Tax & Residency Guide in United States

As an expert content writer, my specialty is creating comprehensive guides for various topics. The tax system in the United States is complex and can be overwhelming, especially for non-residents or new residents. In this guide, I will cover essential aspects of the US tax system, including residency triggers, tax system type, treaties, entity options, filing requirements, rates, deductions, when to hire an advisor, and country-specific strategies.

### Residency Triggers In the US tax system, residency is crucial as it determines your tax obligations. For individuals, residency triggers are based on the Substantial Presence Test. You are considered a resident for tax purposes if you are physically present in the US for at least 31 days during the current year and 183 days over a three-year period, using a specific formula. The calculation is as follows:

- All the days you were present in the current year. - 1/3 of the days you were present in the first year before the current year. - 1/6 of the days you were present in the second year before the current year.

### Tax System Type The United States operates on a self-assessment tax system. This means that individuals are responsible for reporting their income to the Internal Revenue Service (IRS) accurately and paying the correct amount of tax. The tax year runs from January 1st to December 31st, and individuals must file their tax returns by April 15th of the following year.

### Treaties The US has tax treaties with many countries to prevent double taxation and provide certain benefits to residents of those countries. These treaties can affect how much tax you owe and which country has the right to tax specific types of income. It's essential to review the tax treaty between the US and your home country to understand your tax obligations and benefits.

### Entity Options For non-residents or foreigners looking to do business in the US, there are several entity options available, such as Limited Liability Companies (LLCs), Corporations, and Partnerships. Each entity type has its tax implications, liability protections, and reporting requirements.

### Filing Requirements Individuals who meet the residency triggers or US citizens living abroad are required to file a US tax return annually. The IRS requires the use of specific forms, such as Form 1040 or Form 1040-NR for non-residents. Failure to file a tax return can result in penalties and interest charges.

### Rates and Deductions The US tax system is progressive, with tax rates ranging from 10% to 37% based on income levels. Tax deductions and credits can help reduce your taxable income and lower your tax liability. Common deductions include mortgage interest, medical expenses, charitable contributions, and education expenses.

### When to Hire an Advisor Navigating the US tax system can be challenging, especially for non-residents or individuals with complex financial situations. It's advisable to hire a tax advisor or accountant if you are unsure about your tax obligations, have multiple income sources, own foreign assets, or need assistance with tax planning strategies.

### Country-specific Strategies For non-residents or foreigners doing business in the US, there are specific tax strategies that can help minimise tax liability and maximise benefits. Some strategies include utilising tax treaties, structuring investments through tax-efficient entities, and taking advantage of deductions and credits available to non-residents.

In conclusion, understanding the US tax system is essential for individuals and businesses to comply with tax laws and maximise tax benefits. By knowing the residency triggers, tax system type, treaties, entity options, filing requirements, rates, deductions, and when to hire an advisor, you can navigate the US tax system effectively and make informed financial decisions.