We married in September and have not cohabitated. He lives in Ottawa and works there. I'm in NY and work there.
How do we file our taxes? Married, separately? Or Joint? I have no Canadian income and he has no US income. We both earn >$90K.
I'd like to get him a tax ID as it'd make banking etc. in the US easier.
I'm not really sure he'll be able to live here in '08 so we'll probably be in this situation for another year. (Going for a CR1 visa.)
Any hints on where we're to start regarding US and Canadian taxes for '07 would be appreciated.
Canadian Spouse, not living together (yet)
Moderator: Mark T Serbinski CA CPA
You:
Unless you move to Canada, you are not resident there for tax purposes, so no Cdn return needed for you.
For US, you are no longer single, so must either file jointly or separately. If you file jontly, you will need to report all your husbands world income for the year, and then use foreign wage exclusion (Form 2555) and/or foreign tax credits (form 1116) to reduce his US tax to zero. Usually joint filing gives YOU the better taxrate and deductions. Most in your situation prepare it both ways and see which one is lower.
Him:
On his Cdn return he must indicate that he is married. Although there is no joint filing in Canada, some credits and dedcutions are based on joint income totals. To avoid erroneously receiving these, he would indicate your income on page 1 as indicated, ewven though you are not filing.
If you file separately, he does not need to file. You can still claim his exemption. He will be issued an ITIN after you file.
ITIN is not usually sufficient for banking purposes anymore, so USD accounts are going to remain in your name until he gets his SSN (at some future time in the immig process).
Unless you move to Canada, you are not resident there for tax purposes, so no Cdn return needed for you.
For US, you are no longer single, so must either file jointly or separately. If you file jontly, you will need to report all your husbands world income for the year, and then use foreign wage exclusion (Form 2555) and/or foreign tax credits (form 1116) to reduce his US tax to zero. Usually joint filing gives YOU the better taxrate and deductions. Most in your situation prepare it both ways and see which one is lower.
Him:
On his Cdn return he must indicate that he is married. Although there is no joint filing in Canada, some credits and dedcutions are based on joint income totals. To avoid erroneously receiving these, he would indicate your income on page 1 as indicated, ewven though you are not filing.
If you file separately, he does not need to file. You can still claim his exemption. He will be issued an ITIN after you file.
ITIN is not usually sufficient for banking purposes anymore, so USD accounts are going to remain in your name until he gets his SSN (at some future time in the immig process).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
follow-on question
We are in the same situation. I realized that the income exclusion does not result in a zero impact to taxes from the foreign excluded income. I was surprised and wanted to run my finding here.
My wife is Canadian. Made $50K
I am American and made $100K.
I am able to exclude all $50K but the $50K still has a tax impact. The tax was computed as follows. Add both incomes so $150K and compute total tax, say $45K. Then compute what would the tax be if income was only $50K (lower bracket), say taxes are $10K. So net taxes paid is the difference which is $35K.
Now if i was filing separately, then the taxes on my $100K income would be more like $32K. so the net impact is $3K more taxes.
Any thoughts on this would be much appreciated.
My wife is Canadian. Made $50K
I am American and made $100K.
I am able to exclude all $50K but the $50K still has a tax impact. The tax was computed as follows. Add both incomes so $150K and compute total tax, say $45K. Then compute what would the tax be if income was only $50K (lower bracket), say taxes are $10K. So net taxes paid is the difference which is $35K.
Now if i was filing separately, then the taxes on my $100K income would be more like $32K. so the net impact is $3K more taxes.
Any thoughts on this would be much appreciated.
The anti stacking provisions introduced 2 years ago have made FEIE much less attractive, since, as you have found out, unless almost ALL income --hers and yours -- can be excluded, there will be some tax on the excluded income.
The solution may be to use the foreign tax credit instead.
Noe that this problem would have been the same if she was american and married you late in the year. Her income, which would have been taxed in a low bracket (if at all) is now added on top of yours, thus at higher bracket. And your filing as single is no longer possible, you can only file MFJ or MFS.
The solution may be to use the foreign tax credit instead.
Noe that this problem would have been the same if she was american and married you late in the year. Her income, which would have been taxed in a low bracket (if at all) is now added on top of yours, thus at higher bracket. And your filing as single is no longer possible, you can only file MFJ or MFS.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for the reply. Good point about this also being an issue even if both of us were Americans.
Since she makes 50K, i am able to exclude all her income on the 2555 and the effect described earlier is still increasing my taxes from say the scenario where she made no money. In one scenario, if I make 100, she makes 50 and I exclude the 50 making my net AGI as 100. In another scenario, i make 100, she makes Zero. AGI is also 100. But taxes are much lower in the second scenario because of the tax bracket effect. I hope i am working the worksheets properly.
Since she makes 50K, i am able to exclude all her income on the 2555 and the effect described earlier is still increasing my taxes from say the scenario where she made no money. In one scenario, if I make 100, she makes 50 and I exclude the 50 making my net AGI as 100. In another scenario, i make 100, she makes Zero. AGI is also 100. But taxes are much lower in the second scenario because of the tax bracket effect. I hope i am working the worksheets properly.
Yes, you are doing things right. US lawmakers saw the previous FEIE method to simply take the income off the top, as unfair to other joint filers.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks again. I went thru the forms again and have generated some more questions :( Hoping you can guide in the right direction without tkaing too much of your time.
[i]Some background: I am the USC. Wife is the Canadian citizen. We are choosing to file our federal taxes as 'Married Filing Jointly' and we are also using the Foreign Tax Credit method to minimize double taxation. (it seems to be better that using income exclusion under 2555 per the tax bracket effect discussed above). All my wife's income in 2007 is from Canada. Wife was in Canada for more than 330 days in 2007. She is electing to be a US resident for tax purposes (since she can as she is married to a USC).[/i]
1) Since my wife does not have a W-2, i just looked at her 12/31/07 paycheck to extract her YTD gross income. Is this right?
2) I used the YTD Canadian Federal Income Tax to claim it on From 1116. Since i am extracting the tax amount from the paycheck, [u]it is not the actual tax owed [/u]in 2007. Does my wife need to file her Canadian taxed first before i compute the US tax credit so i can figure out the actual taxes she owes in 2007?
2a) Will the [u]tax accrued vs. the cash paid [/u]method come into play here when i look at how much she paid in taxes vs how much she really owed? Form 1116 Lines 7h and 7i.
3) My wife pays CPP, EI and Manulife (ins). Do these figures come into play on the 1040?
4) Her employer pays Prov. Health, Pension, and Manulife. Will these come into play at all?
5) Form 1116: Should i go for the Simplified Foreign Tax Credit election? and are there any implications for using the simplified method for future tax years?
6) Form 1116: Is the type of income "income re-sourced by a treaty" or just "general category income"? she has a regular job in Canada.
7) Form 1116 Part II: It asks for the dates foreign taxes were paid/accrued. Since tax were deducted bi-weekly, what date should i put?
8) Form 1116: Can I claim Canadian deductions?
9) Form 1116: beginning part. It asks for Resident of country. Should i put Canada or USA since wife is claiming her self as US resident for tax purposes?
10) How do i treat CAD to USD conversion for her income and taxes?
Sorry for the long email.
[i]Some background: I am the USC. Wife is the Canadian citizen. We are choosing to file our federal taxes as 'Married Filing Jointly' and we are also using the Foreign Tax Credit method to minimize double taxation. (it seems to be better that using income exclusion under 2555 per the tax bracket effect discussed above). All my wife's income in 2007 is from Canada. Wife was in Canada for more than 330 days in 2007. She is electing to be a US resident for tax purposes (since she can as she is married to a USC).[/i]
1) Since my wife does not have a W-2, i just looked at her 12/31/07 paycheck to extract her YTD gross income. Is this right?
2) I used the YTD Canadian Federal Income Tax to claim it on From 1116. Since i am extracting the tax amount from the paycheck, [u]it is not the actual tax owed [/u]in 2007. Does my wife need to file her Canadian taxed first before i compute the US tax credit so i can figure out the actual taxes she owes in 2007?
2a) Will the [u]tax accrued vs. the cash paid [/u]method come into play here when i look at how much she paid in taxes vs how much she really owed? Form 1116 Lines 7h and 7i.
3) My wife pays CPP, EI and Manulife (ins). Do these figures come into play on the 1040?
4) Her employer pays Prov. Health, Pension, and Manulife. Will these come into play at all?
5) Form 1116: Should i go for the Simplified Foreign Tax Credit election? and are there any implications for using the simplified method for future tax years?
6) Form 1116: Is the type of income "income re-sourced by a treaty" or just "general category income"? she has a regular job in Canada.
7) Form 1116 Part II: It asks for the dates foreign taxes were paid/accrued. Since tax were deducted bi-weekly, what date should i put?
8) Form 1116: Can I claim Canadian deductions?
9) Form 1116: beginning part. It asks for Resident of country. Should i put Canada or USA since wife is claiming her self as US resident for tax purposes?
10) How do i treat CAD to USD conversion for her income and taxes?
Sorry for the long email.
1. You will need to get her Cdn tax forms and prepare her Cdn taxes before you can complete any of the incoem and foreign tax information.
You cannot use her paystub info.
2. See 1.
2a. You should use the ptax accrued method, since if she gets a refund from canada you would need to redo the 1116 if you use the cash method.
3. CPP and EI are considered taxes eligible for 1116.
4.No.
5. I don't think she can use the simplified method. This usually only applies to interst and dividends paid in US.
6. Gen limit.
7. dec 31, 2007
8. no, you use the deductions on schedule A. These can of course include expensed incurred in canada, but they need to match the definitions of schedule A.
9. US
10. For single item income use the exchange in effect that day. Fo income received throughout the yeear, use the yearly average.
Please read over other 1116 threads that deal with this, and the 1116 instructions fro mIRS.
Keep in mind that 1116 has the same issue as 2555 in that her income will be added to the top of yours, but the credit will be based on the EFFECTIVE taxrate of your joint return, so, expect that (a) not all of her Cdn tax will be credited, and (b) the credit will not cover all the tax that her income adds to your US rate.
Also, remember that when doing cross-border taxes, you need to view each return as a separate entity, and follw the rules of each. What was a deduction in canada may not be on her US return, and what is not a deduction in Canada, may be deductible in US, even if incurred in canada (like mortgage interst for example). And the same expense can be deducted on both returns.
And the last point. None of any tax that she might now owe in US can be deducted from her Cdn return. Her income was Cdn-sourced, so cannot be reduced by any foreign tax credit.
You cannot use her paystub info.
2. See 1.
2a. You should use the ptax accrued method, since if she gets a refund from canada you would need to redo the 1116 if you use the cash method.
3. CPP and EI are considered taxes eligible for 1116.
4.No.
5. I don't think she can use the simplified method. This usually only applies to interst and dividends paid in US.
6. Gen limit.
7. dec 31, 2007
8. no, you use the deductions on schedule A. These can of course include expensed incurred in canada, but they need to match the definitions of schedule A.
9. US
10. For single item income use the exchange in effect that day. Fo income received throughout the yeear, use the yearly average.
Please read over other 1116 threads that deal with this, and the 1116 instructions fro mIRS.
Keep in mind that 1116 has the same issue as 2555 in that her income will be added to the top of yours, but the credit will be based on the EFFECTIVE taxrate of your joint return, so, expect that (a) not all of her Cdn tax will be credited, and (b) the credit will not cover all the tax that her income adds to your US rate.
Also, remember that when doing cross-border taxes, you need to view each return as a separate entity, and follw the rules of each. What was a deduction in canada may not be on her US return, and what is not a deduction in Canada, may be deductible in US, even if incurred in canada (like mortgage interst for example). And the same expense can be deducted on both returns.
And the last point. None of any tax that she might now owe in US can be deducted from her Cdn return. Her income was Cdn-sourced, so cannot be reduced by any foreign tax credit.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
In this entire exercise, your goal is to simply reduce your US tax to lower than if YOU files Married filing separtely.
If it doesn't work with 2555 or with 1116, simply file MFS, since she is not required to file in US. You can still claim her as an exemption, and can still itemize.
If it doesn't work with 2555 or with 1116, simply file MFS, since she is not required to file in US. You can still claim her as an exemption, and can still itemize.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks so much. I will defiintley search for and read the 1116 threads.
2a. She thinks she owes money (so not refund cash issues). Should i still use the accrue method? It seems like if i use the cash method and she owes money, the FTC will be lower but then the balance will have to be taken next year. Am i right here?
3. Thanks for the CPP and the EI info. I am not sure how these will account for on her Canadian taxes since they are considered as after-tax deductions on her paycheck. I will do some more research here.
5. I think i was unclear with my quesiton here. I am referring to the simplified method for AMTFTC. The AMT tax worksheet has the option to allow you to elect some simplified method to compute AMY FTC using regular tax tables. I do not understand it. Sorry i am vague here.
I understand everything else you mentioned.
BTW, I looked at 4 scenarios and here are the results so far:
A) Baseline scenario - not realistic. MFJ. I did not include here income (as if she is unemployed). Refund of $5K
B) MFJ with all her income excluded on 2555. I Owe $2.5K ($7.5K swing from A)
C) MFJ with FTC on 1116. I was able to deduct ~$10K in taxes and there is about $1K of carryover FTC for 2008 (i think this is how it works). Refund of $500. ($5.5K swing from A)
D) MFS. I guess because of the higher tax tables, i show that i owe Money. Forgot the actual amount but i think it was in the $1 to $2K neighborhood.
So A is the best but unrealistic. C seems the way to go for me.
Last, how can i get a quote from you or your firm to review my filings before i submit them? Do you also handle states (CA) taxes?
If i file the federal as MFJ with FTC, i am thinking of filing CA as MFS (under the exception that she is not a CA resident) to exclude all her income from my AGI. But since CA is a community state, i still have to share my income with her (split mine in 1/2) so maybe it will end up being favorable for me. OMG this is complicated.
2a. She thinks she owes money (so not refund cash issues). Should i still use the accrue method? It seems like if i use the cash method and she owes money, the FTC will be lower but then the balance will have to be taken next year. Am i right here?
3. Thanks for the CPP and the EI info. I am not sure how these will account for on her Canadian taxes since they are considered as after-tax deductions on her paycheck. I will do some more research here.
5. I think i was unclear with my quesiton here. I am referring to the simplified method for AMTFTC. The AMT tax worksheet has the option to allow you to elect some simplified method to compute AMY FTC using regular tax tables. I do not understand it. Sorry i am vague here.
I understand everything else you mentioned.
BTW, I looked at 4 scenarios and here are the results so far:
A) Baseline scenario - not realistic. MFJ. I did not include here income (as if she is unemployed). Refund of $5K
B) MFJ with all her income excluded on 2555. I Owe $2.5K ($7.5K swing from A)
C) MFJ with FTC on 1116. I was able to deduct ~$10K in taxes and there is about $1K of carryover FTC for 2008 (i think this is how it works). Refund of $500. ($5.5K swing from A)
D) MFS. I guess because of the higher tax tables, i show that i owe Money. Forgot the actual amount but i think it was in the $1 to $2K neighborhood.
So A is the best but unrealistic. C seems the way to go for me.
Last, how can i get a quote from you or your firm to review my filings before i submit them? Do you also handle states (CA) taxes?
If i file the federal as MFJ with FTC, i am thinking of filing CA as MFS (under the exception that she is not a CA resident) to exclude all her income from my AGI. But since CA is a community state, i still have to share my income with her (split mine in 1/2) so maybe it will end up being favorable for me. OMG this is complicated.
2a. Just use the accrual method. It ties her Cdn return to her US one.
2b. There is no research to be done. She paid xx and yy. simply add xx and yy to what her tax is on her return.
5. You should be using software to do 1116. I would not trust your FTC numbers if not doen with software.
It looks like "C" is your correct option, except that you don't know what her Cdn tax will be.
"A" is simply not allowed.
Having carryover form year to year is expected. But don't expect to ever be able to use it unless she stops working.
2b. There is no research to be done. She paid xx and yy. simply add xx and yy to what her tax is on her return.
5. You should be using software to do 1116. I would not trust your FTC numbers if not doen with software.
It looks like "C" is your correct option, except that you don't know what her Cdn tax will be.
"A" is simply not allowed.
Having carryover form year to year is expected. But don't expect to ever be able to use it unless she stops working.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thank again!
I am using Turbotax and doing things manually so i learn.
She will work 1 month of '08 in Canada then move to Cali and will look for a job here. Why can't we use the $1K carry over on our 2008 return? Isn't this the whole point of carrying over?
Do you have a recommendation on how i can get someone to review my returns (both Federal and Cali)? I am looking for something reasonable.
Thanks.
I am using Turbotax and doing things manually so i learn.
She will work 1 month of '08 in Canada then move to Cali and will look for a job here. Why can't we use the $1K carry over on our 2008 return? Isn't this the whole point of carrying over?
Do you have a recommendation on how i can get someone to review my returns (both Federal and Cali)? I am looking for something reasonable.
Thanks.
I didn't mean you could not use it, just that the carryforward would never be used. unless she sops working her Cdn tax for 2008 will be more than she needs for 2008 FTC.
The fact that she stops working might make it come into play, but not $1000 worth.
The fact that she stops working might make it come into play, but not $1000 worth.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best