Canadian filing taxes for the first time in the US!

[mdusa 0]

Hey fellow VJers!

I'm posting here as you guys are a better wealth of knowledge than the US accountants we've talked to so far.

I am Canadian citizen married to a US citizen and am trying to figure out the 'right way' to file taxes in the U.S. I moved to the U.S. in September 2010, and have not worked here. However, I do have earnings from earlier in the year from Canada and also RRSP contributions from previous years (not 2010); I will be submitting my final Canadian tax return.

For the US taxes, can I simply file with my husband as a married couple without reporting my Canadian income? Is this something that requires a professional accountant, or can this be done on our own with programs like Turbotax?

Thanks!

[HeatDeath 430]

Hey fellow VJers!

I'm posting here as you guys are a better wealth of knowledge than the US accountants we've talked to so far.

I am Canadian citizen married to a US citizen and am trying to figure out the 'right way' to file taxes in the U.S. I moved to the U.S. in September 2010, and have not worked here. However, I do have earnings from earlier in the year from Canada and also RRSP contributions from previous years (not 2010); I will be submitting my final Canadian tax return.

For the US taxes, can I simply file with my husband as a married couple without reporting my Canadian income? Is this something that requires a professional accountant, or can this be done on our own with programs like Turbotax?

Thanks!

You do file jointly with your husband as a married couple. You DO have to report your Canadian income though. You can use the Form 2555 Foreign Earned Income Exemption, to remove it again so you don't get double-taxed on it.

The Deluxe Edition of Turbo Tax can do a 2555 or a 1116 (Foreign Tax Deduction) for you.

The 2555 is a better deal: it subtracts the foreign income right out of the earned income. The 1116 only gives you a tax deduction of some percentage of the foreign tax you paid. Use the 2555 if you qualify.

Any competent accountant should be able to parse the instructions on those forms, and Turbotax can do it for you as well.

[mdusa 0]

Thanks for the info and the tip on the 2555. yay taxes!

[M&Pooh 12]

You do file jointly with your husband as a married couple. You DO have to report your Canadian income though. You can use the Form 2555 Foreign Earned Income Exemption, to remove it again so you don't get double-taxed on it.

The Deluxe Edition of Turbo Tax can do a 2555 or a 1116 (Foreign Tax Deduction) for you.

The 2555 is a better deal: it subtracts the foreign income right out of the earned income. The 1116 only gives you a tax deduction of some percentage of the foreign tax you paid. Use the 2555 if you qualify.

Any competent accountant should be able to parse the instructions on those forms, and Turbotax can do it for you as well.

Under the described circumstances the OP IS NOT ABLE to use 2555. The only options are either tax deduction or tax credit for Canadian taxes accrued/paid.

By the way, 1116 is used for foreign tax CREDIT, not for the DEDUCTION.

[zyggy 9]

Under the described circumstances the OP IS NOT ABLE to use 2555. The only options are either tax deduction or tax credit for Canadian taxes accrued/paid.

By the way, 1116 is used for foreign tax CREDIT, not for the DEDUCTION.

Actually she can. You can use the 2555 to exclude the income you earned in Canada, since she would pass both the substantial presence test and the tax home test for the time she was resident in Canada. Canada was her tax home before she entered the US and she has to live in the foreign country for 183 days of the previous 12 months. It is not based on a calendar year basis. Any Foreign income earned after you entered the US to become a permanent resident is subject to US tax. Any foreign tax on that income would be taken as a foreign tax credit using Form 1116.

You need to file a form 8891 for the RRSP. It's an infomation only form.

Edited April 8, 2011 by zyggy

[mdusa 0]

Actually she can. You can use the 2555 to exclude the income you earned in Canada, since she would pass both the substantial presence test and the tax home test for the time she was resident in Canada. Canada was her tax home before she entered the US and she has to live in the foreign country for 183 days of the previous 12 months. It is not based on a calendar year basis. Any Foreign income earned after you entered the US to become a permanent resident is subject to US tax. Any foreign tax on that income would be taken as a foreign tax credit using Form 1116.

You need to file a form 8891 for the RRSP. It's an infomation only form.

This is incredibly helpful. 3 cheers to you guys!

[M&Pooh 12]

Actually she can. You can use the 2555 to exclude the income you earned in Canada, since she would pass both the substantial presence test and the tax home test for the time she was resident in Canada. Canada was her tax home before she entered the US and she has to live in the foreign country for 183 days of the previous 12 months. It is not based on a calendar year basis.

Hmmm... That's interesting, Mr. Tax Man. I presume, the OP does not qualify under bona fide residence test, right? So, are you saying that the 12 months for physical presence test can be selected arbitrarily? Please correct me if I am wrong.

[zyggy 9]

Hmmm... That's interesting, Mr. Tax Man. I presume, the OP does not qualify under bona fide residence test, right? So, are you saying that the 12 months for physical presence test can be selected arbitrarily? Please correct me if I am wrong.

She qualifies under the bonafide residence test for the 2555. Canada was her bonafide residence when she lived in Canada. The bonafide residence and substantial presence tests for the 2555 is based on 12 consecutive months. It is not based on a calendar year. So if you enter the US in January 2011, the time period is January 2010 through January 2011. If she meets the tests for that period one can exclude the income up to January 2011.

Edited April 11, 2011 by zyggy

[M&Pooh 12]

She qualifies under the bonafide residence test for the 2555. Canada was her bonafide residence when she lived in Canada. The bonafide residence and substantial presence tests for the 2555 is based on 12 consecutive months. It is not based on a calendar year. So if you enter the US in January 2011, the time period is January 2010 through January 2011. If she meets the tests for that period one can exclude the income up to January 2011.

Sorry, I think you're wrong. Bona fide residence test IS BASED ON A CALENDAR YEAR. The instructions clearly say: "bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31)"

[zyggy 9]

Sorry, I think you're wrong. Bona fide residence test IS BASED ON A CALENDAR YEAR. The instructions clearly say: "bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31)"

It includes it... it can go over it...

[zyggy 9]

It includes it... it can go over it...

Also, the terms of the U.S. Canada Tax Treaty overcome those directions.

The terms are as follows:

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person

who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of

management, place of incorporation or any other criterion of a similar nature, but in the case of an estate

or trust, only to the extent that income derived by such estate or trust is liable to tax in that State, either

in its hands or in the hands of its beneficiaries.

1. Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government

Service), salaries, wages and other similar remuneration derived by a resident of a Contracting State in

respect of an employment shall be taxable only in that State unless the employment is exercised in the

other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom

may be taxed in that other State.

To sum up, income that was earned while a resident of Canada is only taxable in Canada and therefore must be excluded from taxable income in the other state.

[M&Pooh 12]

Also, the terms of the U.S. Canada Tax Treaty overcome those directions.

The terms are as follows:

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person

who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of

management, place of incorporation or any other criterion of a similar nature, but in the case of an estate

or trust, only to the extent that income derived by such estate or trust is liable to tax in that State, either

in its hands or in the hands of its beneficiaries.

1. Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government

Service), salaries, wages and other similar remuneration derived by a resident of a Contracting State in

respect of an employment shall be taxable only in that State unless the employment is exercised in the

other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom

may be taxed in that other State.

To sum up, income that was earned while a resident of Canada is only taxable in Canada and therefore must be excluded from taxable income in the other state.

I have some doubts that the person filing as a RESIDENT ALIEN, can claim tax treaty benefits as a resident of some other country...

Also, looks your conclusion contradicts the fact that the US puts a limit on how many foreign earnings can be excluded from US taxation, even if the income was earned in a tax-treaty country.

And the last - do you agree that the OP, under given circumstances, does not meet the bona fide Canadian residence test for the purpose of 2555?