Trouble with 1116

jakeaa · Post by **jakeaa** » Thu Jul 07, 2016 11:03 am

Iâ€™m a US citizen living and working in Canada. I have self-employment contract income, employment income and I took my CPP early at age 60.

For the US side on the 1116, what do I put on line 1a, 3d and 3e? It seems obvious that I add the employment income to all of these totals, but Iâ€™m not so sure about the other sources of income.

1) Do I include the gross self-employment income (before expenses) or the net amount?

2) Even know the CPP is not taxable in the US; do I still include this amount on these lines as well?

Can anyone help answer this?

nelsona · Post by **nelsona** » Thu Jul 07, 2016 11:33 am

You enter the NET amounts in 1a (the term gross on these means the portion that contributed to your adjusted gross income. I would put nothing in any otf the others, your software should be able to take care of the rest. You are using software, right?

With that in mind, although CPP is foreign, since the taxable portion you included on line 21 of 1040 is zero, it doesn't appear. But you can use the cdn tax associated with it in your foreign taxes accrued. it doesn't give you more tax back, but it builds your foreign tax reserves for future if you need it.

nelsona · Post by **nelsona** » Thu Jul 07, 2016 11:34 am

any reason you aren't using 2555 for your Cdn earned income?

jakeaa · Post by **jakeaa** » Thu Jul 07, 2016 12:39 pm

Thanks! Yes Iâ€™m using Taxact online for free, but I was having trouble entering foreign income and just wanted to double check if I was doing this right. I had to switch from 2555 to 1116 a few years ago when my income was very high, and I was told that I canâ€™t switch back to the 2555 for five years, is that correct?

I have self-employment income of $50K Gross ($35K Net), employment income $15K and CPP income of $8K. So line 1a would be $50K ($35K + $15K, basically line 37 of 1040), and 3d and 3e would BOTH be $73K correct?

At the end of the day I shouldnâ€™t owe any tax to the US correct?

nelsona · Post by **nelsona** » Thu Jul 07, 2016 1:58 pm

3d should equal 3e (minus any US-sourced income), so whatever the software puts for 3e, put for 3d.

I'm puzzled that your big year would have forced you to change. You will always have more Cdn tax than US, regardless of the way you calculate it once the 2555 exemption is used.

It doen't really matter as you are not taxable in US in any event.

jakeaa · Post by **jakeaa** » Thu Jul 07, 2016 2:46 pm

Thanks! So is it safe to assume that 1a is normally line 37 of the 1040 then? I donâ€™t have any US source income, so looks like 3a and 3d will be the same for me.

I used to pay an accountant to do my taxes, but Iâ€™ve been trying it on my own for a few years now. One year my income was over the 2555 threshold, so I thought I had to use the 1116 instead. Are you suggesting that I could have used the 2555 up to the threshold amount and the 1116 for the remaining amount over and above the threshold? I probably messed this up... The 2555 method seemed easier for me and I will likely switch back as soon as the 5 year period is up.

Frankd1 · Post by **Frankd1** » Thu Jul 07, 2016 2:49 pm

I use TaxAct for mine as well, just a quick question regarding line 3d and 3e though.

From the instructions for 1116 line 3d says to show all foreign source gross income you checked in part 1 of the form, so in the op's case it would be 65k for line 3d (se income 50k + emp income 15k).

Line 3e gross income from all sources and categories. So 73k (50k + 15k + 8k)

nelsona · Post by **nelsona** » Thu Jul 07, 2016 3:06 pm

No, the CPP gross income should be included in both lines, CPP was included in line 1, it was zero however.

To do it your way would mean that the CPP income wasn't foreign, or should be on a different 1116 than general;, or on a 2555.

Its ALL foreign general limit income.

That's why the tax associated with the zero CPP income is still eligible for credit.

nelsona · Post by **nelsona** » Thu Jul 07, 2016 3:09 pm

Again, you need to be careful of your definition of gross income, which differs from line 1 to line 3 (depending on the software you use).

In any event, the software usually makes this decision for you, and it doesn't affect your tax.

nelsona · Post by **nelsona** » Thu Jul 07, 2016 3:10 pm

jake, of course 2555 can be used even if you exceed the threshold.

nelsona · Post by **nelsona** » Thu Jul 07, 2016 3:16 pm

If line 3d was meant to equal line 1, it would simply say (from line 1). It is meant to differentiate between foreign and US gross income, strictly for the purpose of divvy-ing up your deductions between the 2.

jakeaa · Post by **jakeaa** » Thu Jul 07, 2016 4:40 pm

Thanks guys this helps a lot. Yeah, looks like I dropped the ball on not using the 2555 form that year.

For line 57 self-employment tax, can I just write "exempt", or is there something more formal I need to do?

Frankd1 · Post by **Frankd1** » Thu Jul 07, 2016 5:53 pm

Ahh yes, thank you nelsona. The cpp confused me...I was thinking of the scenario (my wife's) where we use two form 1116's, one for passive income (interest) and one for gen limit income (se, employment etc).

Thanks for clarifying that.

jakeaa, instructions for se tax state that you can write "exempt see attached" on line 57. You should get a letter of compliance from CRA though that shows you paid the applicable taxes for your se income.

ND · Post by ND » Sun Jul 10, 2016 11:10 pm

don't forget to obtain CPT56 from CRA and override the tax software to report zero self employment tax on your 1040

jakeaa · Post by **jakeaa** » Mon Jul 11, 2016 2:04 pm

Thanks guys.

Do you know if this form has to be completed one time, or every year? I assume I would just attach a copy with my 1040 after CRA approves it?

Some of the questions seemed geared to individuals working in the US. "Name and address of the business where the worker will be working in the foreign country". I guess I would just write "US citizen residing and working in Canada" or something like this?

Also, before I became registered for HST (had less than $30K of sales), I did not have a business number. I guess for those years I would just write n/a in that spot?

Any additional help with this would be appreciated.