Earned US income before first day of first year choice period

[bluesky]

Hi there, looking for some help on US taxes last year. I started working officially in the US last year in July, but was only in the US for a week before returning to Canada to work remotely for 3 months before then returning to US in September. The first day of my first 31 period (so I can elect first year choice) is in September. My employer W-2 however (and withheld taxes) were from the July start. How do I account for this difference?

[nelsona]

First, determine if it is really worth it to do a first-year choice.
Since you did not meet SPT, you could just file 1040NR, or if it is better, you can., as a Cdn, file a normal 1040 for the whole year. Dual-status, like you are proposing rarely benefits the taxpayer.income you earned while in canada.

So, I presume you are asking about how to report your wages for the period (July to August) you continued to live and work in canada (which would be considered Cdn-sourced)?

I also presume that either you are declaring your departure date from Canada as September and not July.

You would indicate this on your 1040NR, which has sufficient spaces to indicate that your wages are not taxable in US because you were working in canada. If you file full 1040, you would report all the wages, and claim foreign tax credit for the Cdn tax you paid on the July-August wages.

Is there a particular reason you feel the need to file dual status? Filing 1040NR for the entire year does not change your CDn departure date.

[bluesky]

Thanks for the input as always nelsona.

When I run my taxes through the software as NR, my tax refund is substantially less, so dual status seems to be optimal (this may be also because I got married last year and my US employer taxed me as single) - still there is a big difference between NR and not. To be sure, is there some other option besides Dual-status and NR? Can you clarify "as a Cdn, file a normal 1040 for the whole year"?

Re: your other questions, yes I'm asking about those wages in July-Sept, and yes if Dual status I would be declaring departure date in Sept.

[nelsona]

Remember that he fist year choice is NOT a full year 1040, so you do not get the standard deduction (make sure you check the appropriate box so you do not get standard deduction). You have to itemize.

If you do the first year choice correctly, you shoudl see that there is no benefit . That is why I'm thinking you shouldn't do first-year choice.

[bluesky]

Hi Nelsona, is the following summary correct as far as options for a Canadian:

1) File 1040 (full year). Pros: Can claim standard deductions, especially helpful if filing MFJ. Cons: Have to declare worldwide income for the whole year.
2) File 1040NR (full year) - only possible if you do not meet SBT. Pros: Only declare US income for the whole year. Cons: No standard deductions.
3) File Dual Status. Pros: Claim standard deductions during the period you're a US resident (first day of 31 period). Cons: More complex.

[nelsona]

point 3 is incorrect. Dual status does NOT permit standard deduction. Forget dual.

Point 1, you must declare world income, BUT you also get to use foreign tax credit and/or foreign earned income exclusion for money earned before move to US.