I have lived in Canada since 1994, American citizen, own a house and have a Canadian wife. I have been using Form 2555 to exclude my Canadian income using the Physical Presence Test (PPT). Last year I had to work with a subcontractor in NY for a significant period of time (i.e. > 30 days) so I will not be able to use the PPT for 2006.
My questions:
1) If I use the Bona Fide Exclusion for 2006, do I have to revoke anything? I.e. can I just use Bona Fide Exclusion for 2006 and go back to using the PPT for 2007+ without any special declarations? I do not wish to revoke PPT for years 2005 and before.
2) What do I have to do to establish the Bona Fide exclusion criteria? Do I need to send a fact sheet with stuff that will help the IRS easily determine my status?
3)I am planning to exclude as much income as I can for 2006 using 2555 and then use Form 1116 to kill off my tax liability using Jan 1 - Dec 31 as my tax year based on advice given previously in this forum. Are there any "gotcha's" with this (I know to calculate both the credit and deduction using 1116 to see which one is better for me).
Thanks in advance and any help would be appreciated!
Hawkeye
Form 2555 - revocation of exclusions
Moderator: Mark T Serbinski CA CPA
Form 2555 - revocation of exclusions
There is no such thing as a stupid question, but if you turn off your brain before asking questions don't expect other people to fumble around in the dark trying to figure out what you need.
1. It doen't matter which test you use. You have ALWAYS qualified for bona fide residence test, so you should have been ticking that box every year anyways, since you live in canada and are a US citizen. PPT is really intended for the first year you left US, and for citizens with no treaty.
But there is nothing to 'revoke' in your past exclusions, you met both.
the only revocation that we talk about in 2555 is leaving 2555 altogether, which you might decide to do anyays given the new rules.
2. Nothing to file.
3. You will not be able to 'kill' the US tax on your NY work in the normal manner (neither by 2555 or 1116), as this is US sourced. Nor will you be able to claim the US tax on your Cdn return, as canada views this as non-taxable to anyone but a US citizen.
You will have to use the 're-sourced' category to reduce the US to zero on that income.
As you may know, since 2006 tax year, 2555 no longer results in zero tax after the exclusion, as it will tax any non-excluded income at your effective tax rate. Gone are the days when you could simply reduce your income to below the standard deduction and pay no US tax. This, as well as the child tax credit, make most Yanks living in canada now file entirely 1116.
But there is nothing to 'revoke' in your past exclusions, you met both.
the only revocation that we talk about in 2555 is leaving 2555 altogether, which you might decide to do anyays given the new rules.
2. Nothing to file.
3. You will not be able to 'kill' the US tax on your NY work in the normal manner (neither by 2555 or 1116), as this is US sourced. Nor will you be able to claim the US tax on your Cdn return, as canada views this as non-taxable to anyone but a US citizen.
You will have to use the 're-sourced' category to reduce the US to zero on that income.
As you may know, since 2006 tax year, 2555 no longer results in zero tax after the exclusion, as it will tax any non-excluded income at your effective tax rate. Gone are the days when you could simply reduce your income to below the standard deduction and pay no US tax. This, as well as the child tax credit, make most Yanks living in canada now file entirely 1116.
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 keep on getting timed out so this needs to be quick.
Thanks for all the help, but I have three more questions:
1) Does the fact that I was working for a Canadian firm, drawing a Canadian salary affect my ability to exclude income, or is it boolean logic - i.e. "you were in the US and you earned a salary while there so you can't exclude that income".
2) I have searched through this site as well as the IRS site and can't find any info on "re-sourcing" my income, as you recommend to kill off my tax liability. Do you have a Pub or Form # to point me to so I can learn how to do this? I've never encountered this concept before...
3) You seem to suggest that the only time it makes sense in the future to use 2555 is if you can exclude all your income, otherwise just use 1116 and forget about 2555. I expect to be able to exclude all my income for 2007 so I don't think I want to revoke anything for just 2006. Right?
Thanks for all the help, Nelson..
Hawkeye
Thanks for all the help, but I have three more questions:
1) Does the fact that I was working for a Canadian firm, drawing a Canadian salary affect my ability to exclude income, or is it boolean logic - i.e. "you were in the US and you earned a salary while there so you can't exclude that income".
2) I have searched through this site as well as the IRS site and can't find any info on "re-sourcing" my income, as you recommend to kill off my tax liability. Do you have a Pub or Form # to point me to so I can learn how to do this? I've never encountered this concept before...
3) You seem to suggest that the only time it makes sense in the future to use 2555 is if you can exclude all your income, otherwise just use 1116 and forget about 2555. I expect to be able to exclude all my income for 2007 so I don't think I want to revoke anything for just 2006. Right?
Thanks for all the help, Nelson..
Hawkeye
There is no such thing as a stupid question, but if you turn off your brain before asking questions don't expect other people to fumble around in the dark trying to figure out what you need.
1. Your income while in US was Us-sourced. Just ask the state of NY, which wil probably want its share.
2. The treaty explanation has info on this. google canatech.pdf. The form is 1116 of course, resourced by treaty category.
3. So, you make no interest, no capital gains, no dividends, no other income? Sounds fishy. If you make any of these ammounts (or exceed your exclusion limit), you owe US tax by 2555 method.
2. The treaty explanation has info on this. google canatech.pdf. The form is 1116 of course, resourced by treaty category.
3. So, you make no interest, no capital gains, no dividends, no other income? Sounds fishy. If you make any of these ammounts (or exceed your exclusion limit), you owe US tax by 2555 method.
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
Nelson - thanks so much for your prompt replies.
Of *course* I declare all dividends etc. - by "income" I only meant wages and salary, excludable under 2555.
I don't have stock, and my interest doesn't usually amount to much so those aren't tax problems (i.e. I declare them straight on my 1040). Most of my investments are in RRSPs, which I report using 8891 thanks to all the advice on this forum. I also file the Treasury form each year, again thanks to the advice on this forum.
Thanks a million, Nelson - you depress me with your info but I know it's better to do it right than to do it wrong and pay out the nose later.
Now it's time to figure out 1116. Oh boy. Fun city. Wish me luck!
Thanks again!
Of *course* I declare all dividends etc. - by "income" I only meant wages and salary, excludable under 2555.
I don't have stock, and my interest doesn't usually amount to much so those aren't tax problems (i.e. I declare them straight on my 1040). Most of my investments are in RRSPs, which I report using 8891 thanks to all the advice on this forum. I also file the Treasury form each year, again thanks to the advice on this forum.
Thanks a million, Nelson - you depress me with your info but I know it's better to do it right than to do it wrong and pay out the nose later.
Now it's time to figure out 1116. Oh boy. Fun city. Wish me luck!
Thanks again!
There is no such thing as a stupid question, but if you turn off your brain before asking questions don't expect other people to fumble around in the dark trying to figure out what you need.
Howdy, Nelson - boy, I bet you saw this one coming.
I have printed out and read (well, skimmed) the US/Canada Tax Treaty, read the "Canatech.pdf" file, reviewed IRS Pubs 514 (FTC), 54 (Tax Guide for US Citizens abroad) and the 1116 instructions and am now really, really confused.
I think I know the following:
o Canadian interest and dividends I'm simply converting to US and declaring on 1040 w/ Schedule B, letting my standard deduction take care of the obligation. I have no Gains to report (using 8891 for my RRSPs).
o I am using 2555EZ to exclude as much wage/earning income as possible
o I will use one (1) Form 1116 (or 2 - I'm a bit unsure of this right now) of either the "Re-sourced by treaty" and/or "General limitation" varieties to deal with the tax on my non-excluded wages and this is where I run into difficulties. I think I use whatever deductions I can (home mortgage interest, property taxes, etc.) to get my obligation as low as possible.
1) I found the worksheet at the end of Pub 514 for "Additional Foreign Tax Credit" and find it to be quite unintelligable. Section I seems ok, but the others are hard. I know you don't offer line-by-line help on filling out forms - is there a source you know of that would help me, here? The instructions provided are not adequate.
2) Do I do the worksheet only on the "Re-sourced by treaty" 1116 or on both of the 1116s? Where do I find the treaty values/limits?
3) Can I just fill out a "General Limitation" 1116 and expect to kill off my non-excluded income liability, or would you predict that I have to use the "Gen Lit" *AND* the "Re-sourced by treaty" AND the worksheet to do it
Sorry for the general questions. I am apalled at how complicated all this stuff is - difficult to put it all together.
Hoping you can help,
Hawkeye
I have printed out and read (well, skimmed) the US/Canada Tax Treaty, read the "Canatech.pdf" file, reviewed IRS Pubs 514 (FTC), 54 (Tax Guide for US Citizens abroad) and the 1116 instructions and am now really, really confused.
I think I know the following:
o Canadian interest and dividends I'm simply converting to US and declaring on 1040 w/ Schedule B, letting my standard deduction take care of the obligation. I have no Gains to report (using 8891 for my RRSPs).
o I am using 2555EZ to exclude as much wage/earning income as possible
o I will use one (1) Form 1116 (or 2 - I'm a bit unsure of this right now) of either the "Re-sourced by treaty" and/or "General limitation" varieties to deal with the tax on my non-excluded wages and this is where I run into difficulties. I think I use whatever deductions I can (home mortgage interest, property taxes, etc.) to get my obligation as low as possible.
1) I found the worksheet at the end of Pub 514 for "Additional Foreign Tax Credit" and find it to be quite unintelligable. Section I seems ok, but the others are hard. I know you don't offer line-by-line help on filling out forms - is there a source you know of that would help me, here? The instructions provided are not adequate.
2) Do I do the worksheet only on the "Re-sourced by treaty" 1116 or on both of the 1116s? Where do I find the treaty values/limits?
3) Can I just fill out a "General Limitation" 1116 and expect to kill off my non-excluded income liability, or would you predict that I have to use the "Gen Lit" *AND* the "Re-sourced by treaty" AND the worksheet to do it
Sorry for the general questions. I am apalled at how complicated all this stuff is - difficult to put it all together.
Hoping you can help,
Hawkeye
There is no such thing as a stupid question, but if you turn off your brain before asking questions don't expect other people to fumble around in the dark trying to figure out what you need.
Yoou seem to miss the pint that your standard deuction with 2555 no longer results in no tax, so you will pay some US tax on al income that is noyt excluded using 2555.
So given that you will need to use 1116 on this income, or simply pay double-tax, you might as well get used to using 1116.
I will not do forms for you. Buy turbotax
Your re-sourced income can only be USsourced income on which you paid Cdn tax but were unable to clim a foreign tax deduction on your Cdn return, all other income is eligible for in its normal categories, passive, gen limit etc.
So given that you will need to use 1116 on this income, or simply pay double-tax, you might as well get used to using 1116.
I will not do forms for you. Buy turbotax
Your re-sourced income can only be USsourced income on which you paid Cdn tax but were unable to clim a foreign tax deduction on your Cdn return, all other income is eligible for in its normal categories, passive, gen limit etc.
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
Nelson - thanks again for the quick response.
Surprised at the rebuke on forms - I didn't ask you to do them for me, only if you knew of a place I could get info on that god-awful worksheet at the back of Pub 514. <shrug> No matter. Sorry for any annoyance.
I will take your recommendation on turbo-tax. Thanks.
Haven't been ignoring the changes in 2555, and I understand that 1116 is a requirement now but I remain horrified at how complicated it all is.
Take care and thanks for all help - you really are an incredible resource for all us poor folks having to deal with this idiotic stuff.
Signing off for now.
Hawkeye
Surprised at the rebuke on forms - I didn't ask you to do them for me, only if you knew of a place I could get info on that god-awful worksheet at the back of Pub 514. <shrug> No matter. Sorry for any annoyance.
I will take your recommendation on turbo-tax. Thanks.
Haven't been ignoring the changes in 2555, and I understand that 1116 is a requirement now but I remain horrified at how complicated it all is.
Take care and thanks for all help - you really are an incredible resource for all us poor folks having to deal with this idiotic stuff.
Signing off for now.
Hawkeye
There is no such thing as a stupid question, but if you turn off your brain before asking questions don't expect other people to fumble around in the dark trying to figure out what you need.