Easy Tax Planning for Tax Free Foreign Income for the Non-resident and Foreign Corporation

A foreign person does not pay U.S. income tax on foreign source income and certain U.S. income.  

The tax planning rules for determining tax free foreign source income are summarized inthe  guide below.  Lean the tax planning  in my ten minute Blog Tax Talk Show below.

Click here for other  Tax   Planning radio episodes on Blog Talk Radio by Brian Dooley CPA, MBT.   If you would like to brainstorm your tax planning, then please call me, Brian Dooley CPA, at 949-939-3414 for a free one hour consultation.

Summary of Source Rules for Income of Nonresident Aliens
Item of Income Factor Determining Source

Salaries, wages, other compensation

Where services performed

Business income:
Personal services
Where services performed
Business income:
Sale of inventory -purchased
Where sold- where the customer takes possession of the property

Business income:
Sale of inventory -produced

Where produced (Allocation may be necessary)

Interest

Residence of payer- except for bank deposit interest is tax free to the foreign person

Dividends

Foreign source when paid by a  foreign corporation
U.S. source from a domestic corporation

Rents

Location of property

Royalties:
Natural resources
Location of property

Royalties:
Patents, copyrights, etc.

Where property is used

Sale of real property

Location of property

Sale of personal property

Seller’s tax home

Pensions

Where services were performed that earned the pension

U.S. Stock Market & Commodity Profits Treated as tax-free foreign source income

Sale of natural resources

Allocation based on fair market value of product at export terminal. For more information, see IRC section 1.863–1(b) of the regulations.

*Exceptions include:
a) Dividends paid by a U.S. corporation are foreign source if the corporation elects the Puerto Rico economic activity credit or possessions tax credit.
b) Part of a dividend paid by a foreign corporation is U.S. source if at least 25% of the corporation’s gross income is effectively connected with a U.S. trade or business for the 3 tax years before the year in which the dividends are declared.

 

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