If you invest in American Real Estate and/or in US shares through a US based company/stock exchange you have, no matter what the result of the investment is, a legal obligation to file US tax returns. Plural because you will have to file a Federal tax return as well as in most cases a state return.
In order to file you will need a Taxpayer Identification Number (TIN). For legal entities this is an EIN or Employer Identification Number. For individuals this is an ITIN or Individual Taxpayer Identification Number. The application for an EIN can be done immediately. The application for an ITIN requires a first tax return as proof that an ITIN is needed.
At the beginning of the year the books of the prior tax year will be closed and if you invest through an investment company these will file their tax returns first. Part of those returns will be statements that you in turn will need for the tax return: K-1, 1099, 1042-s, 8288a etc. On these you will find all necessary components such as: capital contributed, income, interest paid, gain, deductions, non-deductible expenses, distributions of capital and withholdings.
Now that all the information is available the tax returns can be created. Once we put all information in, the returns will be checked by a US Certified Public Accountant or CPA to make sure nothing got missed. The returns will need your signatures so we will send you these clearly marked as well as a two page summary.
Once we receive the signature pages we will file these with the appropriate tax offices. The normal deadline for filing is April 15th or the first weekday if that would be a holiday or in the weekend. Non residents get an extra 3 months to file. Adding an extension of time of 6 months if filed puts the due date on December 15th. Most states follow the same dates as the Federal tax office.
The information received pertains to the one year. In the tax returns more is taken into account. Of course if you have multiple investments they might interact. A loss could offset a profit. But also losses from the past can offset that years gain as it actually contributed to that same gain. the result of your return could be a refund, a loss or a tax due. A loss will be registered to offset possible future gains.
When paying out non residents investment companies have to withhold money from the distribution and deposit this in the taxpayers name with the tax office. As the tax return calculates the exact amount due part of the withholding will be determined to be overpaid. This overpayment can be credited to the next year or a request can be made for a refund. Refunds can be paid out as a paper check or as a direct deposit into an American bank account.
Tax due is, because of the practice of withholding, not common but it can happen. Payment of tax due can be done by writing a paper check our money order. Payment online is however becoming more popular. Unfortunately the process of your tax return by the tax office might not go smoothly every time. That is when we start our communication with the tax office so you don’t have to. This can be challenging but challenges can also be interesting. Solving these issues are satisfying, we find.
As the rules can be changed by the IRS at anytime the above mentioned is to give you a general understanding.