First year US/Cdn taxes: 2555/1116 question

adelutza · Post by **adelutza** » Mon Mar 17, 2008 9:59 am

1 . I am filling a 1040 and I reported my world income. I excluded my Cdn wages on form 2555.Can I still take a credit for CPP and EI on form 1116? If yes, what are the wages I report them on?
2 . If I use 1116 only to take a credit for all my canadian payed taxes, is there a way to exclude that income for the state taxes?

Thanks a lot!

nelsona · Post by **nelsona** » Mon Mar 17, 2008 10:16 am

1. No. You can't take credit/deduction for any of the taxes that are a related to those wages that you excluded with 2555. Once you use 2555, the only credit you get is for the Cdn tax you pay on non-wage income (interest, cap gains, etc). you would report that income on 1040 and then include the prorated portion of your INCOME tax (not CPP/EI) that you owed for that income only.

2. Of course. All states have 'part-year' tax returns, which allow you to exclude income which was earned outside the state and while you were not resident of the state.

adelutza · Post by **adelutza** » Mon Mar 17, 2008 10:19 am

Thank you very much!

hp · Post by hp » Mon Mar 17, 2008 10:53 am

Nelsona, Can you explain a little bit more about "you would report that income on 1040 and then include the prorated portion of your INCOME tax (not CPP/EI) that you owed for that income only"? Where should I put it? My understanding is after I excluding my Canadian wages from form 2555, it won't be taxed by US. Then it doesn't matter how much CPP/EI I paid at Canada, right?

nelsona · Post by **nelsona** » Mon Mar 17, 2008 11:17 am

Correct. Once you use 2555 you will not be taxed on that income by IRS.
However, changes to 2555 over the past 2 years have made any OTHER income a little bit more taxable than it used to, so that is likely why some longtime US citizens living in Canada are now loking to try to reduce their US taxes further.

adelutza · Post by **adelutza** » Mon Mar 17, 2008 12:00 pm

I was asking that because if i exclude canadian income using 2555 I pay more US taxes then if I take a credit for the taxes payed on 1116. I did my taxes both ways and going the way of 1116 id the better way for me ( but I am single).

nelsona · Post by **nelsona** » Tue Mar 18, 2008 5:45 am

AS I have sais many tmes, you need to do your taxes several ways in US in first year to see which is better. Becareful that you do the 2555 and 1116 correctly. Use software