My 2018 Tax Return (Canadian departed in 2018 to US under TN)

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edcrfvtgb
Posts: 5
Joined: Tue Apr 02, 2019 7:40 pm

My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by edcrfvtgb » Thu Apr 04, 2019 2:35 am

Hi all,

I am putting together how I prepared my 2018 US tax return. This is done based on all the posts shared in this forum.

Background:
Myself: Canadian citizen, worked in Canada from Jan to Aug 2018, moved to US since Sep 2018 under TN visa
My wife: Canadian citizen, no work in Canada/US, moved together with me under TD visa
My son: Canadian citizen, moved together with me under TD visa
I have declared non-resident with CRA since I moved out from Canada (no ties within Canada)

Below are what I have for my 2018 US tax return where I intend to file full-year 1040 as a US RA.

Form 8833: (I plan to attach two forms here, one for myself and one for my wife)
Checked section 6114; checked as a US resident.
Line 1: CANADA / XXV(1)
Line 6: Using non-discrimination article XXV(1) to file 1040. Canadian national residing in US since Sep 2018.

Form 1040:
MFJ
Line 1: Include income from both W2 and T4
Line 8: Standard deduction for me and my wife ($24,000)
schedule 3 attached for Canadian tax paid; schedule B attached for dividend income

Form 1116:
To claim Canadian income tax paid as credit (another form for dividend income tax paid)

Form 8965:
Part III: exemption type C; checked full year although my coverage started when I moved to USA (should be OK due to exemption type)

Form 8938:
Include all Canadian/international bank deposit/custodial accounts and RRSP etc (no TFSA)

I didn't use form 2555 as taking credit works better for me (I have worked long enough in Canada in 2018 (8 months) to pay quite some tax dollar there).

I will have to do paper return. In the return only W2 will be attached along with all the forms (no T4 or anything else for bank accounts/RRSP/etc).

I would appreciate if anyone will share their knowledge on my return and feedback.

(special thanks to nelsona for many great posts)

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by nelsona » Thu Apr 04, 2019 10:11 am

You sure 2555 isn't better? Usually, he longer you worked in Canada, the better to use 2555 since 1116 doesn't give full credit.

You also have the option of filing 1040NR, if you did not meet SPT.

I assume you have completed your Cdn departure tax return, and taken care of all it's requirements, like deemed disposition?
You made no interest during the year?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

edcrfvtgb
Posts: 5
Joined: Tue Apr 02, 2019 7:40 pm

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by edcrfvtgb » Thu Apr 04, 2019 2:14 pm

Hi nelsona,

I ran through two software and using 2555 has less benefit to me. For me the income from Canada in 2018 is around $40,000 USD, while from USA it is around $70,000. Does it make sense to you?

I also tried 1040NR which is not giving me the most refund either.

I filed my Canadian income indicating the departure date (which I and my wife have told CRA), reported all income before I moved out from Canada and Canadian income after I moved (which is 0). I didn't have TFSA in the past, and didn't have interest income from within Canada. I sold and closed my house before the departure date for which I declared primary residence in T2091. Not sure about deemed disposition... I didn't have any family members as a Canadian nor did they own any asset within Canada/financial accounts.

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by nelsona » Thu Apr 04, 2019 2:30 pm

Did you have investments outside RRSP when you left Canada? Then these are subject to deemed disposition (departure tax). If you sold investments before leaving, then you have cap gains tax.

When you say 2555 is "less benefit to me". Less than what? 1116 is not going to give you much credit.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

edcrfvtgb
Posts: 5
Joined: Tue Apr 02, 2019 7:40 pm

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by edcrfvtgb » Thu Apr 04, 2019 2:56 pm

I didn't have cap gains by selling investments before leaving Canada. I haven't touched RRSP since then (still having an account open in Canada).

When I use 2555, the total tax payable in IRS return is more than if I don't exclude the income and use form 1116 to take the credit. In the IRS return, my tax payable before including Canadian income is $X, after adding Canadian income it increased to $X + $9,000. If I use form 2555, the tax drops to $X + $2,000, but using form 1116 instead will drop it to $X - $3,000. I can dig out the number later.

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by nelsona » Thu Apr 04, 2019 4:50 pm

Sounds fishy.
You said you report about $40K in Cdn income, and you are getting $12,000 of credit (you said you went from X+9K to X-3K), which is well over 25%.

Your effective taxrate (the maximum rate that you can be credited) cannot be anywhere near $25%. For $110,000 of income the effective taxrate is only about 16%, so the most you can be getting credit is about $6500.
I would say that you aren't filling your 1116 inputs correctly.
The 2555 sounds about right.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

edcrfvtgb
Posts: 5
Joined: Tue Apr 02, 2019 7:40 pm

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by edcrfvtgb » Thu Apr 04, 2019 5:53 pm

Just checked again the tool (TaxAct) and correct some numbers here.

All in US dollar.

W2 $88,000
T4 $51,000

1. When using 1040, MFJ, with only W2, tax payable is $7,300.
2. Adding T4, tax payable is $17,300
3. Using 2555 (shown up in schedule 1/1040 as a deduction), tax payable is $11,500
4. Using 1116, tax payable is $17,300 minus a credit $6,300 (so effective tax is $11,000 - very close to 2555 but better for me)
5. Using both 2555 and 1116 (which is not allowed but the tool doesn't check whether you are claiming on both sides), tax payable is $11,500 minus a credit $6,000

So I was wrong in saying that 1116 is better than 2555 since the difference is not too much, but still a bit better.

Does it look reasonable to you, nelsona?

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by nelsona » Fri Apr 05, 2019 8:27 am

I already said what your credit would be and that 2555 was looking accurate. Enough please.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

edcrfvtgb
Posts: 5
Joined: Tue Apr 02, 2019 7:40 pm

Re: My 2018 Tax Return (Canadian departed in 2018 to US under TN)

Post by edcrfvtgb » Fri Apr 05, 2019 2:27 pm

Yes, nelsona, you are right. You have mentioned what the tax credit would be for my case. Like you said, normally the longer one worked in Canada it is better to use deduction, however in my case my Canadian income is still much lower despite that I spend 2/3 of 2018 in Canada.

Thanks for the discussion, now I have the confidence to file my tax.

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