USA Taxation-Learning-Class Notes-22.pdf

USA Taxation

1. Individual Taxation – 8
th

❑When Federal and State Refund received become
Taxable
❑Trick to report any data in Tax Prepare System
❑Resident Vs Non Resident
❑Substantial Presence Test
❑Qualified Business Income (QBI)
❑How to obtain PTIN

3. When Federal and State Refund received become
Taxable
Federal Tax
Refund
Always Exempt
State Tax Refund > Non Taxable in State But
Taxable or Not in Federal depends upon Conditions Below
Type of Deduction Claimed
Standard
Exempt
Itemized
State & Local Tax
Taxable in
Federal only
Sales Tax Yes, State
& Local Tax No
Exempt

4. Source of Income & EIN
❖US Source
❖Foreign Source
❖Resident = US source + Foreign Source
❖Non – Resident = US Source + No tax

5. Resident vs. Non Resident Aliens
If you are not a U.S. citizen, you are considered a
nonresident of the United States for U.S. tax purposes
unless you meet one of two tests. You are a resident of
the United States for tax purposes if you meet either
the green card test or the substantial presence test for
the calendar year (January 1 – December 31).

6. IRS Substantial Presence Test
https://www.irs.gov/individuals/international-taxpayers/substantial-
presence-test

7. Resident vs. Non Resident Aliens
To meet this test, you must be physically present in the United
States (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, counting:
• All the days you were present in the current year, and
• 1/3 of the days you were present in the first year before the current
year, and
• 1/6 of the days you were present in the second year before the current
year.

8. Examples of SPT
Example A: If you were here 100 days in 2023, 30 days in
2022, and 120 days in 2021, the calculation is as follows:
• 2023 = 100 days
• 2022 = 30 days/3= 10 days
• 2021 = 120 days/6 = 20 days
Total = 130 days, so you would not qualify under the substantial
presence test and NOT be subject to U.S. Income tax on your
worldwide income (and you will only pay tax on money earned while
working in the US).

9. Examples of SPT
Example B: If you were here 180 days in 2023, 180 days in
2022,
and 180 days in 2021, the calculation is as follows:
• 2023 = 180 days
• 2022 = 180 days/3= 60 days
• 2021 = 180 days/6 = 30 days
Total = 270 days, so you would qualify under the substantial presence
test and will be subject to U.S. Income tax on your worldwide income,
unless another exception applies.

10. Exceptions to IRS Substantial Presence Test
• An individual temporarily present in the U.S. as a foreign government-
related individual under an “A” or “G” visa, other than individuals holding
“A-3” or “G-5” class visas.
• A teacher or trainee temporarily present in the U.S. under a “J” or “Q”
visa, who substantially complies with the requirements of the visa.
• A student temporarily present in the U.S. under an “F,” “J,” “M,” or “Q”
visa, who substantially complies with the requirements of the visa.
• A professional athlete temporarily in the U.S. to compete in a charitable
sports event.
• were unable to leave the U.S. because of a medical condition or medical
problem.

11. Exceptions to IRS Substantial Presence Test
❖If you exclude days of presence in the U.S. for purposes of the
substantial presence test because you were an exempt
individual or were unable to leave the U.S. because of a medical
condition or medical problem, you must include Form 8843,
Statement for Exempt Individuals and Individuals With a
Medical Condition, with your income tax return.
❖If you do not have to file an income tax return, send Form 8843
to the address indicated in the instructions for Form 8843 by
the due date for filing an income tax return.

12. Exceptions to IRS Substantial Presence Test
❖If you do not timely file Form 8843, you cannot exclude the days
you were present in the U.S. as an exempt individual or because
of a medical condition that arose while you were in the U.S. This
does not apply if you can show, by clear and convincing evidence
that you took reasonable actions to become aware of the filing
requirements and significant steps to comply with those
requirements.

13. Qualified Business Income Deduction (QBI) Form 8995

14. Qualified Business Income Deduction (QBI) Form 8995
QBI stands for Qualified Business Income.
Qualified business income (QBI) is a term used by the Internal Revenue Service (IRS) to refer to income that is earned
through a business or trade. Generally, this income is taxed as ordinary income on your individual income tax return.
For the purposes of the deduction, QBI is defined as net business income, excluding:
➢ Income generated outside the United States
➢ Investment income
➢ W-2 compensation paid to an S corporation owner
➢ Guaranteed payments to a partner
➢ Income from REITs, publicly traded partnerships, and qualified cooperatives (these entities may qualify for a
20% deduction under a different set of rules, the explanation of which is beyond the scope of this article)
In Short QBI includes income from Sole Proprietorships, Partnerships, S corporations, and certain
trusts and estates. It does not include income from wages, capital gains or losses, dividends,
interest, or other non-business income.

15. QBI Calculation
QBI is determined by calculating your total business income minus:
➢Wage (W-2) income; with the exception of statutory employees.
➢Capital gains and losses
➢Dividends or interest
➢Annuity payments
➢Income generated outside the United States
➢Investment income
➢Foreign currency gains or losses
➢Reasonable compensation for owner/employees of S-Corps
(W-2 compensation paid to an S corporation owner)
➢Guaranteed payments to partnerships and LLCs

16. QBI Deduction Formula :
Lower of :
(Qualified Business income – 50% of Self Employment Tax ) x 20%
OR
(Taxable income before qualified business income deduction – Capital Gain
Tax ) x 20%
Check Article on QBI:
https://www.fool.com/the-ascent/small-business/articles/qualified-
business-income-deduction/

17. Taxable Limits for 2023

18. Taxable Limits for 2024

19. PTIN Registration
Requirement:
A Color copy of first two pages of your passport on front page of a high quality paper.
Get this copy verified from Passports office (Stamp must contain officer name), then get a notarized stamp
from local Notary Public Officer and then from Ministry of Foreign Affairs (MOFA)
Steps:
1.Register on IRS Website: https://rpr.irs.gov/ptin
2.Enter your credentials, First Name, Last Name(As per Passport), Email
3.Uploaded notarized Passport Color Copy.
4.Once passport is approved, you will get a confirmation email and you are asked to complete the
application using same login on IRS.
5.After answering questions, you need to pay PTIN Fees (19.36$ for 2024) through Debit or Credit card
6.After successful payment, PTIN Letter and number issued.