PR-American Filing US Taxes from Canada

[Pakster84]

Hi Everyone!

This is the first time I'm filing taxes after getting PR and marrying my Canadian husband. Since getting my PR I've been working part time and also going to University part time. My husband is basically the sole breadwinner right now, and my income is well under $10,000 for the 2015 taxable year.

Should I be filing our US taxes jointly?
Do you have any info/websites that would be helpful?

Any suggestions would be greatly appreciated.

Thanks!

 

[CDNPR2014]

if your husband has no connection to the us, then don't get him involved with the IRS. it is not necessary. you can file "married, filing separately". Basically all you are doing is filing papers that tell the IRS know what your world wide income is. you need to fill out the 1040 and there is another form for foreign income. i don't have the form number on me, but if you google "foreign income" + "US taxes", it should pop up. i think it has a 2525 in it? someone else may be able to tell you correctly.

if you have us income, then you will need to file both state and federal forms. and If your us income is low and you paid taxes on it, then you will most likely see a good return. Based on my experience, it can not be filed electronically from canada, so it has to be filled out and mailed.

I just paid $150 to have someone fill out the forms for me. had i known that's all they were doing, i probably would have attempted to do it myself. assuming all goes well and there is no issue, next year i'm just going to do it myself based on what the accountant did this year and same myself some money!

you can also google "filing us taxes as an expat" and information will come up about it.

 

[Pakster84]

Thank you CDNPR2014! I appreciate the info!!!

 

[Alurra71]

Also make sure to file that healthcare paperwork, I forget the file number, and FACTA for anything you have with your name on it, shared or not with spouse, that has a worth of over 10K. This would include shared checking/savings accounts that might have only had a balance over that amount for 1 single month ...

It's not hard to get your taxes done for the US side, just have to remember to get all the little pieces done.

Last year, I filed a standard 1040 form, used married filing separate, filled out the health care information sheet and electronically filed my Facta ... Was very easy and painless.

 

[CDNPR2014]

Also make sure to file that healthcare paperwork, I forget the file number, and FACTA for anything you have with your name on it, shared or not with spouse, that has a worth of over 10K. This would include shared checking/savings accounts that might have only had a balance over that amount for 1 single month ...

It's not hard to get your taxes done for the US side, just have to remember to get all the little pieces done.

Last year, I filed a standard 1040 form, used married filing separate, filled out the health care information sheet and electronically filed my Facta ... Was very easy and painless.

what did you use to electronically file? and thanks for the healthcare form tip. i'm not sure my accountant covered that, so i will be sure it's included before i mail it out!

 

[nope]

If you have children, do not open an RESP for them with your name on in. Don't get a TFSA for yourself, either. The IRS reporting requirements for these are prohibitively expensive, and subtract any benefit you might get from one.

 

[CDNPR2014]

If you have children, do not open an RESP for them with your name on in. Don't get a TFSA for yourself, either. The IRS reporting requirements for these are prohibitively expensive, and subtract any benefit you might get from one.

what about RRSPs? are those safe for US citizens to have? i have "heard" they are.
my employer will offer me one in a few months and i'm not sure how to proceed with that...

 

[nmclean]

If you have children, do not open an RESP for them with your name on in. Don't get a TFSA for yourself, either. The IRS reporting requirements for these are prohibitively expensive, and subtract any benefit you might get from one.

US taxes on these will not necessarily outweigh the benefit to Canadian taxes. Your interest is taxed as a regular savings account would be, but since most of your Canadian employment income will be tax-free in the US (see Form 2555-EZ), the tax rate is probably less than it would be in Canada.

what about RRSPs? are those safe for US citizens to have? i have "heard" they are.
my employer will offer me one in a few months and i'm not sure how to proceed with that...

RRSPs are "safe" because they work the same way in both countries, but that doesn't make it the best choice. Here's an article that explains the choice between RRSP and TFSA: http://www.moneysense.ca/save/retirement/the-savings-struggle/
There's a chart here that shows a scenario where a TFSA is a much better choice, giving a benefit of $1370 more than RRSP on $1000 of savings at 3% interest for 30 years. Now we can subtract from that considering you'll be taxed on the TFSA interest in the US, which would be about $215 at 15% (on $1430 total interest). That's nowhere near enough to tip the scale in this case.

 

[CDNPR2014]

RRSPs are "safe" because they work the same way in both countries, but that doesn't make it the best choice. Here's an article that explains the choice between RRSP and TFSA: http://www.moneysense.ca/save/retirement/the-savings-struggle/
There's a chart here that shows a scenario where a TFSA is a much better choice, giving a benefit of $1370 more than RRSP on $1000 of savings at 3% interest for 30 years. Now we can subtract from that considering you'll be taxed on the TFSA interest in the US, which would be about $215 at 15% (on $1430 total interest). That's nowhere near enough to tip the scale in this case.

[/quote]

my employer only offers an RRSP, so what you are saying is that it is safe to accept it as a us citizen? I'm not going to have a choice as to what kind of fund they offer.

 

[nmclean]

my employer only offers an RRSP, so what you are saying is that it is safe to accept it as a us citizen? I'm not going to have a choice as to what kind of fund they offer.

Well a TFSA wouldn't be offered by your employer, you'd just take a full paycheck and deposit what you want into your own account if that was your choice.

But yes it is safe to accept an RRSP in the sense that you won't need to report it to IRS until you withdraw (same as a US retirement plan).

 

[CDNPR2014]

Well a TFSA wouldn't be offered by your employer, you'd just take a full paycheck and deposit what you want into your own account if that was your choice.

But yes it is safe to accept an RRSP in the sense that you won't need to report it to IRS until you withdraw (same as a US retirement plan).

thanks!

 

[nope]

US taxes on these will not necessarily outweigh the benefit to Canadian taxes. Your interest is taxed as a regular savings account would be, but since most of your Canadian employment income will be tax-free in the US (see Form 2555-EZ), the tax rate is probably less than it would be in Canada.

This might be correct, but it's beside the point. You'll notice that I didn't refer to taxes, but said instead that "the IRS reporting requirements for these are prohibitively expensive". This is true, and has nothing to do with taxes. The IRS considers an RESP to fall into a category of trust that is normally used only be people with very large amounts of money, and dedicated accountants. The form that needs to be filed for this is estimated to require around 30 hours of work by a CPA, or the equivalent of more than a thousand dollars billing.

All this is from memory a few years old, but I believe that the penalty for not filing is a $10,000 fine.

 

[nmclean]

This might be correct, but it's beside the point. You'll notice that I didn't refer to taxes, but said instead that "the IRS reporting requirements for these are prohibitively expensive". This is true, and has nothing to do with taxes. The IRS considers an RESP to fall into a category of trust that is normally used only be people with very large amounts of money, and dedicated accountants. The form that needs to be filed for this is estimated to require around 30 hours of work by a CPA, or the equivalent of more than a thousand dollars billing.

All this is from memory a few years old, but I believe that the penalty for not filing is a $10,000 fine.

I think you're referring to the old rules for RRSP reporting (which have been eliminated) that many assumed also applied to other registered savings. I don't know about RESPs, but for TFSAs at least, there is no reason it should. The forms in question relate to "foreign trusts", and a TFSA certainly does not need to be a trust. Most are basic savings accounts.

There's still potentially a $10,000 penalty for failing to file a Report of Foreign Bank and Financial Accounts, but "the IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and the taxpayer has not previously been contacted by the IRS regarding an income tax examination or a request for delinquent returns" (source) - and the FBAR is a fairly simple form, certainly not 30 hours of work.

 

[nope]

I think you're referring to the old rules for RRSP reporting (which have been eliminated) that many assumed also applied to other registered savings. I don't know about RESPs, but for TFSAs at least, there is no reason it should. The forms in question relate to "foreign trusts", and a TFSA certainly does not need to be a trust. Most are basic savings accounts.

There's still potentially a $10,000 penalty for failing to file a Report of Foreign Bank and Financial Accounts, but "the IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and the taxpayer has not previously been contacted by the IRS regarding an income tax examination or a request for delinquent returns" (source) - and the FBAR is a fairly simple form, certainly not 30 hours of work.

I don't think I am -- the recent revision to the tax treaty covered RRSPs, but not RESPs (if I remember it correctly). And I don't think I am confusing this with the FBAR, which has a similar penalty. But if I'm wrong, then I apologize.

Here's a link -- it's not an official source, just a private accounting firm, but it seems to have been updated after the latest tax treaty change:

http://www.collinsbarrow.com/en/cbn/publications/resp-and-tfsa-accounts-for-u.s.-citizens

 

[nmclean]

I don't think I am -- the recent revision to the tax treaty covered RRSPs, but not RESPs (if I remember it correctly). And I don't think I am confusing this with the FBAR, which has a similar penalty. But if I'm wrong, then I apologize.

Here's a link -- it's not an official source, just a private accounting firm, but it seems to have been updated after the latest tax treaty change:

http://www.collinsbarrow.com/en/cbn/publications/resp-and-tfsa-accounts-for-u.s.-citizens

I know the revision only applied to RRSPs (and RRIFs) and I didn't mean to imply otherwise. I meant the assumption that the original rules applied to all registered accounts in the first place was invalid. They were specifically referring to retirement savings all along.

The reason you won't find any official source is because IRS has never explicitly defined rules for any other accounts. The authors of the book A Tax Guide for US Citizens in Canada say that the IRS has ignored all of their requests for clarification on how to report TFSAs, but their detailed analysis (which cites legal definitions) concludes that a TFSA cannot be considered a trust.