Canadian TN commuting to US - how to file next year?
Moderator: Mark T Serbinski CA CPA
Telly, as I said from the outset, Cdns are not bound by the non-resident rules, sincethe treaty allows them to file exactly like an american would. forget commuting days, forget SPT: you are CDn.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
[i]Since you are/were commuting to work in US, both of you could avail yourselves of Article XXV(4) of the treaty, which, in effect, allows you to 'prepare' a 1040 like we've been outlining above, calculate an effective tax-rate, and then submit a 1040NR, reporting the US wages (and any other US income) ONLY, and paying Fed tax at the rate determined in the 'pro forma' 1040.
In short, you were to prepare a joint return, reporting $120,000 total income, and worked out the total Fed tax was $20,000.
You would then file a 1040NR for your self, reporting only your US wages, say $60,000, and pay $10,000 fed tax, regardless of how much higher the 1040NR tax ended up. [/i]
I'll have to noodle this one a bit more as I'm not totally udnerstanding it - but that's not YOUR problem. ;)
One question though, if we used this method would we submit both the 'pro forma' 1040 (for us both) and a 1040NR for each of us? What would be the advantage of doing this over just filing the 1040 MFJ?
In short, you were to prepare a joint return, reporting $120,000 total income, and worked out the total Fed tax was $20,000.
You would then file a 1040NR for your self, reporting only your US wages, say $60,000, and pay $10,000 fed tax, regardless of how much higher the 1040NR tax ended up. [/i]
I'll have to noodle this one a bit more as I'm not totally udnerstanding it - but that's not YOUR problem. ;)
One question though, if we used this method would we submit both the 'pro forma' 1040 (for us both) and a 1040NR for each of us? What would be the advantage of doing this over just filing the 1040 MFJ?
The advantage of 2 1040NRs over 1040 MJF is that in years when you have capital gains, you could find yourself paying US tax on those gains. There are other reasons as well (8891, etc).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
nelsona,
I'm not sure if I'm making a mistake of some sort but is it possible that 1040 MFJ could actually turn out to pay more taxes in the US than two 1040 NR's?
When we itemize our dedutions we are only slightly over the standard deduction for MFJ (we have a small mortgage and property taxes and didn't donate much this year). My husband and I have close to equal salaries and approx. 30% of his income came from Canada.
Wow...that was a lot of work to figure out we were actually worse off. :(
I'm not sure if I'm making a mistake of some sort but is it possible that 1040 MFJ could actually turn out to pay more taxes in the US than two 1040 NR's?
When we itemize our dedutions we are only slightly over the standard deduction for MFJ (we have a small mortgage and property taxes and didn't donate much this year). My husband and I have close to equal salaries and approx. 30% of his income came from Canada.
Wow...that was a lot of work to figure out we were actually worse off. :(
I would verify what 'deductions' you got on 1040NR. There are very few that are eligible, if I remember.
Cdn charities for example, are not. They may have losebed the definitions over the years, but I doubt it.
Cdn charities for example, are not. They may have losebed the definitions over the years, but I doubt it.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
I looked over the 1040NR and I just don't see how the TAXRATE that you calculte on you proforma is greater than the taxrate on your 1040NR.
There is no standard deduction, no mortgage deduction, no Cdn charity and the taxrate is higher.
Look again.
Remeber: it's the TAXRATE, not the total tax that you need to look at.
There is no standard deduction, no mortgage deduction, no Cdn charity and the taxrate is higher.
Look again.
Remeber: it's the TAXRATE, not the total tax that you need to look at.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Remeber: it's the TAXRATE, not the total tax that you need to look at.
That is definitely where I went wrong. So I should calculate the total tax (line 63) and divide by Adjusted Gross Income (line 23) on the pro forma and then use that taxrate on each of our 1040NRs (enter in line 41 with note to see 1040 pro forma)? Is this correct?
That is definitely where I went wrong. So I should calculate the total tax (line 63) and divide by Adjusted Gross Income (line 23) on the pro forma and then use that taxrate on each of our 1040NRs (enter in line 41 with note to see 1040 pro forma)? Is this correct?
nelsona,
the 1040 instructions tell me:
if you claimed the foreign earned income exclusion on form 2555, you must figure your tax using the "foreign earned income tax worksheet". When I use this worksheet I get a tax of $18,397 whereas if I used the tax table for my taxable income of $89,911 (line 43) I get a tax of $15,596. Why the huge discrepancy? I figured an income exclusion mean just that, excluding income. I don't understand why my tax should be higher with foreign income. Any ideas?
If this is the case, it appears we are in fact better off filing 1040NR. :(
the 1040 instructions tell me:
if you claimed the foreign earned income exclusion on form 2555, you must figure your tax using the "foreign earned income tax worksheet". When I use this worksheet I get a tax of $18,397 whereas if I used the tax table for my taxable income of $89,911 (line 43) I get a tax of $15,596. Why the huge discrepancy? I figured an income exclusion mean just that, excluding income. I don't understand why my tax should be higher with foreign income. Any ideas?
If this is the case, it appears we are in fact better off filing 1040NR. :(