First Year Taxes in the US

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

First Year Taxes in the US

Post by SHSHSH » Thu Apr 16, 2020 5:54 pm

Hello,

I read quite a few threads but noticed all are quite specific to the individuals circumstances. Hoping you can help a bit to let me know if I'm missing something critical. Note that searching "first year taxes" does not provide results since all the words are too common.

Situation:
- Self, moved to the US in June 2019 with wife and 2 kids.
- Jan 2019 to June 2019 have income in Canada (Full-time employment)
- July 2019 to Dec 2019 have income in US (Full-time employment)
- Upon leaving Canada, I put my house on rent and have rental income as well.
- Standard bank accounts and RRSPs are still in Canada
- Complication: Wife was also on maternity leave from April 2019 onwards so did get some EI insurance.

Plan:
- I was going to file for 1040 jointly as married as both my wife and I will meet the SPT test (I'll double check).
- I will be a non-resident for Canada effective June 2019 if I'm meeting the SPT test in the US. I don't want to keep dual residency.
- In my US tax return (turbotax), I will including the income from July to Dec 2019 when I was residing in the US.
- In my CDN tax return (Ufile), I will declare non-residency and whatever I need to do for the departure test. I will include my income for the period from Jan to June 2019

Questions:
1) For the rental income, because it is earned in Canada, it's not a significant amount when split between my wife and I, should I file in Canada first and use the income tax credit on the US side? The rental income starts June 15, 2019, around the same time when I moved to the US.
2) For my wife's income, do I split her T4 for Canadian tax return (Jan to June) and whatever amount she received once she became US resident(June to Dec 2019)?
3) There is some interest income earned on bank accounts, primarily from June to Dec period once I moved to the US, which tax return will this go into?

Thanks in advance!

nelsona
Posts: 16417
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: First Year Taxes in the US

Post by nelsona » Sat Apr 18, 2020 6:26 pm

If you are filing full year joint return in US, you report ALL 2019 income, either received before or after departure.
If you moved, you do not have to meet SPT to declare yourself non-residsnt of Canada. You ARE non-resident, beginning in June.
Your renatl income in Canada MUST be reported on a special return in Canada, and must have renta tax withheld. Important.
You must also report rental income in US.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

Re: First Year Taxes in the US

Post by SHSHSH » Mon Apr 20, 2020 2:09 am

Thanks.

A few follow up questions:

1. What do you mean filing a full year joint return? What other option do I have?
2. My wife and kids do not have ITIN or SSN, can they still file taxes in the US?
3. Unfortunately, I did not withhold rental tax when I moved. I was planning to do a normal tax return for 2019 to include rental income. My expenses on the real estate property are quite high that I would end up paying more if i withhold 25% of gross rental income. Regardless, what option do I have now?
4. If I've paid tax on rental income in Canada, why do I need to show that in my US tax? Through the treaty wouldn't that cover it?
5. On a side not, I'm in California so will I be paying incremental taxes on net rental income?
6. Finally, the interest on savings account, do I add that to my Canadian tax return or the US tax return?
7. Although I moved in Jun 19th, can my wife still continue to remain resident of Canada? Is that possible? She does not work in the US.

Thanks!

nelsona
Posts: 16417
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: First Year Taxes in the US

Post by nelsona » Mon Apr 20, 2020 6:31 pm

These are questions that have ben covered here many times. Please search.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

Re: First Year Taxes in the US

Post by SHSHSH » Fri May 15, 2020 7:27 am

Nelsona,

Based on your advice I have spent countless hours on these forums reading up on every possible scenario. I have reached out to a number of firms for the right answer as well but unfortunately have gotten different answer every single time. Its exhausting but I think I have most figured out. I want to summarize how I'm approaching my taxes so please let me know if I'm missing something:

1. My Residency: With moving to US on June 19, 2019, I meet the SPT test and will be treated as resident alien. I did travel to Canada a few times to check on the rental property etc. And a brief trip and also international travel. Regardless of SPT, given the fact that I moved and now work in the US, I'm eligible to be treated as resident alien. Please correct me if I'm wrong.

2. Spouse: My spouse is on maternity leave and travelled with me to the US. She still has her employment in Canada and will pick it up again now in 2020. She visited me. When I was travelling for work for about two weeks, she went back to Canada including the kids. She does not meet the 183 day SPT test. I'm going to treat her as Canadian resident. Does that make me Canadian resident as well? I would say yes but under the tax treaty I'm a deemed non-resident of Canada and have my house in the US as well (tie-breaker). Is my understanding correct?

Canada Taxes:

3a. For myself, I will show my departure date of June 19 and show myself as non-resident.
3b. I will also file 216 for rental income from June 19 to Dec 31st.
3c. Finally ill also file NR6 to withhold tax on net rental income.
3d. For my wife, she will continue to to do her usual tax return.

US Taxes:

4a. I will elect my wife as a resident and file taxes as married filing jointly to maximize standard deduction.
4b. I will include information for my W2 as well as my Caandian income including rental income.
4c. For my wife, I'll also be including her worldwide income including her T4, T4E and rental income.
4d. For some odd reason, I'm not able to use 2555 so instead I'm going to use 1116 for foreign tax credit. The tax I paid in Canada will be included here so it should really offset the inclusion of Canadian taxes. I'm still trying to figure this piece out.

Remaining questions:
5. Am I correct so far in the flow noted above?
6. With regards to rental income, I break even in Canada after including all the expenses. Therefore I cannot take CCA for first year. In the US, depreciation is a must so I'm go go take that which means I'll have a loss on property. Does that mean for my wife, I need to adjust her foreign income to include this loss?
7. Im actively involved in leasing discussions so I believe this loss can be offset agaisnt my W2 income.

Can you let me know if I'm missing anything? I'm getting a refund in the US primarily when I file as MFJ. If I file MFS, I owe about a few to IRS.

Will appreciate your help with this.

SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

Re: First Year Taxes in the US

Post by SHSHSH » Fri May 15, 2020 7:28 am

Sorry one more question:

8. Do I enter foriegn income earned as online item or do I break it into employment income, rental, mat leave, interest etc.?

nelsona
Posts: 16417
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: First Year Taxes in the US

Post by nelsona » Sat May 16, 2020 9:15 pm

I'll let you figure this out; question is way to long.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

Re: First Year Taxes in the US

Post by SHSHSH » Sun May 17, 2020 8:28 am

Was hoping to get some insight on whether I'm correct or not. I guess just two questions:

1. Do I enter foriegn income earned as on line item or do I break it into employment income, rental, mat leave, interest etc.?

2. With regards to rental income, I break even in Canada after including all the expenses. Therefore I cannot take CCA for first year. In the US, depreciation is a must so I'm going to take that which means I'll have a loss on property. Does that mean for my wife, I need to adjust her foreign income to include this loss as well? We own the house 50/50.

nelsona
Posts: 16417
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: First Year Taxes in the US

Post by nelsona » Sun May 17, 2020 9:18 am

You are filing a joint return, so report the rental loss together.

You report the income on the lines which it represents, wages, interest, etc.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

Re: First Year Taxes in the US

Post by SHSHSH » Sun May 17, 2020 10:26 pm

Thank you.

Just one more question. Should I be using form 2555 or Form 1116 to exclude my foreign wages. It looks like 2555 relates to "foreign EARNED income" which means, interest is not excluded but I can use form 1116 for foreign tax credit?

Alternatively, can I use Form 1116, to exclude wages paid on my earned income i.e. Canadian wages before I moved to Canada?

I noticed my refund increases if I use form 1116 for foreign tax credit instead of 2555.

Thanks!
S.

nelsona
Posts: 16417
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: First Year Taxes in the US

Post by nelsona » Mon May 18, 2020 7:07 am

Done with this thread, Happy browsing.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

Re: First Year Taxes in the US

Post by SHSHSH » Thu May 21, 2020 3:28 am

I swear, after every msg of yours I do 10x more research. I think I found the answers to 2555 and 1116.

Can you please help me with one more question:

for the Form 1116, the taxes paid for the credit, should this be the actual taxes paid on Canadian tax return? To give more context, for my CDN tax return, I use the following for the additional tax credit:
1. Donations
2. Childcare expenses

To calculate the FTC number for the US, should I remove these from my tax return and then calculate the number? Removing these deductions increases my total taxes paid by almost $2,000.

Please help.

nelsona
Posts: 16417
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: First Year Taxes in the US

Post by nelsona » Thu May 21, 2020 7:21 am

Really? One more question? You just asked about 3! The tax for FTC is the tax for the year on the tax return, once you have finished the return. The foreign income is gross income, both on the 1040 and the 1116.

I don't do people's taxes. There are accountants for that.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

SHSHSH
Posts: 10
Joined: Thu Apr 16, 2020 4:01 am

Re: First Year Taxes in the US

Post by SHSHSH » Thu May 21, 2020 3:50 pm

Thanks! This is helpful.

Post Reply