Us Source Income

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U.S. Source Income Effectively Connected with U.S. Business
Analyze how foreign persons in the U.S. are taxed on trade and business income and suggest an alternative to the current system.
Foreign Person: U.S. Source Income
There are two types of Aliens. You have the resident alien and the nonresident alien. It is very important to know the different between the two.
A resident alien is taxed in the same manner as a U.S. citizen, which means that their worldwide income is subject to U.S. tax. The resident alien must report their worldwide income, such as, interest, dividend, wages, or other compensation for services. They also must report income from rental property and royalties and any other type of income that they received during the taxable year on their U.S. individual federal income tax return.
A nonresident alien is an individual from a foreign country who has not passed either the green card test or the substantial presence test. Nonresident alien’s income is dividend up into two categories: U.S. source income that is effectively connected to a trade or business in the United States or U.S. source income that is Fixed, Determinable, Annual, or Periodical (FDAP). Nonresident alien's income that is subject to U.S. income tax is generally divided into two categories; income that is Effectively Connected with a trade or business in the United States or U.S. source income that is Fixed, Determinable, Annual, or Periodical (FDAP) and is not effectively connected with a trade or business in the United States.
For the rest of the paper I will mostly discussing income of nonresident aliens, because resident aliens are pretty much taxed in the same manner as U.S. citizens. “Under the current tax law, only income that is actually related to the conduct of a U.S. trade or business will generally be taxed at the usual individual or corporate taxes rate”…...

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