Dual-status

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mimianddaniel
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Dual-status

Post by mimianddaniel »

Really confused now .. I received my TN in late March 2013 and working full-time. received lump sum payment from previous employer in June 2013 over ~$31k

Was at the local accountant to get some help on the income tax and he said i should file as dual-status, using 1040nr ez. I was not aware of dual-status. After coming home, i did some reading and i think dual-status is only allowed for those who does not meet SPT?

Trying taxact to do my tax,
1. is there a need for me to add W-2 from a foreign employer for my Canadian Wage Income ? Or just 2550 suffice?
2 Do i need to do the same for lump sump payment?
3. 1116 to claim credit on the tax paid for Canadian wage income and Lump sump?

Anything else i am missing?

Thanks much ..
nelsona
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Post by nelsona »

You could file daul-status, however that does not absolve you of US tax on that income, as your residency starting date would be in March.

Just for clarity, only those who actully meet SPT can file dual-status. Other ise you file as a non-resident.

You are likely best off just filing full year 1040 reporting all your 2013 income, and exempting your wages upto march.

You will be taxed oin the lump-sum in US (and Canada of course). You can take credit for Cdn taxes claculated on your Cdn return on that income (and any CPP EI you paid)>

so.
1. yes you need to add the income on your eturn (not by faking aa W-2 howevr). And you can only exempy the wages from before you arrived usingf 2555. The lumpsum is not exempt on 2555.
2. See above
3. 255 for the early wages, and 1116 for the lumpsum.
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redbeer
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Post by redbeer »

I thought that the treaty determines when residency ends in one and starts in another country?
nelsona
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Post by nelsona »

Yes, but then that becomes an issue of ones particular circumstance. In our poster's case, if they move in March, both the treaty and IRS agree that residency starting date is march.

What is your circumstance?
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redbeer
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Post by redbeer »

We moved mid-June, so we meet SPT. My question comes from the Article IV of the treaty that states "permanent home available" as the first condition of determining residency. I thought it would automatically cause a change in residence.

Thank you.
nelsona
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Post by nelsona »

It does. So where is the confusion?
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redbeer
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Post by redbeer »

I thought that from the treaty, even if you do not meet SPT, you can still file dual-status, by moving permanent home. I understand from other posts that dual-status is not generally beneficial though.
nelsona
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Post by nelsona »

I see where you are mistaken.

ANYONE, by IRS regs, can file dual-status, if they arrive before december.
ANYONE, by IRS regulation, who meets SPT can ONLY file dual-status -- no choice --, unless they are married to a US resident, in which case they can file full-year joint with US spouse.
CDNS, by treaty, are allowed to file full-year ANYTIME, because it is an advantage that US citizens have, and the treaty grants Cdns the same right.

So Cdns moving to US, since they pay higher tax in canada than US, are always advised to file either 1040NR (if they do not meet SPT) or full-year 1040, and use 2555 and 1116 just like an american would in the year they moved from Canada to US.
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nelsona
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Post by nelsona »

so the treaty doesn't give you the right to file dual-status, IRS regs FORCE you to file dual-status in the year you meet SPT, and allow you to when you haven't yet met SPT, but will.

The treaty gives you the right to beneficially file full-year, which most other new arivers cannot.
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nelsona
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Post by nelsona »

So, a CDn who has not met SPT has THREE choices on how to file:
-1040NR
-Dual-status
-1040

Remember, when calculating SPT you look at 3 years.

All this has no impact on yourCdn filing status, which would still be either non-resident, or deemed non-resident (only if you still had a "spouse and house" in Canada). You would in either case still file a departure return for that year, with, in uyour case, June departure date.
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redbeer
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Post by redbeer »

Thank you for a detailed explanation, especially, the distinction between what is a right and what is forced by regs.

One clarification though, did you mean Cdn "deemed resident" when you still have a spouse and house in Canada?
nelsona
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Post by nelsona »

No, I meant a "deemed non-resident" which is someone who has sufficient ties in canada to be considered resident, BUT has MORE ties in a treaty country and is thus meets the treaty definition for that country more than Canada.

a "deemed" resident doesn't have any ties in Canada, but because he is (a) a student or (b) a Cdn gov't worker, is considered a Cdn resident. He is "deemed" to be resident, because he is not factually so.
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nelsona
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Post by nelsona »

The other thing that is a littel differnt for canada vs US is that canada doesn't allow you to file as a resident when you are not a resident. Thus the need to departure or arrival dates in those years, and non-resident returns in other years. It is often better to be par-year or non-resident tax-wise.

US doesn't tax based strictly on residency, so non-resident returns and part-year returns are really punitive. they prefer dealing with residents.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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