Form 1040-NR
U.S. Income Tax Return
Form 1040-NR
- Form 1040-NR – According to the US laws, the non-resident aliens and the residents of the US have to file a tax return. The Internal Revenue System commonly known as the IRS is a US government agency that is responsible for the filing of tax returns, collection of taxes, and enforcement of tax laws.
- The IRS has made several kinds of forms available for filing a tax return. The worldwide income earned by a US citizen is subjected to US tax regardless of their current residence. Form 1040-NR in particular is an income tax return form for the Non-Resident Alien of the US.
- Form 1040-NR is usually required for non-resident aliens who are engaged in trade or business in the US or has earned income from other US sources. It is either filed to represent a deceased person who had to file the tax return or represent an estate or trust that had to file the income tax return.
- This rule in general applies to all the Green Card Holders, they may only be exempted from filing a tax return if their income falls below the Gross Income threshold or fall under foreign income tax exclusion, which qualifies for very rare cases including a tax home in another country.
- A non-resident alien – is an alien who has not passed the green card test or substantial presence test. The non-resident aliens must comply with US tax laws and complete filing form 1040-NR as it cannot be e-filed to obtain visa requirements and get refunds.
Structure Of The Form
The form follows a basic structure of tax questionnaire for the non-resident alien to fill in information starting from:
General Information –
- Demographic details: Name, Age, Residence address, Foreign Country name, postal codes, and whether it is filed for Independent citizen or Estate/Trust.
- Filing Status: The status of the person filing, whether they are single or married or a widower.
- Number of Dependents: The taxpayer will have to give accurate information about the number of dependents, their name, and their relation to the non-resident alien. This information will determine the amount of deduction they can obtain from the government.
Taxable Income and Credits –
Details about their income: This requires other forms to be attached for the proof of income, forms like – W-2, 1042-S, SSA-1042S, etc. All the compensations, wages, salaries, interest and dividend income, real estate trade and business, all the information will be required here.
- Adjusted Gross Income: This calculates the amount that is taxable by the US government. It is calculated as the individual’s total income minus all the deductions
- Tax and Credit: Information on taxable income, foreign tax credit, and other credits.
- Amount of Refund: The amount that will be refunded to the taxpayer.
- Amount owed to the IRS: The amount that the taxpayer needs to pay to the IRS.
- Third-Party Designee and Signature: The party that the taxpayer wants to discuss their return has to be mentioned and the taxpayer has to sign the form.
Schedule A- Itemized Deductions –
This includes all the other deductions that a taxpayer can get:
- Gift to US Charities
- Casualty and Theft Losses
- Taxes paid
Schedule NEC – Tax on Income Not Effectively Connected with US trade or business –
This requires information about social securities, distributions including pensions, annuities, profit-sharing plans, and IRA. The other section includes the Gains and Losses from Exchange of Property.
Schedule OI – Other Information –
The taxpayer is required to give brief information about some basic questions.
Information Required From The Client
Income, filing status, and age generally determines whether one must file a tax return but the necessary documents required for non-residents can be categorized as follows:
Basic Information:
Tax Questionnaire (including demographic information):
- The first step towards filing of a return requires the basic information by filling a questionnaire. In this questionnaire, the non-resident alien of the US is required to fill in information about identification of themselves and their dependents, giving a brief account or activities regarding expatriates. Any misinformation in this form will lead to obstructions which will slow down the rest of the process.
Last Year’s Tax Return Filing:
- If the person has already filed a tax return in the previous year, they must provide their taxpayer with the form of their previous year’s filing. This will enable the expat tax professional to cross-reference their current information with the previous information and make them aware of the new changes. The tax professional will also look for other deductions in the last year’s return.
Income:
Compensation, wages, and salaries:
- It is a necessity to provide all the W-2, P60 and P45 and other wage reporting forms. Those expats that are self-employed will have to report detailed and accurate records of all their earnings and deductions. Those residing in foreign countries that do not have income taxes will have to save bank statements and check stubs to report to the IRS.
Interest and dividend income:
- All sorts of income generated through interests or dividends will have to be reported in form 1099. Each interest-earning account requires its filing, the expat must inform their taxpayers even if the account was closed due to any reason or within any time period.
Securities and stock transactions:
- At the end of every year, the broker sends a statement detailing all the stocks and securities that were purchased and sold last year. These statements should outline all the relevant information for filing tax returns such as purchase price, transaction fees, sale date, etc.
Real Estate:
- Rental property income or any real estate sold or purchased is highly relevant for the expat’s tax return forms.
Distributions including pensions, annuities, profit-sharing plans, and IRA:
- Any information regarding withdrawals from IRA, pensions, and other annuities should be provided to the tax preparer.
Any other source of income:
- Schedule K-1 form is required to report other income sources from a partnership, trust, or business interests. This form should be provided to the tax preparer.
Deduction Documents (these documents help to reduce taxable income):
Interest and taxes paid:
- Following the expatriate tax rules, any accumulated interest paid on a home mortgage or student loans will grant expats deductions. It is essential to keep accurate records of property taxes and foreign income taxes to provide proof to the tax preparer for a deduction.
Foreign housing income:
- This requires providing tax preparers financial details of housing situations to qualify for deducting a portion of expat’s overseas housing expenses.
Dependents (if a person is dependent on a taxpayer):
- The taxpayer must provide accurate information of all dependents and pay for their necessities (such as paying for higher studies for their children) will also result in deduction and credits.
Other deduction:
- The taxpayer must provide details of gifts to family members or business expenses that were never reimbursed, alimony and child support payments, medical expenses, donations to charity, etc. that will also help them get deductions on your taxes.
Other documents such as details of foreign bank details can be required. You may express your amounts reported to US tax return in US dollars and convert your foreign currency to US dollars. Most of the taxpayers use the foreign exchange rate on a yearly average to report their foreign earned income. One is advised to reach out to Taxpayer Advocate if you are facing any unresolved tax issues.
Due Date Of Filing
The IRS keeps a track of your tax payment on a calendar-year basis rather than a fiscal year. US taxpayers are obliged to pay their dues by April 15 or get interest charged accruing from April 15 but non-resident aliens or NR are granted automatic 2 months extension of filing deadline till June 15.
The US agency also permits a 6 months extension after filing a request for extension of the deadline. If the date of tax payment falls on Saturday or Sunday, the deadline for the tax payment will be pushed to the next working day.
Although, the extension is not an extension granted for paying your dues as you will be charged with an interest accumulation. The extension only postpones your time to file a return not pay your dues.
Our Process
At Meru Accounting, the process of filing the form 1040-NR is made very smooth and hassle-free. Meru Accounting can be recommended as it has a team of supervisors that look over the entire procedure of filing. This facilitates the process of filing for the non-residents and provides them with accurate information.
The client will have to send us the required documents for us to supervise. We will then send a checklist and a standard format of essential documents required. This is the standard procedure that Meru Accounting follows under strict precision:
Why Meru Accounting?
- Meru accounting is one of the best outsourcing firms for accounting and bookkeeping services. We have a team of experts inclined towards helping you prepare and file tax returns. As filing a tax return is an intricate process, it is recommended to hire an outsourcing firm that can help you with filing your returns.
- Besides providing numerous services about accounting, tax filing, and bookkeeping, Meru Accounting offers its clients a 50% reduction cost as we charge only $15 per hour.
- We provide techno-savvy services as we have a broad spectrum of knowledge using add-ons in the cloud-based environment along with accounting software. We have a fast turnaround feedback mechanism, reaching out to our clients within 24 hours maximum.
- Meru Accounting follows standardized procedures and checklists to ensure error-free work. We have our very own team of experts and accountants that are highly trained and will be working under the supervision of a CPA. Our effective project management system allows them to communicate their terms clearly and efficiently.
- Meru Accounting ensures assisting you at every step of filing for tax returns. The accountants of Meru Accounting have experience in working on leading tax preparation software such as ProSeries Tax Solution, Gosystem Tax Solution, Thomson Reuters Tax Solutions, etc.
FAQs
- Those who are not residents of the US are considered as non-resident aliens of the US. They are considered non-residents if they fail to meet the green card test or the substantial presence test for a particular tax year.
One has to file the form 1040-NR if the person is living outside of the US and is a non-resident alien of the US. A non-resident business in the US during the tax year. Even those who have to represent a deceased can also file this form. If you have received gifts or distribution or owe special taxes or have net earnings from being self-employed.
To apply for an extension request the expat has to fill the IRS Form 4868 to send in your extension request by mail. The taxpayer must file for an extension online free of cost with the IRS partners or make a payment on the IRS website that covers all or estimated part of your tax bill, it will automatically process an extension for your tax return.
No, the form 1040-NR cannot be e-filed. It has to be completed, signed, and submitted by the mail to address on the form.
Those non-resident aliens who are citizens of the US but live abroad have to file this form as the worldwide income earned by the US citizen is subjected to IRS according to the US tax laws.
The IRS will formally send a notice if you do not pay your taxes. Any discrepancy found in the failure of filing a tax return will lead to penalty and deliberate avoidance or filing a fraudulent tax return will be subject to criminal prosecution under the US laws.
No, filing a request for extension will only extend the time to file a tax return in case the taxpayer does not have the required documents for filing a return. However, getting an extension does not extend the time or the deadline to pay taxes. If at all, the taxpayer delays paying the taxes, they will be charged with interest that will be accurate from the given deadline.