Managing Your Business

Form 1040NR

Form 1040NR

For non-U.S. resident business owners and partners who in fact run a business in the U.S., taxation might raise as a major question. Since taxation is one of many indicators whether the investment in the U.S. is worthwhile, it is essential to understand how the U.S. taxation system approaches non-resident aliens. It is again worth noting that particularities, such as taxation, would definitely affect your existing or would-be investments whether in the amount or development.

The point is that if a non-U.S. resident meets certain criteria, such a person might be liable for certain taxation obligations. Filing tax returns, specifically Form 1040NR, is one of the foremost of such obligations. Form 1040NR is the tax form for non-U.S. residents who have any form of U.S. income to file. Before filing Form 1040NR, one must, first, determine whether he/she meets the criteria for such obligations. One of the following criteria must be met:

– Being a non-resident alien who runs a business in the U.S. even though there is no income or exemption

– Having an income generated within the U.S. (e.g. investment, rent, etc.) which on the other hand does not fulfill the substantial presence test.

The substantial presence test is a test which the IRS uses to determine whether the person in question is a non-resident. According to the IRS, if a person has been physically present in the U.S. “on at least 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before”, that person is considered to be substantially present in the U.S.

Please note that non-residents who are to file Form 1040NR could only report their U.S. sourced income. Furthermore, apart from other administrative sanctions, failure to file a Form 1040NR might result in the loss of a refund.

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