setting wedding date & tax implications!

[Avsiws 4]

My partner and I are trying to decide if we should get married in 2016 or 2017 and we know that the tax implications will probably impact our decision. Let me start out by saying that we are *NOT* tax savvy and we both have lower incomes and would really like (/need!) to avoid the steep ($700-$1500) accounting bills we have been reading about! I've been looking at forums and google searches and I'm not familiar with the lingo and essentially need it spelled out to me (sorry!).

If all goes well I will be arriving in the US in November 2016. For 2016 I will have had a Canadian income and will be living off savings until I'm approved for work in 2017. I have a TFSA ($11,000) which I will be closing before I leave in order to avoid tax headaches in the US. I won't be closing my RRSP ($1,200). I have not contributed to either in a couple of years and I do not make much interest from them.

US TAXES:

If we marry in 2016: He can file separately. Do I need to file as well, just because we're married and he's filing? Or we can file jointly (although I have no idea what this means this since I've never been married. From my understanding, my Canadian income will be declared, but essentially won't matter. How does my RRSP/recently closed TFSA fit into that?

If we marry in 2017: I won't have to do any 2016 US tax filing at all. I'm planning to work once all the paperwork goes through in 2017, so we will both file for 2017. Correct?

CDN TAXES:

I will obviously be filing for 2016 and will be dealing with the exit tax. I have no property to sell and essentially no high value assets. What is the date that I become a non-resident? The actual date I physically leave the country or the date that I get my GC?

CRA website says: "When you leave Canada to settle in another country, you usually become a non-resident for income tax purposes on the latest of: 1) the date you leave Canada 2) the date your spouse or common-law partner and dependants leave Canada OR 3) the date you become a resident of the country you settle in." So is it 1 or 3?

I know I must stop receiving GST/HST credits too... so is it from the date I physically leave Canada or from the date I get my GC?

Please help! Are there any other considerations?

[Harpa Timsah 13,258]

If you marry in 2016 then when you file taxes for the year you will treat it as if you were married the whole year. Usually that works out to be worth a couple of thousand dollars in refund ( because you get a tax break for being married that he wouldn't have been getting earlier in the year).

Can't help with Canadian tax. Good luck.

[MariaR323 199]

The higher fees are only because of the foreign income and that means a little more work and additional forms/attachments. So, in order to avoid the higher fees, you want to avoid having to report foreign income.

If you want to make things as easy as possible then yes, arrive in Nov 2016 with NO foreign income left back home. Marry in 2017. You wouldn't have to file a U.S. tax return for 2016, your partner files a 2016 tax return as he has normally been doing. In 2017 you and your partner are considered married and you'll file together (MFJ), again nobody having foreign income and you'd probably still get a good refund since you won't be working until closer to mid-year 2017.

The whole point is avoiding having to report foreign income and the extra work that entails.

Granted, you'd probably be missing out on some additional $$ from marrying and filing together for 2016... but it's entirely up to you. Most often the higher refund makes up for the additional fees but sometimes it can come close and the decision maker is "is it worth the extra effort and paperwork on your part".

Edited October 13, 2016 by MariaR323

[Avsiws 4]

Thanks for the quick responses!

MariaR323: Just to clarify, what do you mean by "arrive in Nov 2016 with NO foreign income left back home"? I have already left my job and won't be receiving any deposits. The only thing that I'm not sure about is interest from my savings accounts and the RRSP- both very minimal.

I can't imagine the additional refund for 2016 would be worth all the time/effort/stress... but maybe I'm wrong? Thinking about this and doing the research has already had me in tears multiple times because it's totally foreign to me (pun intended).

Would you advise to close the TFSA regardless of the wedding date?

[MariaR323 199]

Thanks for the quick responses!

MariaR323: Just to clarify, what do you mean by "arrive in Nov 2016 with NO foreign income left back home"? I have already left my job and won't be receiving any deposits. The only thing that I'm not sure about is interest from my savings accounts and the RRSP- both very minimal.

I can't imagine the additional refund for 2016 would be worth all the time/effort/stress... but maybe I'm wrong? Thinking about this and doing the research has already had me in tears multiple times because it's totally foreign to me (pun intended).

Would you advise to close the TFSA regardless of the wedding date?

I meant not have any type of foreign income to report, whether it be work earnings, interest, etc. I'm not sure exactly what the RRSP is as I'm primarily versed in U.S. related income.

Sometimes the additional refund could be as much as a couple thousand dollars but other times it's not. The only sure way of knowing would be to run a projection using estimates. Ask your partner if he has a friend who does taxes. Usually by this point in time, tax preparers have access to run projections using the finalized tax tables. See if someone can run a quick and dirty projection for you... it's the only way you can figure it out.

I would advise to close out everything... it makes things much more simpler.

Maria

[Avsiws 4]

An RRSP is a Registered Retirement Savings Plan...

For U.S. tax purposes, an RRSP is treated as an investment account, and an election to defer taxation of accrued income must be made annually, on form 8891. This election, if properly made, defers taxation of income earned within an RRSP, as long as the contributions were made while a resident of Canada.

This is total gibberish to me... Is this saying I can contribute and it won't affect my US filing as long as I do it before I leave Canada?

[MariaR323 199]

From that snip, in answer to your question, yes.

But, honestly, if you only have $1,200 in it... why leave it? Every year with your U.S. tax return, you'd have to also file Form 8891 and while it may not be much, why add on an additional form when it's a minimal amount.

For ex, this could mean the difference between using a simpler Turbo Tax version vs. a Deluxe version that costs more to file your tax return simply because of that additional form.

I'm using the above as an example, assuming self-preparation, as I'm not sure what forms are included in what versions... so you'd probably have to do some research.

*Update*

Looks like IRS revised their procedures and a quick search hit gave me Form 8891 was not required to be filed anymore.

Note: This applies to IRS (Federal) only, so you need to double check the state requirements as those don't always conform to the Federal rules.

Maria

Edited October 14, 2016 by MariaR323