US Taxation & Compliances – Basics

Taxation system in US set up under federal and state level. It means Taxpayer has to pay federal and state taxes on their Income such as sales, capital gain, house property income, etc. In US Global Income will be taxable.

Definition of Residential Status in USA

What Is the 183-Day Rule?

The 183-day rule is used by most countries to determine if someone should be considered a resident for tax purposes. In the U.S., the Internal Revenue Service uses 183 days as a threshold in the “substantial presence test,” which determines whether people who are neither U.S. citizens nor permanent residents should still be considered residents for taxation.

The IRS and the 183-Day Rule

However, the IRS uses a more complicated formula to reach 183 days and determine whether someone passes the substantial presence test. To pass the test, and thus be subject to U.S. taxes, the person in question must:

• Have been physically present at least 31 days during the current year and;
• Present 183 days during the three-year period that includes the current year and the two years immediately preceding it. Those days are counted as:
• All of the days they were present during the current year
• One-third of the days they were present during the previous year
• One-sixth of the days present two years previously

U.S. Citizens and Resident Aliens

Strictly speaking, the 183-day rule does not apply to U.S. citizens and permanent residents. U.S. citizens are required to file tax returns regardless of their country of residence or the source of their income. However, they may exclude at least part of their overseas earned income (up to $105,900 in 2019) from taxation provided they meet a physical presence test in the foreign country and paid taxes there. To meet the physical presence test, the person needs to be present in the country for 330 days in 12 months.

The Substantial Presence Test (SPT) is a criterion used by the Internal Revenue Service (IRS) in the United States to determine whether an individual who is not a citizen or lawful permanent resident in the recent past qualifies as a “resident for tax purposes” or a “nonresident for tax purposes”; it is a form of physical presence Test. The SPT should be used in conjunction with the Green Card test (the criterion that the individual possessed a valid Green card at any time of the year). An individual who satisfies either one or both of these tests is treated as a resident for tax purposes.

ANNUAL TAX RETURN

Form 1040 :

Personal federal income tax returns filed by United States Residents, Green Card Holder or anyone residing in USA for more than 6 months need to file this return.

Due Date: 15th April of the Next calendar year

• Form 1040NRis used by taxpayers who are considered “non-resident aliens” for tax purposes.
• Form 1040X is used to make corrections on Form 1040, Form 1040A, and Form 1040EZ tax returns that been previously filed.

Form 1065 :

Available for Partnership firms to file their annual return

Due Date: Generally 15th March of the Next calendar year

As per US IRS law ; Partnership firms doesn’t pay taxes directly on their income but due to pass through mechanism taxes will require to pay ; if any and profit or losses divides between partners thus Partners have to include all this items in their returns too.

Form 1120 :

Corporation Income tax return. A corporation pays income tax by filing a corporate tax return on Form 1120 and paying the taxes as indicated by this return.

Also used to report income for other business entities that have elected to be taxed as a corporation (like LLC).

Single-Member LLC

A single member LLC (that is, an LLC with only one owner) is taxed like a sole proprietorship, using Schedule C to calculate net income, so the tax returns are due and taxes are payable on April 15, for the prior year. The due date for 2019 Schedule C forms, along with the owner’s personal tax return, is April 15, 2020.

Multiple-Member Limited Liability Company (LLC)

Multiple member LLC  may elect to be taxed as a corporation, S corporation, or partnership, but they are usually taxed as partnerships. If this is the case, the partnership filing and payment regulations above apply, including the March 15, 2019.

S Corporation

S corporations must file an information report on Form 1120 S and provide a shareholder’s K-1s by March 15, 2019.

C Corporations

Corporations often choose any convenient date as their year-end (usually a quarter-end) date. For the 2019 tax year, corporation tax returns are due and taxes are payable on the 15th day of the 4th month after the end of the company’s fiscal (financial) year. For example, a corporation with a year-end date of December 31 must file and pay taxes by April 15, 2020.

Types of Form 1120 :

• 1120S:S. Income Tax Return for an S Corporation.
• 1120C:S. Income Tax Return for Cooperative Associations.
• 1120H: U.S. Income Tax Return for Homeowners Associations.

Information about some basic Miscellaneous forms which can be extracted online by taxpayer typically it’s a record of the money received by your from any entity or person during calendar tax year.

• 1099B: Record of the sale of several types of securities as well as some types of bartering that take place via bartering exchanges.
• 1099 DIV: Record of dividends and other distributions you receive during the year.
• 1099 INT: Record of interest payments are also taxable and are usually reported to you. (Taxpayers receive this form from banks where they have interest bearing accounts)
• 1099 MISC: If you are an independent contractor or self-employed you should receive a Form 1099-MISC from each business client that pays you at least $600 during the tax year.

Tried to explain basics about Us Taxation, Stay tune and will come up with other wider subjects on Deductions and how to file forms and Planning strategies.

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