I am a Canadian Resident working in US and traveling across the border everyday. I am not an US Citizen. My only income is Wages from my US job (US Employer) and US and Canadian Bank Interests.
After going through the forum topics I understand that I have two options when filing my US Tax Return for 2018.
(1) File a regular 1040 in US as a Married Filing Jointly and report my Canadian Bank Interest in US 1040 as well. (This is considering the non-discrimination clause in the US Canada Tax Treaty). This is simpler of course but will result in additional obligations of a resident having foreign bank accounts (like filing FBAR).
(2) File 1040NR, but calculate the tax rate using the pro forma 1040 and the XXV(3) Treaty Clause. The 1040NR will only report my US Salary Income and not any Bank Interest either from US or Canada.
If I go with option (2), I understand how to calculate the tax for 1040NR. However, I have a few questions regarding how to present the documents to the IRS.
Q1. I understand I will need to include the first two pages of the pro forma 1040 along with my 1040NR. I do not want to confuse the IRS with two tax forms. So, what and where do I mention that the 1040 is just used for the calculation and is a pro forma and not the real tax form?
Q2. Do I need to file 8833 with 1040NR to show what Treaty clauses I have used? If not, where do I mention that I have used article XXV(3) for the tax rate?
Q3. The fact that I am not reporting the US Bank Interest on my 1040NR (because I'll report it on my Canadian return) as per treaty article XV, where do I mention that? Is it on form 8833 or elsewhere?
Q4. Do I need to include a cover letter and explain everything to the IRS what I have done and how I have come up with the tax rate on 1040NR?
Q5. If I do choose to file a simple 1040 instead of a 1040NR, do I need to mention the US Canada Tax Treaty XXV(2) non-discrimination clause anywhere on the tax form?
I'd really appreciate if someone can clarify the above.
Thanks in advance.
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Moderator: Mark T Serbinski CA CPA
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