The IRS/CRA Income Tax Thread

[zyggy 9]

By popular demand, I am beginning a thread to share everyone's eventual cross border tax issues so it can be kept in one central place and can be continually used as a resource in this and coming years. So feel free to post and share the love and information.

Zyg

[sly_wolf 199]

By popular demand, I am beginning a thread to share everyone's eventual cross border tax issues so it can be kept in one central place and can be continually used as a resource in this and coming years. So feel free to post and share the love and information.

Zyg

Wow, that was quick. Great stuff!

Sly

[Krikit 1,163]

Holy mackerel, Zyggy. You are AWESOME!

[jhunjhun 7]

Holy mackerel, Zyggy. You are AWESOME!

I was looking for zggy to make a post about this thread...that was fast!!!!

[sly_wolf 199]

By popular demand, I am beginning a thread to share everyone's eventual cross border tax issues so it can be kept in one central place and can be continually used as a resource in this and coming years. So feel free to post and share the love and information.

Zyg

Wow, that was quick. Great stuff!

Sly

Let me be the first to post here

I have Quebec employment income. What do I report as income in the US .... the Canada T4 amount or the Quebec amount?

I have Canadian deductions at source such as RRSP's and alimony. What do I report as income in the US ... the net amount or the gross amount. If it's the gross amount, how and where do I apply the deduction on the US tax forms?

Which Canadian taxes do I include to calculate the foreign tax credit .... does this include deductions for QPP and UI tax?

Sly

[zyggy 9]

By popular demand, I am beginning a thread to share everyone's eventual cross border tax issues so it can be kept in one central place and can be continually used as a resource in this and coming years. So feel free to post and share the love and information.

Zyg

Wow, that was quick. Great stuff!

Sly

Let me be the first to post here

I have Quebec employment income. What do I report as income in the US .... the Canada T4 amount or the Quebec amount?

I have Canadian deductions at source such as RRSP's and alimony. What do I report as income in the US ... the net amount or the gross amount. If it's the gross amount, how and where do I apply the deduction on the US tax forms?

Which Canadian taxes do I include to calculate the foreign tax credit .... does this include deductions for QPP and UI tax?

Sly

1) I would use the amount on your T1.

2) Per the latest convention of the US/Canada Tax Treaty, your contributions to your RRSP are tax deductible in the US and would not be included in any foreign source income you report in the US. However, you must report the total amount in your RRSPs each year to the IRS by using Form 8891

See Paragraphs 10, 11and 12 of Article XVIII of the US/Canada Tax Treaty

10. Contributions made to, or benefits accrued under, a qualifying retirement plan in a Contracting State by or on behalf of an individual who is a resident of the other Contracting State shall be deductible or excludible in computing the individual's taxable income in that other State, where:

(a) The individual performs services as an employee in the first-mentioned state the remuneration from which is taxable in that State and is borne by an employer who is a resident of that State or by a permanent establishment which the employer has in that State; and

(B) The contributions and benefits are attributable to those services and are made or accrued during the period in which the individual performs those services.

This paragraph shall apply only to the extent that the contributions or benefits qualify for tax relief in the first-mentioned State.

11. For the purposes of Canadian taxation, the amount of contributions otherwise allowed as a deduction under paragraph 10 to an individual for a taxation year shall not exceed the individual's deduction limit under the law of Canada for the year for contributions to registered retirement savings plans remaining after taking into account the amount of contributions to registered retirement savings plans deducted by the individual under the law of Canada for the year. The amount deducted by an individual under paragraph 10 for a taxation year shall be taken into account in computing the individual's deduction

limit under the law of Canada for subsequent taxation years for contributions to registered retirement savings plans.

12. For the purposes of United States taxation, the benefits granted under paragraph 10 shall not exceed the benefits that would be allowed by the United States to its residents for contributions to, or benefits otherwise accrued under, a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States. For purposes of determining an individual's eligibility to participate in and receive tax benefits with respect to a pension or retirement plan or other retirement arrangement established in and recognized for tax purposes by the United States, contributions made to, or benefits accrued under, a qualifying retirement plan in Canada by or on behalf of the individual shall be treated as contributions or benefits under a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States.

Alimony is also covered under the same section of the tax treaty and is also not included in your net foreign income that you report to the IRS.

3) FOr the IRS, you would include the amount of foreign taxes paid on your T1 and the 25% non-resident tax paid on your EI income. YOu would take the Quebec amount as a foreign tax credit on your applicable state taxes. If you have no state taxes, I believe taking it on your 1040 would be appropriate.

Edited January 21, 2009 by zyggy

[Meridien 0]

You are a lifesaver! Here is my question, and I'm sure it's a pretty common one.

I arrived in the US in May 2008 on a K-1 Visa. I now have my green card, so I quality as a Resident Alien. I want to file jointly with my husband, so I am electing to be treated as a resident for the full year, rather than filing as a dual-status alien. I understand that this means I will be required to pay US taxes on my Canadian earnings. So far so good.

I am trying to figure out what to do with my Canadian income which I earned before I arrived. Where do I declare this income? I am filling out the 'Foreign Earned Income' section in Turbo Tax - and I'm a little confused about whether I qualify for the Foreign Earned Income exclusion.

Thanks!

[zyggy 9]

You are a lifesaver! Here is my question, and I'm sure it's a pretty common one.

I arrived in the US in May 2008 on a K-1 Visa. I now have my green card, so I quality as a Resident Alien. I want to file jointly with my husband, so I am electing to be treated as a resident for the full year, rather than filing as a dual-status alien. I understand that this means I will be required to pay US taxes on my Canadian earnings. So far so good.

I am trying to figure out what to do with my Canadian income which I earned before I arrived. Where do I declare this income? I am filling out the 'Foreign Earned Income' section in Turbo Tax - and I'm a little confused about whether I qualify for the Foreign Earned Income exclusion.

Thanks!

You qualify for the foreign earned income exclusion as the time you were outside the US before you arrived on the K1 meets the bonafied residence test for your time outside of the US.

See the following from IRS Publication 54

Bona fide resident for part of a year.<A class=indexterm name=d0e2824>http://' target="_blank"> Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years.

[jedinite 0]

zyggy

I want to know do I have to file for taxes for the 2008 tax year in the US.

1) I only lived and earned income in Canada for 2008

2) I received my CR-1 Visa at the beginning of Dec 2008 and activated it mid-Dec

3) Previous to 2008 I was filing tax in the US as I was working there with TN-1 Visa (Filed for taxes for the years 2001-2007)

I heard that I may have to fill out form 8055 for Foreign Input Tax Credit

Finally, my last question if I have to file taxes, how does IRS handle dividend payments for Small Business owners?

4) Worked 4 months in 2008 as a temporary employee - assuming this is handled regularly with input tax credit

5) Had to register my own corp for IT consulting, therefore paid myself dividends as a business owner. In Canada you are not charge for taxes under $30K approximately, you pay what your business owes right? So how will this be reflected in my filing 2008 tax return to the IRS.

Thanks for the help.

[zyggy 9]

zyggy

I want to know do I have to file for taxes for the 2008 tax year in the US.

1) I only lived and earned income in Canada for 2008

2) I received my CR-1 Visa at the beginning of Dec 2008 and activated it mid-Dec

3) Previous to 2008 I was filing tax in the US as I was working there with TN-1 Visa (Filed for taxes for the years 2001-2007)

I heard that I may have to fill out form 8055 for Foreign Input Tax Credit

Finally, my last question if I have to file taxes, how does IRS handle dividend payments for Small Business owners?

4) Worked 4 months in 2008 as a temporary employee - assuming this is handled regularly with input tax credit

5) Had to register my own corp for IT consulting, therefore paid myself dividends as a business owner. In Canada you are not charge for taxes under $30K approximately, you pay what your business owes right? So how will this be reflected in my filing 2008 tax return to the IRS.

Thanks for the help.

1) Per the Green Card Test, since you became a permanent resident of the US in 2008, you must report all of your worldwide income to the IRS in 2008.

I'm going to have to do some research on the other points... Is your business a Canadian business, or a US one. Were your business operations perfromed in the US or Canada in 2008? Worked as a temp employee for whom? Was it in US or Canada?

I'm not as familiar with Cross Border Business Taxes as I am with Individual Taxes, so you'll have to bear with me on this one...

Edited January 21, 2009 by zyggy

[daisylynn 0]

I'm so confused

I am a USC who was living with my husband (a Canadian citizen) in Canada. We moved to the US in June 2008 when he got his permanent residency. He began working in the US in August. So, I think I'm understanding that he has to file with Canada (first? or does it matter) and then file with the US, with proof that he filed in Canada? Or am I getting that all wrong? I keep reading about filing world income to the US, using his Canadian income. I don't understand.

Also, I don't work so does he file married, filing single and then I just don't file? Or does he file married filing jointly and then I just report $0 earnings? We have 3 kids if that makes a difference.

I have been asking around and reading the IRS forms, but nothing is clear to me. Then I remembered what a great resource VJ was and thought I'd ask the 'pros' Thanks for the help!

Edited January 21, 2009 by daisylynn

[zyggy 9]

I'm so confused

I am a USC who was living with my husband (a Canadian citizen) in Canada. We moved to the US in June 2008 when he got his permanent residency. He began working in the US in August. So, I think I'm understanding that he has to file with Canada (first? or does it matter) and then file with the US, with proof that he filed in Canada? Or am I getting that all wrong? I keep reading about filing world income to the US, using his Canadian income. I don't understand.

Also, I don't work so does he file married, filing single and then I just don't file? Or does he file married filing jointly and then I just report $0 earnings? We have 3 kids if that makes a difference.

I have been asking around and reading the IRS forms, but nothing is clear to me. Then I remembered what a great resource VJ was and thought I'd ask the 'pros' Thanks for the help!

It's really not that hard.

1) SInce he became a Permanent Resident in the US in 2008, he must file a return to the IRS and report his worldwide income.

2) Since you are married, you must file as married.. either as married filing single or married filing joint. It is almost always more advantageous to file as married filing joint.. This is especially true if you don't work.

3) See my response above, but your husband will be permitted to either

a) Exlclude the income earned in Canada by filing Form 8555 with his 1040 or

B) Take a foreign tax credit for the taxes he paid in Canada using Form 1116

4) Your husband must also file a Leaving Canada T1 return with CRA. To do this, you put the date he left Canada on the T1 and you must proporation exclusions by the days he was in Canada. He only has to file using the income he earned in Canada while he was a reisdent there. He does not include any income where the CRA took out the 25% non-resident Tax, unless you opt to file a leaving Canada retirn under Section 217 of the Revenue Code. In this case, one file a T1, but include all of their worldwide income, including the 25% non-resident taxes paid and any foreign income credits one would pay in the US. In almost all cases, it is not beneficial to file under Section 217 unless one had no income in the US other than Canadian EI for the rest of the tax year.

Edited January 21, 2009 by zyggy

[sly_wolf 199]

Zyggy, you are the best

One more puzzle.

I got married in 2008 and also fall under the IRS's Substantial Presence Test. Because I lived and worked in Canada in 2008, my tax home is Canada.

Can I just chose whether I take the Foreign income exclusion versus the Foreign tax credit?

Sly

[zyggy 9]

Zyggy, you are the best

One more puzzle.

I got married in 2008 and also fall under the IRS's Substantial Presence Test. Because I lived and worked in Canada in 2008, my tax home is Canada.

Can I just chose whether I take the Foreign income exclusion versus the Foreign tax credit?

Sly

Yes... Choose the one that gives you the best tax situation. Don't forget to include any state taxes in your analysis. (i.e. most state taxes are based on the Adjusted Gross Income calculated on the Federal 1040, the exclusion lowers this amount)

Edited January 21, 2009 by zyggy

[jedinite 0]

zyggy

I want to know do I have to file for taxes for the 2008 tax year in the US.

1) I only lived and earned income in Canada for 2008

2) I received my CR-1 Visa at the beginning of Dec 2008 and activated it mid-Dec

3) Previous to 2008 I was filing tax in the US as I was working there with TN-1 Visa (Filed for taxes for the years 2001-2007)

I heard that I may have to fill out form 8055 for Foreign Input Tax Credit

Finally, my last question if I have to file taxes, how does IRS handle dividend payments for Small Business owners?

4) Worked 4 months in 2008 as a temporary employee - assuming this is handled regularly with input tax credit

5) Had to register my own corp for IT consulting, therefore paid myself dividends as a business owner. In Canada you are not charge for taxes under $30K approximately, you pay what your business owes right? So how will this be reflected in my filing 2008 tax return to the IRS.

Thanks for the help.

1) Per the Green Card Test, since you became a permanent resident of the US in 2008, you must report all of your worldwide income to the IRS in 2008.

I'm going to have to do some research on the other points... Is your business a Canadian business, or a US one. Were your business operations perfromed in the US or Canada in 2008? Worked as a temp employee for whom? Was it in US or Canada?

I'm not as familiar with Cross Border Business Taxes as I am with Individual Taxes, so you'll have to bear with me on this one...

My temporary employment was in Canada at the beginning of 2008 for a Canadian company, work performed in Canada.

My corporation is registered as a Canadian company that does business solely in Canada. The client that I work for is in Canada. I pay GST and will be filing my business tax soon. I'm only paying myself dividends from my own company and not a salary.

Thanks again for checking into this for me. You're awesome, if you have any computer related questions feel free to fire them off to me