Many foreign-based business owners are concerned about making the proper selections on an IRS form. It’s wise to contact a reliable business (who has experience with tax) lawyer to help you walk through the process. Anyways, I took a look at the IRS website and found a publication addressing your situation – Publication 519 “U.S. Tax Guide for Aliens.” I suggest you read the publication in its entirety (68 pages), but here are some helpful excerpts that jumped out at me:
- You should first determine whether, for income tax purposes, you are a nonresident alien or a resident alien (read further on page 4 of the publication or Google “substantial presence test” as there are exceptions for individuals traveling from Mexico).
- A nonresident alien usually is subject to U.S. income tax only on U.S. source income. Under limited circumstances, certain foreign source income is subject to U.S. tax. See Foreign Income in chapter 4. The general rules for determining U.S. source income that apply to most nonresident aliens are shown in Table 2-1 (on page 13).
- A nonresident alien’s income that is subject to U.S. income tax must be divided into two categories:
1. Income that is effectively connected with a trade or business in the United States, and
2. Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax on page 20). The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to
U.S. citizens and residents. Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate.
- A taxpayer identification number must be furnished on returns, statements, and other tax-related documents. If you do not have and are not eligible to get an social security number, you must apply for an individual taxpayer identification number (ITIN). An employer identification number (EIN) is required if you are engaged in a trade or business as a sole proprietor and have employees or a qualified retirement plan.
- You must furnish a taxpayer identification number if you are: 1) an alien who has income effectively connected with the conduct of a U.S. trade or business at any time during the year, 2) an alien who has a U.S. office or place of business at any time during the year, 3) a nonresident alien spouse treated as a resident, or 4) any other alien who files a tax return, an amended return, or a refund claim (but not information returns).