Things you need to know when it comes to U.S. taxes for individuals: General filing requirements

TAXATION – U.S.

A U.S. filing requirement generally applies to individuals who are U.S. citizens, U.S. lawful permanent residents, and other individuals who earn income from U.S. sources. Do you fall into any of these categories? If yes, you’ll want to read this third article in our series on U.S. tax filing obligations.

Filing requirements

Many people are now aware that the United States is one of the few countries in the world that taxes are based on citizenship rather than strictly on residency. This means that if someone is a U.S. citizen, they will have a U.S. filing requirement, regardless of whether they are physically residing in the United States.

Individuals who hold U.S. lawful permanent residency status, also known as “green card holders,” will have a filing requirement, regardless of whether they are physically residing in the United States.

Other situations where individuals may have a U.S. filing requirement would include:

• those who spend a significant amount of time physically in the United States and meet the U.S. substantial presence test
• those who are not physically in the United States but generate income from the United States. This income can include rental of U.S. real estate, wages in the United States or substantial investment income from the United States.

Common U.S. tax forms

There is a substantial number of forms and supporting schedules that you could be required to file when it comes to your U.S. individual tax filing. Some of the more common ones include the following:

• Form 1040
  • This form is filed by U.S. citizens, U.S. lawful permanent residents / green card holders, and those considered to be U.S. tax residents by virtue of the substantial presence test.

    Worldwide income needs to be reported on Form 1040 and its supporting schedules. Mechanisms such as treaty-based filing positions and foreign tax credits are tools that minimize any double taxation issues with income from other countries that you have reported on the U.S. return.

• Form 1040NR
  • This form is filed by U.S. non-residents who have income from the United States. You would only report income earned from the United States on this return.
• Form 8840
  • This form is frequently filed by “snowbirds”: people who travel to the U.S. for extended periods but do not meet the U.S. tax residency requirements. This form verifies to the Internal Revenue Service that the individual filing the form has substantial residential ties to one or more other countries and does not meet the U.S. tax residency requirements.
• FinCEN Form 114 – FBAR
  • This filing is required when an individual’s non-U.S. financial accounts that are physically located outside of the United States meet the filing threshold for the form.

    The filing threshold is US$10,000. To calculate whether you meet this threshold, you would determine the maximum value for each individual account, convert that value to the U.S. dollar equivalent, and then add each of those values together.

• Form 5471, Subpart F and GILTI taxes
  • If you are a U.S. citizen or U.S. tax resident who owns shares in a non-U.S. private corporation, you may also have a Form 5471 filing requirement and/or be subject to Subpart F and/or Global Intangible Low-Taxed Income (GILTI) taxes.

    Form 5471 has multiple parts. The parts that must be filed depend on the percentage of shareholdings you have as well as whether or not there have been changes to the shareholdings during the year.

    Subpart F taxes apply when the non-U.S. private corporation does not have active business activities. Passive business activities, such as earning only investment income, will be subject to Subpart F taxes. Typically, holding companies will meet the Subpart F filing requirements.

    Global Intangible Low-Taxed Income (GILTI) taxes will apply to non-Subpart F income, or the active business income of the company each year. GILTI taxes will only apply if the U.S. person owns at least 10% of the shares of the company, and the company is a Controlled Foreign Corporation (CFC). A Controlled Foreign Corporation is one where more than 50% of the votes and/or value of the shares are owned by U.S. persons.

    The area of Form 5471 filing, including Subpart F and GILTI taxes, is an extremely complex filing requirement. As such, please seek the assistance of a U.S. tax professional that is versed in these areas to assist you with these filings.

General deadlines

Generally speaking, U.S. individual income tax filings (Form 1040 and Form 1040NR) are due April 15 of the year following the taxation year being filed. However, several extensions are available to you if needed.

If you are a U.S. citizen physically outside of the U.S., or a U.S. non-resident filer that did not earn W-2 wages (which only apply to employees who have federal, state and other taxes withheld from their pay), you have an automatic extension to June 15.

Depending on your filing circumstances, you can also file Form 4868 to request an automatic extension to October 15 and a further extension to December 15.

These brief descriptions intend to give you the overview of the key requirements for U.S. tax filings, but each individual and situation are different. To ensure that you meet the requirements and deadlines, it is a good idea to seek advice from a tax professional who specializes in U.S. filings, especially if you are new to meeting these obligations.