Hello.
Last year we were able to not file a US tax return for my wife because she did not live in the US at any time during 2010.
For 2011, she moved to the US in May when her green card was approved. However, she continued to work in Canada for the entirety of the year.
Figuring out the taxes is a nightmare and I have procrastinated long enough.
I have tried several different software programs and cannot believe the amount they say we owe.
She made approximately $73,300 in Canada last year and had $14,000 in income tax taken out. For 2011, she is considered a resident since she moved down here in May 2011 and spent approximately 221 days in the US.
Can her income not be excluded or at least the taxes she already paid to Canada because of the tax treaty? If I enter her information in to the tax software, either it is not factoring in form 1116 or 2555 because they are showing she would owe $11,000-12,000 in taxes to the US. Can this be correct?
We went to HR Block in 2010 and they completely messed our taxes up. I ended up getting a complete refund from them from the price we paid after they admitted their errors.
Any advice or assistance would be greatly appreciated.
Wife Moved from Canada to US in 2011 - Tax Return Questions
Moderator: Mark T Serbinski CA CPA
US: there is no doubt that she should probably file jointly with you for the year 2011. She also ahs the option, by treaty, of filing separately for 2011, and you do the same. I'll expalin why this may be the best solution later.
In figuring how foreign income is taxed in US, you have to remembetr 2 things: first that foreign income is added to ON TOP of other income, so is taxed at a marginal rate. However when calculating the foreign tax credit (or the foreign income exclusion), the credit/exclusion is spread over the entire income. This almost always results in an "unsatifactory" amount of foreign tax being given as a credit, as you are finding out.
2555: She is only eligible to exclude the income from the first part of 2011, and then only if she managed to stay out of US for a substantial amount of 2010 and almost all of 2011. You said she was in US 221 days in 2011, so not much chance that she can use 2555 effectively. Even if she could, the rest (in fact most) of her Cdn income would have to be handled using form 1116.
1116: the first thing that needs to be done is finish up her Cdn taxes for 2011. What was withheld is not really what is seligible for tax credit. It is her final tax bill that should be used on 1116.
She also needs to make sure that she is considered non-resident of canada, by putting a departure date on her 2011 return. Did she do this?
AS i said, there is always a mismatch beteween the foreign tax paid and what is credited on your 1040, primarily becuase of the mix of US-source and foreign-source income. It may be however that by each filing separately. This would make her income completely foreign, and would yioeld a better match for hwer Cdn tax as a credit, maybe wiping out any tax liability for her. Be warned however tha tby filing jointly YOUR income tax rises, so you will need to do it both ways.
so your choices are as follows:
1040 MFJ using 2555 on some of her wages, and 1116 on everything else.
1040 MFJ using 1116 on all her income
1040 MFS for you and MFS for her, using 2555/1116
1040 MFS for youm and MFS for using 1116 only
OR
1040 MFS for you, and her filing "dual-status", whereby she would not even report the Cdn income from before her "residency starting date" which woudl be on or before May of last year, depending on how much time she spent in US before May, and using 1116 on the reduced Cdn income she reports.
So, 5 ways, pick the one that yields lowest overall taxbill for you as a couple.
As to whay your software is not picking up any credit or exclusion, you are on your own there.
HRBlockheads are uselss on this, as you have found.
In figuring how foreign income is taxed in US, you have to remembetr 2 things: first that foreign income is added to ON TOP of other income, so is taxed at a marginal rate. However when calculating the foreign tax credit (or the foreign income exclusion), the credit/exclusion is spread over the entire income. This almost always results in an "unsatifactory" amount of foreign tax being given as a credit, as you are finding out.
2555: She is only eligible to exclude the income from the first part of 2011, and then only if she managed to stay out of US for a substantial amount of 2010 and almost all of 2011. You said she was in US 221 days in 2011, so not much chance that she can use 2555 effectively. Even if she could, the rest (in fact most) of her Cdn income would have to be handled using form 1116.
1116: the first thing that needs to be done is finish up her Cdn taxes for 2011. What was withheld is not really what is seligible for tax credit. It is her final tax bill that should be used on 1116.
She also needs to make sure that she is considered non-resident of canada, by putting a departure date on her 2011 return. Did she do this?
AS i said, there is always a mismatch beteween the foreign tax paid and what is credited on your 1040, primarily becuase of the mix of US-source and foreign-source income. It may be however that by each filing separately. This would make her income completely foreign, and would yioeld a better match for hwer Cdn tax as a credit, maybe wiping out any tax liability for her. Be warned however tha tby filing jointly YOUR income tax rises, so you will need to do it both ways.
so your choices are as follows:
1040 MFJ using 2555 on some of her wages, and 1116 on everything else.
1040 MFJ using 1116 on all her income
1040 MFS for you and MFS for her, using 2555/1116
1040 MFS for youm and MFS for using 1116 only
OR
1040 MFS for you, and her filing "dual-status", whereby she would not even report the Cdn income from before her "residency starting date" which woudl be on or before May of last year, depending on how much time she spent in US before May, and using 1116 on the reduced Cdn income she reports.
So, 5 ways, pick the one that yields lowest overall taxbill for you as a couple.
As to whay your software is not picking up any credit or exclusion, you are on your own there.
HRBlockheads are uselss on this, as you have found.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thank you Nelsona for your quick reply. I am going to try it a few different ways to see what I come out with and then bite the bullet and pay someone to do it before the deadline if I can't figure it out.
I have tried it MFS for her with both the 2555 and 1666 seperately, but it is still coming out with a bill for around $10,000. This would mean she would be effectively taxed $13,200 in Canada and $10,000 in the US on $72,000 income. That is 33%.With her income and including the $13,200 in taxes paid to Canada, the 1116 inclusion is only reducing her bill by $3,500.
Thank you again for your assistance. It is greatly appreciated.
I have tried it MFS for her with both the 2555 and 1666 seperately, but it is still coming out with a bill for around $10,000. This would mean she would be effectively taxed $13,200 in Canada and $10,000 in the US on $72,000 income. That is 33%.With her income and including the $13,200 in taxes paid to Canada, the 1116 inclusion is only reducing her bill by $3,500.
Thank you again for your assistance. It is greatly appreciated.
I think you are doing the calculation incorrectly. If hse only has Cdn income, then doing 1116 will yield 100% tax credit.
Has she correctly done her Cdn taxes, as it appears that she may have underpaid her Cdn tax.
Also, don't foget to include her CPP and EI as foreign taxes against her wages.
As an example, no US taxpayer living in canada ever has to pay anything extra to US, when they file MFS, so there is something wrong with your calcs.
Has she correctly done her Cdn taxes, as it appears that she may have underpaid her Cdn tax.
Also, don't foget to include her CPP and EI as foreign taxes against her wages.
As an example, no US taxpayer living in canada ever has to pay anything extra to US, when they file MFS, so there is something wrong with your calcs.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I've entered her information in as MFS into H&R Block software and the end result is $0 being owed. No place while entering the information did it ask for her taxes paid.
My question here is if the 2555 can be used since she lived in Canada for approximately 115 days before entering the US and then commuted back to Canada for work each day. If so, this might have come out correctly.
Thank you for your assistance.
My question here is if the 2555 can be used since she lived in Canada for approximately 115 days before entering the US and then commuted back to Canada for work each day. If so, this might have come out correctly.
Thank you for your assistance.
She cannot exclude any income after her GC date, and probably not from an earlier date. As soon as she spends a total of 30 days in US during any 365 day period, she cannot use 2555.
How do you go from $10K to zero.
How do you go from $10K to zero.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best