2007 Irs Rate Tax forForeign investor
Q.I have a number of questions regarding 2007 U S taxes related to stock trading. 1) Suppose the person buing and selling stocks is a non-resident alien. His only income in the United States is from this single source (buing and selling stock). What tax rate applies? I have not been able to answer this one by reading the IRS publications, since all examples are based on people having other sources of income. Suppose such a person (non-resident alien, the only US-income being the capital sales gain) had a 6000 dollars net profit during the year. Does he owe any taxes? How to figure these taxes? 2) Are the IRS accounts of non-resident aliens routinely disclosed to the tax authorities in the alien's home country under the s c "tax treaties"? 3) Suppose the same person is a resident alien (still without any other income then the profit he makes on the stock market). How does this alter the situation? This so-called "standard deduction" - is it applicable also to "unearned income", such as capital gain? What about "personal exemption"? 4) What form should be used in order to inform the IRS of changes in status (resident/nonresident) and address (country of residence)? I have tried to get these answers by calling the IRS. However, after spending more than $200 on the phone costs (an 800 number is free only if you call from the U.S.) I am still in the dark. Perhaps somebody had the same problem and knows the answer?
A.I suggest you download (from www.irs.gov), print out, and read IRS publications 519 and 901, as well as the tax form 1040-NR and instructions for it. They should answer most of your questions. Some years ago, I have also summarized the main issued in a less-technical as an article that later got into the misc.invest FAQ. (http://invest-faq.com/articles/tax-non-us-nat.html) As long as he is not in business of "buing and selling stocks", his income (cap gains) in not effectively connected with the US trade or business. Cap gains not effectively connected with US trade or business are tax exempt, unless the taxpayer was physically present in the USA for 183 days or more during the year. In the latter case (which is fairly uncommon, of course, since non-resident aliens, by definition, normally don't spend that much time in the country, unless they are exempt individuals for the purpose of the substantial presence test), the gains are subjected to the flat 30% tax on US-source unearned income. The 30% rate may be reduced for residents of some countries purusant to treaties with those countries. If s/he also receives dividends or non-bank interest, the dividend income is always subject to the flat rate tax (30% or the lower treaty rate), regardless of the physical If he's a resident alien (due to his being a US permanent residence, or due to he substantial presence test), he's taxed the same way as if he were a citizen. He reports his cap gains income on Schedule D of Form 1040. If his entire income for the year is $6000, then probably the tax is zero, since the standard deduction + personal exemption exceed this amount.
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