Since I am not lisenced, I only managed my clients' money in their own accounts, one of my clients asks me if he needs to pay tax. Client profile, Foreigner, lived in USA, has a SSN but moved out now. The account I am trading has his SSN. Althrough, technically, he does not need to pay any capital gains. But I wonder if the online broker will report those capital gains to IRS, then if IRS does not see any tax reported, my client will be in trouble. So my question is that should my client just file a tax return 1040NR with less than 0 days in USA then claim a tax exemption?
The broker will file and expect your client to be liable. I stongly suggest speaking with an accountant and your broker on this.
THe broker does not report the gains per se. The broker will provide a 1099, which reports all proceeds from sale of securities.
What will happen if after getting the 1099, and my client reports nothing to IRS? I called IRS one day and spent 2 hour with them on the phone for my own account, since I am none-US citizen living not in USA. It seems the call answerer does not know anything but reading publications. I have to point Pub 515 or 509 and exact page to him then he just read them back to me and tell me "I guess you dont need to pay any tax." What I am worried is that different people from IRS will have different interpretation, so I will never get a clear answer. At least from 1040NR instruction, it clearly states that only people in the USA with more than 183 days need to file tax. and clearly in other IRS publications, there is no capital gain tax on foreigners. Not sure once the foreigner is classified as a trader (since I have 500% turn over rate in his account, not day trading, but swing trades.), will his gain still be considered tax free capital gain.
Even if the IRS tells you something in error and you make a decision based on that error, YOU are responsible, not the IRS. What happens is the IRS compares the 1099's the broker sent out and looks for a return with that 1099 listed. If they find a situation where your client doesn't list the 1099 that was listed him, the IRS will try and contact him. Unless a huge sum is involved probably not much would come of it if you're client is outside US. The more likely scenario is the IRS tells the broker they have to retain witholding tax. The real solution is the client should immediately close the current account and open an account as a citizen of the the country he or she resides in, thus the old ss# wouldn't have a bearing on anything. Doing so would eliminate any potential for problems.
Does anybody know the difference between a 1099 and a 1099b? I heard it was good for people who trade stocks.