US Citizen Filing For Taxes in the US

[santoki]

Hi Everyone,

Any US Citizens here familiar with the process? All I'm looking for is a ballpark figure of what the US actually takes from a citizen who is no longer a resident and living abroad. I can live with a couple hundred bucks a year, but it's impossible to live with being taxed twice at both countries federal and state/provincial rates. I imagine that cannot possibly be the case, but I can't seem to find any information on what is actually owed.

As an example, I made approximately $40,000 in net earnings last year. Any advice would be greatly appreciated. Thank you!

 

[zardoz]

This is why a number of US citizens are renouncing their US citizenship...

 

[keesio]

Hi Everyone,

Any US Citizens here familiar with the process? All I'm looking for is a ballpark figure of what the US actually takes from a citizen who is no longer a resident and living abroad. I can live with a couple hundred bucks a year, but it's impossible to live with being taxed twice at both countries federal and state/provincial rates. I imagine that cannot possibly be the case, but I can't seem to find any information on what is actually owed.

As an example, I made approximately $40,000 in net earnings last year. Any advice would be greatly appreciated. Thank you!

You should be ok because of the FEIE. Basically you are tax exempt if your foreign earnings are below $97K. After that, your income is taxable. But you can get a credit from the Canadian taxes that you paid (FTC) on that income. So for the most part, you shouldn't have to pay much in US taxes because of the higher tax rate in Canada (gets tricker if you have RRSP, RPP, TFSA, etc)

Really the biggest pain is filling of all the forms. It is really confusing. If you have never done it on you own before (as a US abroad citizen) then having a good accountant familiar with both Canadian and US taxes is recommended. But they can get expensive. I pay almost 1K for my accountant to do my returns but my returns can get a little tricky.

 

[santoki]

You should be ok because of the FEIE. Basically you are tax exempt if your foreign earnings are below $97K. After that, your income is taxable. But you can get a credit from the Canadian taxes that you paid (FTC) on that income. So for the most part, you shouldn't have to pay much in US taxes because of the higher tax rate in Canada (gets tricker if you have RRSP, RPP, TFSA, etc)

Really the biggest pain is filling of all the forms. It is really confusing. If you have never done it on you own before (as a US abroad citizen) then having a good accountant familiar with both Canadian and US taxes is recommended. But they can get expensive. I pay almost 1K for my accountant to do my returns but my returns can get a little tricky.

Wow, that's insane. I'm definitely willing to do a bit more leg work if it's going to cost me anywhere NEAR the ballpark of $1000.

That's crazy that it's taxable above $97K. As a basic example, if my wife makes $100K in one year and is taxed $25K Canadian, that means that she'll have to pay taxes on $75K in the US at the full federal rate? If so, that's completely ludicrous. I'd rather have her renounce her citizenship than be responsible to pay nearly $20K to the US government every single year. Please correct me if I'm wrong here.

 

[on-hold]

You're probably in luck on the RESP, RRSP, and TFSA as well. Just yesterday the Canadian government negotiated a tax deal with the IRS that (seems to) remove the onerous reporting requirements for registered savings plans. I think if you declare them on the FATCA form like other accounts, or just ignore them altogether, you'll be fine.

 

[keesio]

Wow, that's insane. I'm definitely will to do a bit more leg work if it's going to cost me anywhere NEAR the ballpark of $1000.

That's crazy that it's taxable above $97K. As a basic example, if my wife makes $100K in one year and is taxed $25K Canadian, that means that she'll have to pay taxes on $75K in the US at the full federal rate? If so, that's completely ludicrous. I'd rather have her renounce her citizenship than be responsible to pay nearly $20K to the US government every single year. Please correct me if I'm wrong here.

Sorry, I was not clear. When I said that after 97K, the income is taxable, that means that ever dollar after 97K is taxable. So if your wife made 100K, only 3K of that 100K is taxable. The other 97K is not. That would be the FEIE. Now, for that 3K, say she would owe $200 in US taxes. But she already paid $500 in Canadian taxes on that 3K already. Then she can claim a credit of $500 and use it on the balance she would owe to the US. That would mean she would owe nothing and actually have a credit left over of $300 that she could roll over to next year.

Note that this is a simple case and it gets tricky if you have retirement and pension accounts that earn tax free. RRSP contributions would also cause complications since your get the amount you contribute would be tax free to Canada but not the US. Or if she makes business trips to the US. The rules can get very complex.

 

[santoki]

Sorry, I was not clear. When I said that after 97K, the income is taxable, that means that ever dollar after 97K is taxable. So if your wife made 100K, only 3K of that 100K is taxable. The other 97K is not. That would be the FEIE. Now, for that 3K, say she would owe $200 in US taxes. But she already paid $500 in Canadian taxes on that 3K already. Then she can claim a credit of $500 and use it on the balance she would owe to the US. That would mean she would owe nothing and actually have a credit left over of $300 that she could roll over to next year.

Note that this is a simple case and it gets tricky if you have retirement and pension accounts that earn tax free. RRSP contributions would also cause complications since your get the amount you contribute would be tax free to Canada but not the US. Or if she makes business trips to the US. The rules can get very complex.

Thanks for the clarification. I thought I had to be misunderstanding it lol.

We're starting to get to that stage where TFSAs and RRSPs and other forms of investing are on our radar. I'll sit down with a financial advisor to go through everything, but does it make sense to keep as much out of her name as possible to avoid complications with the US?

 

[keesio]

Thanks for the clarification. I thought I had to be misunderstanding it lol.

We're starting to get to that stage where TFSAs and RRSPs and other forms of investing are on our radar. I'll sit down with a financial advisor to go through everything, but does it make sense to keep as much out of her name as possible to avoid complications with the US?

The original school of thought was that TFSAs are not worth it for Americans because the US considers it a foreign trust and the paperwork is a hassle and not worth it. But the recent rules seem to have changed that. I don't know what the deal is on those. RRSPs are fine, but it is another form to fill out. And again be careful how much contribution is made in a year since you want to do it so that you have enough credits left over to offset the taxes that you would have to pay on it to the IRS.

Also initially, it may be good to keep her finances separate until you are more familiar with the rules. Assuming it is just your wife who has US citizenship, If you put her name on a joint account, that account information must be reported to the IRS because her name is on it.

 

[santoki]

The original school of thought was that TFSAs are not worth it for Americans because the US considers it a foreign trust and the paperwork is a hassle and not worth it. But the recent rules seem to have changed that. I don't know what the deal is on those. RRSPs are fine, but it is another form to fill out. And again be careful how much contribution is made in a year since you want to do it so that you have enough credits left over to offset the taxes that you would have to pay on it to the IRS.

Also initially, it may be good to keep her finances separate until you are more familiar with the rules. Assuming it is just your wife who has US citizenship, If you put her name on a joint account, that account information must be reported to the IRS because her name is on it.

Interesting. Well, we do have the one joint account to pay for personal things, but she was self-employed in 2013 so it was necessary to have separate accounts. We kept it that way for the time being and maybe it is a good idea to keep it that way.

 

[keesio]

Where are you located? I ask because I'm part of a US expat group in Toronto. Later in Feb, we have a meeting where there will be an accountant that specializes in US expat taxes coming in to give a talk all of this. If you are in Toronto, I can pass along this info.

 

[santoki]

Where are you located? I ask because I'm part of a US expat group in Toronto. Later in Feb, we have a meeting where there will be an accountant that specializes in US expat taxes coming in to give a talk all of this. If you are in Toronto, I can pass along this info.

Awesome, I'd love to attend. I live in Mississauga.

 

[keesio]

cool. I sent you a private message with details

 

[on-hold]

Keesio, when you go to that group, could you note down what he says about reporting requirements for registered savings plans (RRSPs, RESPs, and TFSAs)? I would really like to know precisely what the requirement will be, in light of yesterday's announcement. Posting that here on this forum would be a real service.

 

[keesio]

Absolutely. My main goal is to understand all the new recent changes.

 

[jes_ON]

You're probably in luck on the RESP, RRSP, and TFSA as well. Just yesterday the Canadian government negotiated a tax deal with the IRS that (seems to) remove the onerous reporting requirements for registered savings plans. I think if you declare them on the FATCA form like other accounts, or just ignore them altogether, you'll be fine.

Thanks for pointing that out! The agreement can be found here -
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Canada-2-5-2014.pdf

FINALLY, some clarity on what is "reportable." Things like the RPP were always a gray area, causing so much stress...