I'm presently a Canadian Resident and Canadian Citizen.
I'm presently employed full time in a Canadian company and paying taxes in Canada
In 1992 I left Canada to work in the USA. I did not maintain any residential ties in Canada at all. For approximately 13 years from 1993 to 2006 I was living and working in the USA filing taxes and paying all taxes to the IRS.
During that time I made contributions to a 401(k) in the USA
In 2003 I invested in the company that I worked for becoming owner of a 30% share of the company.
At the end of 2005 after clashes within the company, I moved back to Canada.
The company at the time fully intended to pay me back my original investment, but no payment ever came from them. There have never been any distributions or payments made by them to me.
This year I cashed in the 401(k) minus 20% withholding and 10% penalty to buy a house (first time buyer) for which I'm scheduled to take ownership on Jan 15, 2007.
I recently found out that the US company has recently closed its doors.
No one answers the phone and there are rumors that there are bankruptcy proceedings under way, however I dont know where to look to see if the US company has officially declared bankruptcy.
My questions are:
1. Can I use my capital loss to offset the moneys withheld from the 401(k) and perhaps get a refund of some of the money's paid to the IRS?
2. Is there a place that I can find out if a formal bankruptcy notice has been filed?
3. What kind of documentation would I need to give to the IRS, to prove that a bankruptcy has occurred?
4. How do I also file income taxes with Canadian government? Would I be subject to double taxation?
5. How much would Serbinski charge to do my tax filings for US and Canada
Capital Gains vs 401(k) Cash in
Moderator: Mark T Serbinski CA CPA
-
CanuckinCA
- Posts: 1
- Joined: Mon Dec 31, 2007 1:21 pm
- Location: Kitchener, ON
401(K):
US:
You are on the hook for the 30% for IRS. As a Cdn, you could file a 1040, reporting all world income, in the hopes of reducing the tax to less than was withheld. Or, you could file a 1040NR, reporting just the 401(k) and see what that yileds. If it is less than 30% use this method.
Since your withdrawal was from a 401(K) and not an IRA, you cannot get any 'fist home buyer' relief from the penalty.
The most the bankruptcy would help you (and only if you filed 1040) is knoeck off $3000 of your income. The bankruptcy would likely need to ahve been finalized in 2007.
Canada:
You must incluse all the 4019K) withdrawal (gross) as income on your Cdn return. the US tax, but not the penalty, can be used as foreign tax credit in 2007 only.
To reduce the impact of this income ofn your Cdn tax you have a couple of options: (a) fund your RRSP before the tax deadline, you can use as much of the 401(K) money as you wish; it is considered a transfer and not affected by any contribution limit you might have. You would stillbe able to use the US tax as credit. (B) fund RRSP such that you can then take out some under the HBP scheme.
Wihout putting this 401(K) monry back into an RRSP, you are liooking at ta whopping tax bill on this money , all told. Even by using RRSP, your tax savings may be minimal unless you have commensurate Cdn income to write it off against in 2007.
Cap loss:
As i said , your US cap loss is not going to be much help in US.
IB canada, your stocjk would have been revalued based on your arrival date in Canada. When the final stock value is determined, you will be able to use this againstpast/present/future cap gains only.
US:
You are on the hook for the 30% for IRS. As a Cdn, you could file a 1040, reporting all world income, in the hopes of reducing the tax to less than was withheld. Or, you could file a 1040NR, reporting just the 401(k) and see what that yileds. If it is less than 30% use this method.
Since your withdrawal was from a 401(K) and not an IRA, you cannot get any 'fist home buyer' relief from the penalty.
The most the bankruptcy would help you (and only if you filed 1040) is knoeck off $3000 of your income. The bankruptcy would likely need to ahve been finalized in 2007.
Canada:
You must incluse all the 4019K) withdrawal (gross) as income on your Cdn return. the US tax, but not the penalty, can be used as foreign tax credit in 2007 only.
To reduce the impact of this income ofn your Cdn tax you have a couple of options: (a) fund your RRSP before the tax deadline, you can use as much of the 401(K) money as you wish; it is considered a transfer and not affected by any contribution limit you might have. You would stillbe able to use the US tax as credit. (B) fund RRSP such that you can then take out some under the HBP scheme.
Wihout putting this 401(K) monry back into an RRSP, you are liooking at ta whopping tax bill on this money , all told. Even by using RRSP, your tax savings may be minimal unless you have commensurate Cdn income to write it off against in 2007.
Cap loss:
As i said , your US cap loss is not going to be much help in US.
IB canada, your stocjk would have been revalued based on your arrival date in Canada. When the final stock value is determined, you will be able to use this againstpast/present/future cap gains only.
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