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Filing Canadian and American Taxes Before Green Card

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Hi Everyone,

Hy husband and I are both living in the US. He is the US citizen, I am a Canadian citizen, and we are wondering how to file our 2016 taxes for this coming spring (looking ahead to budget). I filed for Adjustment of Status in September 2016 after getting married this August, and am still waiting on my EAD (so therefore have not worked in the US thus far, but did work in Canada for half of the year). As per the "substantial presence test" by the IRS, I would be under the day limit, so would be considered a "nonresident for tax purposes" according to their website. Option 1 in filing jointly, is most desirable to demonstrate our relationship is bone fide at the same address.

Option 1:

File married, jointly to the IRS with me considered a resident for tax purposes; however, this means I will have to pay a considerable amount on worldwide income as I still worked half the year in Canada (I would still complete a separate Canadian tax return as well). This supposedly provides the best return rate, but apparently I cannot claim any tax treaty benefits (as explained below from the IRS website) so I would be taxed again on the whole amount of my earning:

"If a nonresident alien individual has made an election with his or her U.S. citizen or resident spouse to be treated as a U.S. resident for income tax purposes, the nonresident alien may not claim to be a foreign resident to obtain the benefits of a reduced rate of, or exemption from, U.S. income tax under an income tax treaty. However, the exceptions to the saving clause in some treaties allow a resident of the United States to claim a tax treaty exemption on U.S. source income."

Option 2:

File married, separate filing...but not sure if I would even need to file a separate tax return for me as I didn't work at all in the US and wasn't a resident yet.

Option 3:

File separate...probably not going to look favourable to immigration; again, not sure if I would need to file a return or not.

Any help would be appreciated,

Thanks

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I suggest you go with Option 1 - it is the most (tax) favorable for you. Since you are electing to be treated as a U.S. resident for tax purposes, you have other options available to you other than the tax treaty benefit. Look into the Foreign Tax Credit, you would get credit for the taxes paid to Canada. So file your Canada tax return first before you work on your U.S. return.

In almost every situation like yours, filing jointly maximizes your exemptions and credits. Of course it all depends on your financial situation as to how much income we're talking about.

The other option would be the MFS filing status - however, this is the LEAST FAVORABLE since it phases out a good number of credits and has the highest tax rate.


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