In a May, 2008 post, nelsona wrote, "With the way 2555 is now calculated, and with the child tax credit, 1116 is now more favourable [sic] in almost all cases....The only scenario I can think of that would favour [sic] 2555 is single, no kids, RRSPs and no investment income."
I am single, no kids, and contributed a measly $150. to an RRSP in 2010. So, I'm thinking the 2555 is preferable. But which form I use seems to depend on how I answer the following question in TurboTax: "Were you a U.S resident alien while you were working outside the U.S.?" Well, "no" in the sense that I was a Canadian working in Canada while earning foreign income, and hadn't moved to the US yet. But also "yes" because I've met SPT and am filing full 1040, so I'm essentially a resident alien for all of 2010.
So I would respond "yes", which would yield the 2555 form. Does this sound right?
P.S. I'm kidding with the [sic] - I know it's Canadian spelling :)
2555 vs 1116
Moderator: Mark T Serbinski CA CPA
[quote]But also "yes" because I've met SPT and am filing full 1040, so I'm essentially a resident alien for all of 2010. [/quote]
I'd take a second look at that. In a dual status year, I don't think you can make the first year choice to file as a full year resident unless you're married (yes ... as strange as that sounds). On the other hand, I've recently become aware (thanks to nelsona)that under article XXV of the treaty, Canadians are always entitled to file a 1040.
[quote]Article XXV
Non-Discrimination
1. Citizens of a Contracting State, who are residents of the other Contracting State, shall not be subjected in that other State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which citizens of that other State in the same circumstances are or may be subjected.[/quote]
Although I agree with this interpretation on the surface, I'd definitely look a little closer before applying it.
That said, if you are able to file a normal 1040, you'd need to establish that you are a resident under the bona fida or physical presence test in order to qualify for the 2555. My understanding is that you cannot count days while a non-resident, so you would not meet the PPT. Even if you could count all of the days you were in Canada in 2010, 330 days would clearly need to include 2009 and you clearly a non-resident at that point. This would only leave the bona fida residence test and you'd need to file a return for 2009 to establish that (because you need a full calendar year) and, again, you were not a resident at that point and wouldn't be able to file a return.
Therefore, you may be left with the 1116 as your only option anyway.
That's my two cents...
I'd take a second look at that. In a dual status year, I don't think you can make the first year choice to file as a full year resident unless you're married (yes ... as strange as that sounds). On the other hand, I've recently become aware (thanks to nelsona)that under article XXV of the treaty, Canadians are always entitled to file a 1040.
[quote]Article XXV
Non-Discrimination
1. Citizens of a Contracting State, who are residents of the other Contracting State, shall not be subjected in that other State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which citizens of that other State in the same circumstances are or may be subjected.[/quote]
Although I agree with this interpretation on the surface, I'd definitely look a little closer before applying it.
That said, if you are able to file a normal 1040, you'd need to establish that you are a resident under the bona fida or physical presence test in order to qualify for the 2555. My understanding is that you cannot count days while a non-resident, so you would not meet the PPT. Even if you could count all of the days you were in Canada in 2010, 330 days would clearly need to include 2009 and you clearly a non-resident at that point. This would only leave the bona fida residence test and you'd need to file a return for 2009 to establish that (because you need a full calendar year) and, again, you were not a resident at that point and wouldn't be able to file a return.
Therefore, you may be left with the 1116 as your only option anyway.
That's my two cents...
I am almost certain that I CAN file a full 1040, because I meet the SPT for 2010. If not, I've misunderstood much of what I've read on this forum.
I did not read anywhere that I must be a US resident for the entire duration of the 330 days for PPT. If that's the case then no, I can't file 2555. Maybe the regulations have changed in this regard.
If I file a full 1040, then I am a US resident alien for the entire tax year, which includes the 5 months I was still living and working in Canada. If I count backwards to 2009 to establish PPT, then I'm counting days when I was not a US resident.
Can anyone shed light on this...?
I did not read anywhere that I must be a US resident for the entire duration of the 330 days for PPT. If that's the case then no, I can't file 2555. Maybe the regulations have changed in this regard.
If I file a full 1040, then I am a US resident alien for the entire tax year, which includes the 5 months I was still living and working in Canada. If I count backwards to 2009 to establish PPT, then I'm counting days when I was not a US resident.
Can anyone shed light on this...?
This person's situation is similar to mine. nelsona recommended 2555 based on bona fide...
http://forums.serbinski.com/viewtopic.php?t=4430
http://forums.serbinski.com/viewtopic.php?t=4430
Nelsona is much more versed in US taxation than I, so he's probably the one to heed. That said, here are my responses to your points:
SPT - Normally, someone who meets the substantial presence test would indeed file a 1040, reporting worldwide income for the whole year. However, in the first year of residency, there's a dual status situation. Filing a 1040 in this instance would require application of the treaty provision in Article XXV as pointed out by Nelsona in other post(s) - ie. since a US citizen would not need to file a dual status return in a year that they become a US resident, neither would a Canadian becoming a US resident. If that provision DOESN'T apply, then you would not be able to choose to be a resident for the whole year unless you meet the conditions on page 9 of Pub 519, one of which requires you to be married (go figure!).
PPT - That's only my interpretation. Since the entire test is for a US resident or citizen abroad, I expect that one must only count days that he/she is a US citizen or resident abroad. I could be wrong (it's happened before). Hopefully someone else can shed some light on this for both our sakes.
SPT - Normally, someone who meets the substantial presence test would indeed file a 1040, reporting worldwide income for the whole year. However, in the first year of residency, there's a dual status situation. Filing a 1040 in this instance would require application of the treaty provision in Article XXV as pointed out by Nelsona in other post(s) - ie. since a US citizen would not need to file a dual status return in a year that they become a US resident, neither would a Canadian becoming a US resident. If that provision DOESN'T apply, then you would not be able to choose to be a resident for the whole year unless you meet the conditions on page 9 of Pub 519, one of which requires you to be married (go figure!).
PPT - That's only my interpretation. Since the entire test is for a US resident or citizen abroad, I expect that one must only count days that he/she is a US citizen or resident abroad. I could be wrong (it's happened before). Hopefully someone else can shed some light on this for both our sakes.
Yeesh... this keeps getting more complicated.
I am using TurboTax and I thought (hoped?) that it would just generate all necessary forms. At some point it does ask if I'm a citizen of a country with which the US has a tax treaty...so of course I'd say yes to that. But some of the questions throw me such as, "Is your tax home a foreign country?" or something to that effect. The frame of reference isn't always consistent in these questions - so it can be difficult to determine where my "home" is when responding to a certain question.
I should probably file for an extension....
I am using TurboTax and I thought (hoped?) that it would just generate all necessary forms. At some point it does ask if I'm a citizen of a country with which the US has a tax treaty...so of course I'd say yes to that. But some of the questions throw me such as, "Is your tax home a foreign country?" or something to that effect. The frame of reference isn't always consistent in these questions - so it can be difficult to determine where my "home" is when responding to a certain question.
I should probably file for an extension....