Help! F1 gains from stock trading, effectively connected or not?

[rainsender]

I am really confused! I am an F1 student in the US and I had some gains from stocking trading last year. My status is Non-resident-alian. Is the stock trading income effectively connected or not? It seems if it's effectively connected, I can use schedule D and it will be taxed at the graduation rate. But if it's not, it will be taxed at the flat 30% rate (no exemption treaty). The definition (listed below) of effectively connected or not income is really ambiguous.

Effectively Connected Income (ECI)



The following categories of income are usually considered to be connected with a trade or business in the United States.

• You are considered to be engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant on an "F," "J," "M," or "Q" visa. The taxable part of any U.S. source scholarship or fellowship grant received by a nonimmigrant in "F," "J," "M," or "Q" status is treated as effectively connected with a trade or business in the United States.
• If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States.
• You usually are engaged in a U.S. trade or business when you perform personal services in the United States.
• If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income.
• Gains and losses from the sale or exchange of U.S. real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. You must treat the gain or loss as effectively connected with that trade or business.
• Income from the rental of real property may be treated as ECI if the taxpayer elects to do so.

NOTE: If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are NOT engaged in a trade or business in the United States.

[Visa Taxes Expert]

International Student Taxes - Effectively Connected Income - F1 Taxation

Yes stock trading in US is effectively connected income and taxed at 30%

You need to file Form 1040NR and Schedule D.

Contact us at taxexpert@visataxes.com for a quote on our tax service.

Hope it helps!