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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29934
Experience:  Taxes, Immigration, Labor Relations
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what is the tax brackets for non resident alien never had a

Customer Question

this is a USA tax law question

what is the tax brackets for non resident alien never had a green card and was outside the states for more than 6 years , although filed for tax before that, trading only in stock options -selling and buying puts and calls and making profit - through an American internet brokerage firm

Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

LEV :

Hi and welcome to Just Answer!
Nonresident aliens are taxed ONLY on income from US sources.
There are two types of income - effectively connected income and not effectively connected income.
If you are engaged in a U.S. trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Effectively connected income is taxed at same tax rates as for US residents - see the tax rate schedule on the last page of this publication - www.irs.gov/pub/irs-pdf/i1040tt.pdf
Not effectively connected income is generally taxed at flat rate 30% unless the tax treaty provides reduced rate.
When you are trading stock or option which are related to US companies - the gain is considered from US sources, but if these are foreign companies - the gain is not from US sources and not taxable in the US.

Customer:

hello lev,

Customer:

i did read that in the tax bulletin : U.S. Tax Guide
for Aliens For use in preparing 2012Returns

Customer:

but i still do not fully understand , if the company is a usa company then making money trading on an option with that company stock as the Underlying ?

Customer:

is taxable ?

LEV :

Based on your information - that is NOT effectively connected income - and the gain realized from trading US stocks is taxed at 30% flat rate unless you are eligible to claim any tax treaty benefits.
The gain of trading foreign companies is not taxable for nonresident aliens.

Customer:

am not trading stocks am trading options on these stocks , and what if the options Underlying is an index like S&P ? it is not a company share

Customer:

please explain more

LEV :

When you are trading an "an index like S&P" - that is actually shares of the fund registered in the US - and it is considered US company - thus the gain is taxable in the US.

Expert:  Lev replied 4 years ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

When you are trading an "an index like S&P" - that is actually shares of the fund registered in the US - and it is considered US company - thus the gain is taxable in the US.
Customer: replied 4 years ago.

i still have a followup questionso trading in stock optios but not options ,and only buying and selling options not excersizing them, is considered NOT effectively connected income for tax perposes and taxed on 30% rate ????

and i need to seperate usa companies from non usa companies ???

 

 

Expert:  Lev replied 4 years ago.
If you are a professional broker - and trading stocks and/or options is your business - then your income is effectively connected with United States business - and reported and taxed as a business income.
However for most taxpayers - trading is investment activity - and is NOT effectively connected with United States business - see for reference - http://www.law.cornell.edu/uscode/text/26/871

Because IRC section 871(a)(2) applies only to U.S. source capital gains, the sourcing rules of IRC section 865 must be considered when addressing the application of the 183-day rule under IRC section 871(a)(2). For the sourcing of capital gains by nonresident aliens, per IRC section 865(g)(1), gain or loss from the sale or exchange of personal property generally has its source in the United States if the alien has a tax home in the United States. Per IRC section 865(g)(1), the key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the alien's "tax home" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’s U.S. source capital gains would be treated as foreign-source and thus nontaxable.
See for reference - http://www.law.cornell.edu/uscode/text/26/865