined.
"You are a long-term resident if you were a lawful permanent resident
of the United States in at least 8 of the last 15 tax years ending
with the year your residency ends. In determining if you meet the
8-year requirement, do not count any year that you are treated as a
resident of a foreign country under a tax treaty and do not waive
treaty benefits."
http://www.irs.gov/publications/p519/ch04.html#d0e2992
>>> Regarding an LLC owned by a nonresident
Have a look at a previous GA question, I think it will answer most of
your concerns (assuming you've registered your business as an LLC).
http://answers.google.com/answers/threadview?id=437259
Bear in mind that when "US source income" is mentioned, they mean
income for services performed *within* the US, not Canada.
U.S. or Non-U.S. Source Income:
"Nonresident aliens, for tax purposes, unlike U.S. citizens and
residents, are only subject to tax on income that is considered U.S.
Source Income by the IRS. Foreign Source Income received by
nonresident aliens is not subject to U.S. taxation.
* U.S. Source Income - income is generally considered U.S. Source if
the location of the activity for which the payment is being made is in
the U.S.
* Foreign Source Income - income is generally considered foreign
source if the location of the activity for which the payment is being
made is outside the U.S."
http://vpf-web.harvard.edu/ofs/tax_services/emp_pay_sou.shtml
A few key snippets:
To enjoy the US tax free benefit, it is advised that the LLC have two
or more members.
"Features of a Delaware Limited Liability Company:
* A Delaware LLC may be formed by one or more organizer or member. It
is not recommended that one member only is used. An LLC may be treated
like a Sole Proprietorship by the IRS when owned by one member. If the
member is a non-resident alien, and the LLC derives its income outside
of the US, the tax free benefit will be lost when treated like a Sole
Proprietorship by the Internal Revenue Service (IRS)"
http://www.us-llc-for-non-residents-of-the-usa-incorporate-llc-in-us.offshore-companies.co.uk/delaware/llc_in_delaware/
"...you don't need an LLC todo business with the U.S. If you just sell
your product from your home country, the U.S. cannot collect income
tax from you even if all of your customers are in the U.S. What
matters is where the work/services are performed, not where your
customers are. In other words, you can do business with customers in
the States all you want to without
paying income tax to the IRS - you did not need to set up an LLC to
accomplish that."
http://answers.google.com/answers/threadview?id=437259
"However, if the domestic LLC has no US members, no agents, no fixed
place of business and no business in the United States, then it is not
required to file any federal information returns."
"If the domestic LLC is structured properly and the organisational
aspects are adhered to properly, and there are no US members and no US
source income or foreign source effectively connected income, then the
domestic LLC can be used to produce foreign source income and not have
a federal tax liability on that foreign source income, nor have tax
reporting requirement to the IRS."
http://www.consumoffshore.com/english/corpusa/llcintro.html#usllc
It would be best to consult an accountant who is familiar with
nonresident US businesses to make sure everything is set up correctly.
Remember, another option is to forget about the U.S. business and
just do your work from your home in Canada. It's the simplest route to
take - nonresident aliens are not taxed even though they have U.S.
customers.
US TAX FOR ALIENS: Publication 519: US Tax Guide for Aliens:
Chapter 2, page 11:
"A nonresident alien usually is subject to U.S. income tax only on
U.S. source income."
Table 2?1, page 11:
Summary of Source Rules for Income of Nonresident:
A. Factor Determining Source:
1. Salaries, wages, other compensation: Where services performed
2. Business income: Personal services: Where services performed
Chapter 2, page 12:
"All wages and any other compensation for services performed in the
United States are considered to be from sources in the United States."
"If your compensation is for personal services performed both inside
and outside the United States, you must figure the amount of income
that is for services performed in the United States."
http://www.irs.gov/pub/irs-pdf/p519.pdf
Regards,
hummer
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