What is an ITIN and Why Do You Need One?

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An ITIN (also called an Individual Taxpayer Identification Number) is an identifying number used by people who don’t live in the United States, but for some reason need to file a US tax return. For example:

  •  Foreign Students
  • Foreign Professors
  • Foreign temporary workers
  • Foreign entrepreneurs and
  • Foreign real estate investors

may all need an ITIN to help them navigate the US tax system. In each case, these people are earning some form of income from the United States, and our tax system is set up to make sure that everyone who earns something, pays something.

Even if you don’t apply for an ITIN, you still will have to pay. That’s because the IRS puts an obligation on the company or person paying you to make sure you either have an ITIN, or hold back 30% of whatever you were to be paid. And that company or person isn’t going to forget, or overlook this requirement, because the American tax authorities make them responsible for the payment. No-one wants to pay your taxes!

Because of abuse and identity theft, the US tax authorities (also called the Internal Revenue Service, or IRS) have made it harder to get an ITIN. Now there are only a few ways to get one:

  •  You must have US-based income; or
  • You must own all or part of a US-based business

This is where business owners, including those who are establishing US companies to hold real estate have an advantage. Your ownership in a US company allows you to immediately make an application for an ITIN.

If you don’t own a US company, then you will have to wait until you file a US tax return to apply. That means you will probably be losing 30% of your US-based income each and every month until then – and that can add up!! Now when you file your first tax return, part of that 30% will likely come back as a tax refund, but wouldn’t it be better to not lose it in the first place?

Once you have an ITIN, you need to keep using it. The IRS will cancel an ITIN that hasn’t been connected to a tax return for 5 consecutive years. If that happens, and you take a break from the US tax system for 5 years or longer, when you come back you will have to start over, and re-apply.

We can help you with your ITIN filing requirements. Just contact us to learn more.