Compare the U.S. tax treatment of a nonresident alien and a resident alien, both of whom earn U.S. trade or business and U.S. investment income.

Question

What will be an ideal response?

Answer 1

A nonresident alien who earns investment income is taxed only to the extent that such amounts are U.S.-source income. U.S.-source investment income is taxed at a 30% rate without any reduction for deductions, losses, etc. U.S-source income that is effectively connected with the conduct of a U.S. trade or business is taxed at the regular individual tax rates. Such amounts can be reduced by deductions, losses, etc. Only limited amounts of foreign-source income that is effectively connected with the conduct of a U.S. trade or business is taxed by the United States. A resident alien is taxed on his or her worldwide income without any different tax treatment for trade or business income or investment income. A resident alien is permitted to reduce both income forms by any deductions, losses, etc. that are related to the income. The resulting amount is then taxed at the progressive individual tax rates.