Returned to CDN ... Dual Status Attack Plan?

CheapScotsman · Post by **CheapScotsman** » Tue Apr 12, 2005 8:43 pm

So I know I am cutting it a little close to the wire time wise buy, hey, I gotta have some excitement in my life …

Here is the situation for 2004 tax year

Before leaving the states we …<ul><li>Earned and was paid about $15000 in income during Jan/Feb 2004
</li><li>Sold our home ($50K in capital gains, owned the house for 2.5 years) and receive the proceeds </li><li> Exercised stock options before leaving the US (cashed enough to pay for the taxes) </li></ul>
We moved back to Canada in Mar 2004 with the only ties in the US being brokerage and bank accounts.<ul><li>I have zero income
</li><li>Wife started working in Canada in August 2004. Approc US$6000 in income in 2004
</li><li>I filed w8-ben forms with brokers to indicate that I am no longer a US resident and claimed “exemptions” under Cdn/US Tax Treaty.
</li><li>Sold all US shares by end of Dec 2004 (approx US$20k in gains)
</ul>
Our Attack Plan <ul><li> File as dual status .. a 1040 for Jan/Feb and 1040NR for the rest of year</li></ul>
Questions<ul><li> Since I am filing dual status, I cannot file Married Filing Joint. I need to file married filing separate … so … my wife had no US income, does she need to file a return (or would it help ???) If she doesn’t file a return how does she handle RRSP information reporting?
</li><li>How are the sale of the shares at year end handled … from an IRS reporting point of view?
</li>[*]Which form(s) do I use for the options exercise
</li></ul>

Thanks in advance ... Scott

CheapScotsman · Post by **CheapScotsman** » Wed Apr 13, 2005 2:34 am

Maybe I should have clarified that, fundamentally, I am not sure on my attack plan. Seems I have two options

Option 1: File as dual status .. a 1040 for Jan/Feb and 1040NR for the rest of year. Note: can’t file Married filing joint so I will loose the standard deductions

Option 2: File a 1040 for the entire year. Note: can claim standard deductions but this will haul in both my wifes income AND my capital gains BUT I will get a foreign tax credit for paying taxes on these in Canada

so ... which one is most likely (given the numbers above) to result in the least amount of tax?

Any suggestions anybody ???

CheapScotsman · Post by **CheapScotsman** » Wed Apr 13, 2005 1:04 pm

Hmmm ... so nelsona indicates in this post http://forums.serbinski.com/topic.asp?TOPIC_ID=196 that ... exclusion of Cdn income on 1040 (with Form 2555), it is valid as long as you keep filing a 1040, and can establish the foreign exclusion criteria, which are described in IRS Pub. 54.

Guess I'll look into foreign exclusion criteria and perhaps option 2 as maybe I can at least exclude the wife income for US taxes

CheapScotsman · Post by **CheapScotsman** » Wed Apr 13, 2005 4:31 pm

So the flowchart on Pg 12 of IRS Pub. 54 indicates that we have to have been 300 days in the foreign country in a single tax year in order to get the FIEI ... we don't seem to qualify ... hmmm ...