Are You a US Individual for Tax Purposes?

Do you want to know whether you should pay a tax as a US individual?

If yes, do you want to know how to avoid it? You have come to the right place at will help you understand if you are a US individual for tax purposes.

All US individuals are subject to tax law in the United States wherever they reside. But what is a US individual? The answer to this question is more tough than you may think. You might be a US individual for tax purposes without even knowing it. It might open you up to unexpected hefty penalties. To assist you eliminate accidentally running afoul of the Internal Revenue Service, here is how to understand if you are a US individual for tax purposes.

IRS Definition of a US Individual for Tax Purposes

There are two major classes for US individuals: US residents and citizens of the US. Let us know more about it.

  1. US Residents

Anyone eligible as a US resident is also determined as a US individual for tax purposes. You should meet at least one of two tests to become a resident of the US. The first test is a green card. It means that you get a green card that permits you the right to reside in the US as a permanent resident.

Another test is substantial presence and needs one of the following true:

  • You should spend a minimum of 183 days in the United States and currently the past two years
  • You should spend more than a month during the current year

Remember: All the days spent in the US will not count equally toward those numbers. The maths may get tough. You may consult an eligible tax expert to know more.

If you meet the eligibility threshold of either the substantial presence test or green card test, you will be a resident of the US and a US individual for tax purposes. If you don’t, you are a non-resident. If you were a US resident in the past then you are a dual-status alien.

2. Citizen of the United States

All citizens of the United States are considered US individuals. You will become a citizen of the US through naturalization or by birth. To become a citizen of the United States by birth, you should be one among the following:

  • One of your parents should be a citizen of the US when you were born
  • You were born within the US borders

If you are not born as a citizen in the United States, you may earn citizenship by the naturalization process.

Implications of tax as a US individual

Virtually all US individuals have to file an income tax return every year in the United States. This is regardless of:

  • Where you work
  • Whether you owe income taxes after filing
  • Where you reside

As a US individual, you should report your income worldwide, not only income but also the source of income. You might also have to file additional income tax forms that include:

FBAR: If you have a minimum of $10,000 deposited in more than one non-bank US account, you may have to report it by filing FinCEN form 114 called the FBAR (Foreign Bank Account Report)

FATCA: If you have non-US financial properties that value about particular thresholds, you may file a Foreign Account Tax Compliance Act report.

How to Renounce Your Status as a US Individual?

If you are a US individual for tax purposes, you may prefer to undo that status. These steps are based on why you are a US individual.

  • If you are a resident of the US because of a substantial presence test, you may undo your status as a US individual by decreasing how many days you may spend in the United States in the coming years
  • If you are a citizen of the US, you may have to renounce your citizenship to undo your status as a US individual for tax purposes. It is a difficult process and you might have to pay an exit tax.
  • If you are a resident of the United States with a green card holder, you may have to file Form I-407 to relinquish your status as a permanent resident of the US. It is based on how long you have had your green card, you might have to pay an exit tax.

Before making any decision to relinquish your status of residency or renounce citizenship, you may talk to your tax expert. US tax law is simple if you understand and making any mistake might cost you.

Get Assistance from a Talented Team of Expat Tax Pros

If you are a US individual for tax purposes, USTAXFiling will guide you to know your tax obligations in the US. Also, we will aid you to prepare and file your expat income taxes on your behalf. At USTAXFiling, our talented team of tax experts ensures to discuss your problems and resolve them at the earliest. They make sure to keep themselves updated with all the current tax updates so you can relax and they do everything for you. So, your wait is over call USTAXFiling right away for income tax filing!

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