U.S. citizens living in Canada: Time to come clean to the IRS - Financial Post

[RobsLuv]

If someone is working or living in the US at any time of the year, I think this is good. But if you're living and working solely in another country then this is outrageous. The US is just doing this to pay for their irresponsibe spending habits. And why I have to tell them about my bank account with more than 10k in it, a bank account that has nothing but money earned in Canada mind you, is beyond me.

This whole thing aggravates me because the IRS is so vague, and now they're throwing their weight around. There might be 1 million US citizens living in Canada - that doesn't mean that 1 million US citizens are avoiding filing US tax returns, or that they all even make enough foreign income for it to be reportable. It's easy for people reading the article - and people within the IRS and US government - to assume Americans here in Canada are rolling in the dough . . . but I hardly think 1 million of us are! The reportable level is somewhere around $80K annually. If I was making that, I'd be jumping for joy. But I only work 15 hours a week - I barely made $10K last year. And what about people "living" in Canada who haven't been allowed to work, so have/had no income?

The last year I worked in the US was 2004. Last time I filed US taxes was 2005 because I received some spousal support that year from my ex. I've been in Canada from then until now - I haven't even been able to change my name on my social security card yet! I didn't work in 2006, 2007 or 2008 - so had absolutely zero income. I only started working in Canada at the end of 2009 and didn't even make enough to pay Canadian taxes that year.

I can't find anything that tells me 1) whether it's okay to file with my married name when my SSN hasn't been changed, 2) whether I have to file a return for a year in which I had no income, and 3) if there's a separate form for reporting foreign income, and is it supplemental to the Form 1040, or instead of? I don't have a problem filling out the IRS forms - just not sure which ones are applicable and it feels stupid filling up three returns with nothing but a bunch of zeros.

Dakonej - thanks for starting this thread.

 

[aerogurl87]

The reporting requirement is actually worse than that. If the total value of all your foreign accounts exceeds $10,000 at any point during a calendar year, you must provide details of all of your accounts, even if the individual accounts are worth less than $10,000. I think it would be reasonable if the limit were $100,000 (which is the threshold for a similar reporting requirement for Canadians).

Seriously?!?! That is even worse. I don't make much but my boyfriend and I are saving for a house in the future and are saving for that. Why the heck should we be taxed for saving for a future we plan to build in Canada, when the US isn't helping us with a thing. I can understand being taxed for the $15 dollars that are being held in my American bank account, but for an account that the US had no hand in helping add money to makes no sense.

 

[dakonej]

RobsLuv, you're welcome.

I think the issue is worrysome if people affected don't know the rules. I'm not even sure what the threshold that triggers an obligation to file income tax declarations is for Canada either. But to me it seems that the US tax laws are a bit too much. Canadians who own property in the U.S. are also subject to these regulations. Luckily i don't fall in that category, but I feel for those who travel back and forth between the two countries and own businesses or homes in either or both the U.S. and Canada.

 

[defenestration]

No, they cannot double tax because they hold a tax treaty with Canada. If you are filing "married filing separately" I believe you are allowed an exemption of up to $96,000 (or something close to that) of tax free worldwide income. Of course if you file that way you do miss out on some benefits though than if you were filing jointly.

Are you thinking of the "Foreign Earned Income Exclusion", which lets (some) Americans who don't live in the US exclude around $90,000 of earned income? That doesn't have anything to do with filing status; we file jointly and use the exclusion. If you can use it, this is by far the simplest since you get to subtract your pay on page 1 of Form 1040, and it's almost like you never had that income at all. Then, unless you have a lot of investment income or something, the standard deduction will take care of the rest.

If you can't take the exclusion (for example, because you weren't a "bona fide resident" of another country for an entire calendar year), you can take the foreign tax credit, but that's way more complicated.

 

[Tiggilicious]

Since my spouse has been here for 18 months on an extended vr and can't work, he has had no income in the us and Canada. He had to file one for Canada with no income just so I could get child tax benefit . So he did his first Canadian tax return . The IRS told him he doesn't have to file a us return because he had no income. Is that true then? I don't want it to haunt us later when we move south in 12 years.

Our accountant put on his Canadian return he had no working income but our accountant had me transfer my "Harper money universal child care benefit" to my spouse since he had no income.

 

[defenestration]

Since my spouse has been here for 18 months on an extended vr and can't work, he has had no income in the us and Canada. He had to file one for Canada with no income just so I could get child tax benefit . So he did his first Canadian tax return . The IRS told him he doesn't have to file a us return because he had no income. Is that true then? I don't want it to haunt us later when we move south in 12 years.

The upside of the US deciding it can tax its citizens anywhere in the world is that the same basic rules apply anywhere in the world. If he wouldn't need to file if he were living in the US (because his income is $0), he doesn't need to file from Canada.

 

[Tiggilicious]

The upside of the US deciding it can tax its citizens anywhere in the world is that the same basic rules apply anywhere in the world. If he wouldn't need to file if he were living in the US (because his income is $0), he doesn't need to file from Canada.

Only down side to that one, is then I wouldnt get child tax beneift since cra wants my spouses tax return even if it was 0, lol.

 

[YorkFactory]

Seriously?!?! That is even worse. I don't make much but my boyfriend and I are saving for a house in the future and are saving for that. Why the heck should we be taxed for saving for a future we plan to build in Canada, when the US isn't helping us with a thing. I can understand being taxed for the $15 dollars that are being held in my American bank account, but for an account that the US had no hand in helping add money to makes no sense.

You aren't being taxed on it. You just have to report it.

It's aimed at people who are actively hiding assets/income offshore, but they've cast the net too wide.


And RobsLuv, the filing requirements are technically the same no matter where you live: essentially, if you make more than the standard deduction, you have to file, even if you don't need to pay any tax. You should probably file returns for the years where you had no income if only to start the clock ticking on how long the IRS has to audit you.

 

[Love_Young]

Are you thinking of the "Foreign Earned Income Exclusion", which lets (some) Americans who don't live in the US exclude around $90,000 of earned income? That doesn't have anything to do with filing status; we file jointly and use the exclusion. If you can use it, this is by far the simplest since you get to subtract your pay on page 1 of Form 1040, and it's almost like you never had that income at all. Then, unless you have a lot of investment income or something, the standard deduction will take care of the rest.

If you can't take the exclusion (for example, because you weren't a "bona fide resident" of another country for an entire calendar year), you can take the foreign tax credit, but that's way more complicated.

Yes, that is what I was talking about. Actually I was told it did matter upon you filing status as to what you are entitled to. Because you would have to agree to have your foreign spouse treated as a resident for tax purposes if you file jointly. At which you would BOTH have to be under that amount or you risk having to pay more tax. Again this is just from what has been described to me from the IRS. Maybe I interpreted it wrong though... I just think the IRS makes everything too confusing and feel like a nuisance. No wonder some ignore having to do it.

 

[Love_Young]

If he wouldn't need to file if he were living in the US (because his income is $0), he doesn't need to file from Canada.

This is not EXACTLY true. If you want to be entitled to any benefits than your partner/spouse would need to file as well. I have not earned any income for the past two years but I had to file an Canadian return because I was a resident for tax purposes. Not to mention because I filed, we were eligible for a lot more benefits and got back a fair bit of money that we wouldn't have otherwise.

You should probably file returns for the years where you had no income if only to start the clock ticking on how long the IRS has to audit you.

This is one of the reasons I went ahead and filed my return this year.

 

[scylla]

This is one of the reasons I went ahead and filed my return this year.

I think this is the smart thing to do. Better to deal with a small pain in the *ss now and file - instead of dealing with a much larger pain in the *ss if you're ever asked to back file.

 

[Love_Young]

I think this is the smart thing to do. Better to deal with a small pain in the *ss now and file - instead of dealing with a much larger pain in the *ss if you're ever asked to back file.

EXACTLY! I have no need nor reason to file but I decided to this year just before things do start to get complicated.

 

[defenestration]

Yes, that is what I was talking about. Actually I was told it did matter upon you filing status as to what you are entitled to. Because you would have to agree to have your foreign spouse treated as a resident for tax purposes if you file jointly. At which you would BOTH have to be under that amount or you risk having to pay more tax. Again this is just from what has been described to me from the IRS. Maybe I interpreted it wrong though... I just think the IRS makes everything too confusing and feel like a nuisance. No wonder some ignore having to do it.

Oh, I see. Kind of makes sense that to file jointly, you have to throw your spouse into the IRS net... This never came up for me because my spouse is American, so she was already there.

 

[can_usa_97]

I hate the thought of doing this, but thankfully knew I would need to. It's something I will need to talk to my kids about doing too and help them with at first in another 15 years or so when they get their first job! Just so they can have an option some day, to return to the US if they wanted.

 

[dakonej]

For those US citizens (or anybody with property or other financial interests in the U.S.) still interested in finding out how the US tax rules apply to you, you may want to check out tomorrow Tuesday's live chat on the Financial Post's website: http://business.financialpost.com/2011/09/03/live-chat-americans-living-in-canada/

You can apparently post your own questions to the tax experts who will be there live or you can email your questions as well.