Top 5 US Taxation Tips for New Residents
For new residents in the USA, understanding the tax system of their new home is essential to ensure compliance and optimize the financial situation for the foreseeable future. Here are the most important tips you can use:
Top tips on dealing with taxes in the US
Understand your tax residency status
Determine your tax residency status in the United States. Tax residents are generally taxed on their worldwide income. The rules for determining residency status can be complex and depend on factors such as the duration of your stay and immigration status. Consult the IRS guidelines or a tax professional to determine your tax residency status. More about this issue in the second part of the article.
Familiarize yourself with the US tax system
Take the time to understand the basics, learn about the different types of taxes, including federal income tax, state income tax (if applicable), and other taxes such as Social Security and Medicare taxes. Study the tax brackets, deductions, and credits that may apply to your situation.
Maintain accurate records
Keep detailed and organized records of your financial transactions. This includes anything related to employment, investments, and other sources of income. It is strongly advised, since accurate record-keeping is crucial for preparing your tax returns.
Determine your filing status and deductions
Choose the appropriate filing status based on your family and living situation. Explore potential deductions and credits available to you, such as the standard deduction, child tax credit, and education-related credits. Understanding your eligibility for these benefits can help minimize your tax liability.
Consider state and local taxes
The US is made of 50 states, remember? There are also administrative divisions of lower level. Thus, you should be aware of state and local tax obligations. Each state has its own tax rules, and some may impose income taxes, property taxes, or sales taxes.
Research the tax regulations in the state where you reside (or plan on moving to) just to ensure compliance with local laws. Additionally, be mindful of any potential double taxation if you have income in multiple states or if you move during the tax year.
Bonus tip
If you find the tax system overwhelming or have complex financial circumstances, consider seeking the guidance of a tax professional. Experienced tax and accounting specialists can provide personalized advice, help you navigate the tax code, and ensure that you take advantage of all available tax benefits while staying compliant with US tax laws.
Tax residency status
In the United States, tax residency status determines how people are taxed on their income. The two primary categories of tax residency are “resident aliens” and “nonresident aliens.” Here’s an overview of those two categories:
Resident aliens
A resident alien is a foreign national who meets either the Green Card Test or the Substantial Presence Test:
- The Green Card Test applies to individuals who are lawful permanent residents (United States Permanent Resident Card holders) of the US at any time during the calendar year.
- The Substantial Presence Test is based on the number of days a person is physically present in the United States over a three-year period. If an individual meets the substantial presence test, they are considered a resident alien for tax purposes.
Resident aliens are generally subject to taxation on their worldwide income, just like US citizens. They must report their income and deductions on a US tax return.
Nonresident aliens
Those are foreign nationals who do not meet the criteria for resident alien status. Nonresident aliens are generally only taxed on their US-source income, which may include income from employment, business activities, or investments in the United States.
With such a status, you have to report your US income on Form 1040NR or 1040NR-EZ. You’ll also be subject to different tax rates and rules than resident aliens or US citizens.
Conclusion
Remember that tax laws and regulations can change. Stay informed and seek professional advice – it can help you make informed decisions and manage your tax obligations effectively. Americans, including new residents, approach this aspect of life in the US with special dedication.