General Information
The U.S. Tax System
The main income tax authority is the Internal Revenue Service (IRS,) which is the Federal Income Tax collector, part of the U.S. Treasury Department.

In addition to the IRS, there are income tax authorities in almost each one of the different states, where each state is responsible for collecting its own income taxes and each one having its own tax laws and regulations. Few states do not have individual income taxes like Florida, New Hampshire, Texas, and others.

There are also some cities, which have local city income taxes like New York City, Philadelphia, some localities in Maryland, and a few cities in Ohio.

Besides paying the different income taxes, taxpayers are required to pay a social security tax which is a federal tax, where the funds are being used for old age pensions and old age medical insurance.
Filing Requirements
In the U.S. most individuals who have U.S. source income have to report their income to the tax authorities by filing an income tax return at the end of the tax year. The tax year, in most cases, begins on January 1, ends on December 31 and the tax returns are due by April 15.

U.S. citizens and permanent residents are also required to report their world wide income to the U.S. tax authorities, even if not residing in the United States. Foreign earned income is usually exempt from U.S. tax.

Filing of at least a federal tax return is required at the end of the tax year. In most states a state tax return also has to be filed.
Aliens
An alien is an individual who is not a U.S. citizen or a Green Card holder. Aliens are classified as either resident aliens or as non-resident aliens. The type of visa and the time spent in the U.S. are considered in determining the alien's status.

Resident aliens generally are taxed on their worldwide income, usually following the same rules that apply to U.S. citizens. Nonresident aliens, in most cases, are only taxed on their income from sources within the U.S, and the rules and tax forms that apply are different from those that apply to U.S. citizens. It is important, therefore, to first determine the status as an alien, resident or nonresident, and decide how to file the income tax return.
Income to be reported
  • Wages
  • Interest, Dividends, Capital Gains
  • Income from Self Employment
  • Pensions & Annuities
  • Rental Income
  • Employee Stock Options
Adjustments and Deductions
  • Moving Expenses
  • Contributions to Retirement Accounts & Pension Plans
  • Medical Expenses
  • Taxes
  • Interest
  • Contributions to Charity
  • Casualty Losses
  • Professional Expenses
  • Temporary Assignment Away from Home Expenses
Personal Exemptions and Tax Credits
In addition to the expenses / deductions, each person on the tax return – taxpayer, spouse, children - receives a personal exemption amount of about $ 3,500.
Tax credits of different types may also be given in certain situations to reduce the final tax liability.
The Income Tax Return Process
The decision as to the type of return and the filing status is followed by the process of calculating the income tax liability. This process will include calculating the following components step by step:
  • Income
  • Adjustments to Income
  • Deductions
  • Exemptions
  • Income Tax
  • Tax credits
  • Tax due or Tax Refund
Individual Taxpayer Identification Number
An ITIN, or Individual Taxpayer Identification Number, is a tax ID number for certain nonresident and resident aliens, their spouse, and dependents. It is only available to individuals who cannot get a Social Security Number (SSN). ITIN's are only used for federal income tax purposes.

You must include your ITIN W-7 application with your tax return to ensure prompt processing and receipt of any refund.

To obtain an ITIN, you must apply at IRS or through an Acceptance Agent.
A Word Of Advice
On the surface it seems that the U.S. income tax system is fairly simple, and many taxpayers are tempted to prepare their own tax returns. My long experience as a tax consultant taught me otherwise.

The different tax rules and the various taxing authorities make the issue much more complicated, therefore it is advised to use the services of a reliable, knowledgeable and well experienced tax expert.

A good tax consultant can help in planning the income and expenses for the year in order to minimize taxes, prepare the tax return while using the proper ways and means allowed by the law, and assist in cases of an audit.