Dual Resident Status - TAX

hoomanmoh · Post by **hoomanmoh** » Fri Jan 12, 2007 3:27 am

Hi Guys, I moved to US from canada on TN on June 1st 2006 ( I meet the 183 days presence test). My wife and son officially got their TD on October 2006, however they went back & forth from June. My wife worked for her Canadian company all of 2006, while I worked in Canada upto June 1st.
We dont want to give up the Canadian residency, since I sponsored my family to Canada, and I have strong ties still in Canada.

Long story short: I need some comments regarding the following:

* I have a choice between declaring my wife & son as resident aliens or nonresident aliens -- What do you guys recommend? Can you guys explain whether i need to report her Canadian income to IRS?
* My wife as a TD holder is not allowed to work and she didn't, so her income is 0, and she needs to apply for ITIN. Should we file seperately or jointly?

* What category will she and my son fall into? Spouse/dependant of a resident alien or Individual resident alien or individual non/resident alien?

* I think I will fall in the category of dual resident status in the US, should I report my Canadian income to the IRS, knowing that my canadian income was before I even come to the US?

* also I read in other postings something about the need to report your foreign bank accounts and RRSPs to IRS? Is that true? What are the requirements?

any other comments or recommendations will be highly appreciated.

Thanks

nelsona · Post by **nelsona** » Fri Jan 12, 2007 10:00 am

This topic has been covered several times.

You have several choices on how YOU want to file. Your spouse does as well. Note that none of the choices will affect your Cdn tax return. Note also, that even if they are not Cdn citizens and merely have OR status, they can leave canada for upto 3 years without affecting their Cdn status.

For you, your choice is either to be 'dual-status' for 2006, reporting only your income after 06/01/06 on a part-year 1040. This would mean a "Married filing separately" (MFS) with no standard deduction, so expect a HUGE taxrate on your US income.

The other choice you have is to file 'full-year' 1040, which means you report your entire year income on 1040. Now, you would have the choice of filing jointly with your spouse (she too would report all income), but this would get you better taxrate and standard deduction. Since, under this scenario, you would be reporting Cdn income on your 1040, you would have 2 methods of reducing the US tax on that income: excluding most it by Form 2555, or taking a credit for the Cdn tax using Form 1116.

Most Cdns arriving in US at the time of year you did, find that the full-year 1040 filing jointly with their spouse, and excludsing the pre-arrival wages thru 2555 yields the lowest US taxrate.

I would suggest that you scan this forum for any more details that you might need. IRS Pub 519 will be your guide for your 2006 tax filing. After that it will be come easier.

hoomanmoh · Post by **hoomanmoh** » Wed Jan 17, 2007 6:51 pm

Thanks for your comments, you mentioned to exclude the income thru form 2555 OR to Apply for Tax Credit thru 1116.

From you posting I'd assume that

1) I have to choose between 2555 or 1116.
2) I also understand that using 2555 gives you a better tax range in the US rather than using 1116.
Am I right?

So far I know I have to submit form 1040 + 2555. What about RRSPs or other investments that I need to report to US. Can you tell me which other forms do I need to apply. I am lost in all variety of forms in IRS.

Is there any software (Desktop/Online) that can handle all these? Please recommend.

Many Thanks

nelsona · Post by **nelsona** » Wed Jan 17, 2007 8:19 pm

2555 applies only to foreign wages (earned while non-resident of US), so one or more 1116s may be needed in any event, for non-excludable wages and other types of income.

How is the scanning of this forum going?

hoomanmoh · Post by **hoomanmoh** » Wed Jan 24, 2007 5:32 pm

My eyes turned blue and I am still not sure how to approach this first year tax in the US.

Considering I am on TN and will be back to Canada (according to this Visa nature) why would I care to report my Cdn investments/Incomes to the US?
All my Cdn income is in Cdn bank and will not be cashed or transferred to the US. So why do I need to report when there is no flow of the money to the US!
Can I deal with both countries individually? What's going to happen if I dont report my Cdn stuff to the US or Vise versa? (Assuming the money will stay in the source country)

nelsona · Post by **nelsona** » Wed Jan 24, 2007 6:05 pm

Once you reside in US for a certain number of days, you are considered a US resident for tax puposes, and thus need to report your WORLD income.

Doesn't matter if you are a TN, or even a tourist.

Also, you usually get a MUCH better tax rate in US if you file as a resident than as a non-resident, so reportinga few extra Cdn dollars often yields 100's back in US tax refund.

The argument that the money is not in US holds no water of course. Hundreds go to jail each year for not reporting 'off-shore' accounts and income. it's called tax evasion.

As to your eyes turning blue: good for you, you won't need those coloured contacts! :lol:

hoomanmoh · Post by **hoomanmoh** » Thu Jan 25, 2007 7:26 pm

ok now, I am using Turbo tax on line, on the income category I found there is a place to enter the foreign earned income. I entered 15000 in the salary from foreign employer, and that's the only number I entered. The funny thing is that it adds up to my tax reund. My total W2 income is 43900, it looks like that the 15000 will get a negative value and will add to my refund. Am I doing something wrong here? I have not yet filled out the deductions or the foreign tax credit part.

nelsona · Post by **nelsona** » Fri Jan 26, 2007 7:59 am

You have to make sure that the foreign income ALSO appears in your wage column. I think what is happenning is that the software is thinking that part of your W-2 wages are foreign. Your wages should be ~$58K

hoomanmoh · Post by **hoomanmoh** » Fri Jan 26, 2007 3:05 pm

aha... now should I just add that Canadian income number to my wages on w2? (Box 7 of 1040) or do I add that to box 21 (Other Income)! Do I need to attach any Canadian documentations like T4?!
Should I add straight up or change the current exchange rate to convert to US$? I am getting there Nelson, thx for all your help.

nelsona · Post by **nelsona** » Fri Jan 26, 2007 4:18 pm

Your Cdn salary goes on the wage line. You have to report it in US$. You should use the official exchage rate pubklished by the bank of canada for 2006.

IRS doesn't require any docs to be sent.