I have read that when a resident alien moves to Canada and gives up their greencard, they have a choice of (a) filing dual-status 1040/1040NR, or (B) filing full-year return, reporting world income on form 1040.
Is this option to use a full-year 1040 also available to a US citizen that renounces their citizenship? If this is possible, it seems to me that it would be somewhat easier for the following reasons:
-The process is the same as you've done in past years (so there is no need to split income into pre and post-renunciation periods)
-You can use 2555 and/or 1116 for tax relief of any Cdn income
-You can still use the standard deduction (which seems to be denied to dual status returns per the 1040NR instructions)
Is this an option for a renunciant to do their final return? Does it make sense for the reasons I am citing?
Thank you!
Final expatriate return - 1040 or 1040/1040NR
Moderator: Mark T Serbinski CA CPA
Hi Nelsona,
Wow, I'm a bit (pleasantly) surprised by your answer.
I'm curious why a full-year 1040 "may be the only option" for the final return of a former USC??? Most everything I have read seems to indicate the requirement of a dual status 1040NR return. This is the only place I have read that a full year 1040 is not only an option but perhaps the only option.
So based on what you are saying, the renunciant's final return would be almost exactly the same as any prior year. They would declare full year worldwide income from all sources, use the 2555 to exclude foreign earned income (including after becoming a non-citizen??), a 1116 for FTCs on all other foreign income, along with the usual 8891's, FBARs, etc. So really, the ONLY difference in that final year is that they would attach Form 8854 (and send a copy of 8854 to Philly). True?
Thanks.
Wow, I'm a bit (pleasantly) surprised by your answer.
I'm curious why a full-year 1040 "may be the only option" for the final return of a former USC??? Most everything I have read seems to indicate the requirement of a dual status 1040NR return. This is the only place I have read that a full year 1040 is not only an option but perhaps the only option.
So based on what you are saying, the renunciant's final return would be almost exactly the same as any prior year. They would declare full year worldwide income from all sources, use the 2555 to exclude foreign earned income (including after becoming a non-citizen??), a 1116 for FTCs on all other foreign income, along with the usual 8891's, FBARs, etc. So really, the ONLY difference in that final year is that they would attach Form 8854 (and send a copy of 8854 to Philly). True?
Thanks.
For any general expatriate, the process is a dual return as you mentioned - 1040 for the part of the year up to the date of renunciation, and then 1040NR for the part of the year after renunciation.
But with the US-Can Tax Treaty, Canadians can file a full 1040 any year they choose to anyway - so it is really up to you if you want to file a dual-return or if you just want to file a full 1040 for the entire year. Whatever works out best for you in terms of convenience, taxes, whatever. And yeah, one copy of 8854 goes with the return, and a separate copy goes to Philly.
But with the US-Can Tax Treaty, Canadians can file a full 1040 any year they choose to anyway - so it is really up to you if you want to file a dual-return or if you just want to file a full 1040 for the entire year. Whatever works out best for you in terms of convenience, taxes, whatever. And yeah, one copy of 8854 goes with the return, and a separate copy goes to Philly.
Nelsona/Dalthien,
Thank you for your responses. I can see in the 8854 instructions where full year 1040 is explicitly allowed. I very much appreciate it!
I'm now taking a closer look at the 8854 and find the instructions are severely lacking especially definitions for Part V (Balance Sheet and Income Statement). Do you know:
Does an RRSP asset fall into the Balance Sheet category of line 7 "Pensions from services performed outside the US", line 9 "Assets held by trust you own under sections 671 to 679", or line 19 "Other assets"?
The income statement has a catch-all line called "Gross income from all other sources" and seems to include anything that is not US sourced. Of course they don't define what is meant by "gross". My own definition would mean they want your foreign wages for the year before applying the 2555 exclusion as opposed to "gross taxable". Does that make sense?
Thanks!!!
Thank you for your responses. I can see in the 8854 instructions where full year 1040 is explicitly allowed. I very much appreciate it!
I'm now taking a closer look at the 8854 and find the instructions are severely lacking especially definitions for Part V (Balance Sheet and Income Statement). Do you know:
Does an RRSP asset fall into the Balance Sheet category of line 7 "Pensions from services performed outside the US", line 9 "Assets held by trust you own under sections 671 to 679", or line 19 "Other assets"?
The income statement has a catch-all line called "Gross income from all other sources" and seems to include anything that is not US sourced. Of course they don't define what is meant by "gross". My own definition would mean they want your foreign wages for the year before applying the 2555 exclusion as opposed to "gross taxable". Does that make sense?
Thanks!!!
Just to correct Dalthien slightly, the right to file a full year 1040 in the year of departure or renunciation is an IRS regultion, not a treaty benefit. anyone leaving the US tax system, can file 1040 for that year.
It is the first year full 1040 which is a treaty benefit, along with the right for Cdns to always file 1040.
It is the first year full 1040 which is a treaty benefit, along with the right for Cdns to always file 1040.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Nelsona - thanks for added info about the year of departure or renunciation regulation.
patti - yeah, the 8854 instructions are definitely not up to snuff. I would take line 7 to be for employer-based pensions, where the employer sets up the pension. Line 9 would be for trusts you own, such as an RRSP, and Line 19 would be for all of the miscellaneous stuff (cars, jewelry, furniture, electronics, clothing, tools, whole life insurance policy cash values, etc.) with your home being on Line 16.
The income statement is meant to be just that - a statement of your income, not a tax return. So you should include all of your gross income before any exclusion amounts.
patti - yeah, the 8854 instructions are definitely not up to snuff. I would take line 7 to be for employer-based pensions, where the employer sets up the pension. Line 9 would be for trusts you own, such as an RRSP, and Line 19 would be for all of the miscellaneous stuff (cars, jewelry, furniture, electronics, clothing, tools, whole life insurance policy cash values, etc.) with your home being on Line 16.
The income statement is meant to be just that - a statement of your income, not a tax return. So you should include all of your gross income before any exclusion amounts.
Dalthien,
Two thoughts on the 8854: 1) if an RRSP goes in the trust bucket where would an IRA go? The only logical place seems to be "pensions from services performed in the US" so I would have guessed the RRSP would have been similarly a "pension"??? 2) Do you really think they want to know about personal goods such as clothing and furniture??? That never would have even crossed my mind!
Thanks again!
Two thoughts on the 8854: 1) if an RRSP goes in the trust bucket where would an IRA go? The only logical place seems to be "pensions from services performed in the US" so I would have guessed the RRSP would have been similarly a "pension"??? 2) Do you really think they want to know about personal goods such as clothing and furniture??? That never would have even crossed my mind!
Thanks again!
1) I'm certainly not claiming to be an expert on all the finer details and intricacies or IRAs vs RRSPs, etc. Just someone that has gone through the process of Form 8854 fairly recently, and did a fair bit of research along the way.
From what I can tell, the IRA would be listed under Line 6, whereas the RRSP would be listed under Line 9. Here is an article separating IRAs from Section 671-679.
[url]http://www.taxlawcenter.com/index.php?o ... orporation[/url]
My takaaway from that is that IRAs are not included as grantor trusts under Section 671-679 because the contributions and earnings in the plan are tax-free in the reporting year. But RRSPs do not fit that criteria. From the US standpoint, the contributions in an RRSP are fully taxable, and even the earnings in the RRSP are fully taxable unless the owner applies for a specific election. So RRSPs would seem to fall under grantor trusts covered by Section 671-679.
Furthermore, here is another article for you to peruse.
[url]http://www.stepjournal.org/journal_arch ... s_and.aspx[/url]
The article is examining issues from the perspective of a covered expatriate, but if you skip down to the section titled "Do you have any Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), or similar retirement savings arrangements?", then again you will see the differences between IRAs and RRSPs spelled out.
In any case, if you are not a covered expatriate, then the actual choice of Line 7 or Line 9 for RRSPs shouldn't be terribly important, as long as it is included somewhere. The main purpose of the Balance Sheet is to separate asset types for covered expatriates, because different types of assets get treated differently when it comes to the Exit Tax.
If you are a covered expatriate with Exit Tax considerations, then I would strongly advise finding a qualified accountant/attorney to assist you in preparing Form 8854 anyway.
2) Yeah, everything should be included on the Balance Sheet. It is a determination of your net worth - which means your total assets. Just like you would include a bank account with $500 in it, you most likely have at least $500 (and many people have a far more significant investment) in clothes and furniture and various other items. You pretty much have to go through everything you own of value, and include all the miscellaneous stuff on Line 19. But don't go crazy trying to figure out exact totals for everything (unless you are right on the threshold of the net worth limit for a covered expatriate). Just get a rough ballpark figure for each asset type (cars/clothing/jewelry/furniture/electronics/appliances/media/tools/music equipment/whole life insurance cash values/toys/etc.).
From what I can tell, the IRA would be listed under Line 6, whereas the RRSP would be listed under Line 9. Here is an article separating IRAs from Section 671-679.
[url]http://www.taxlawcenter.com/index.php?o ... orporation[/url]
My takaaway from that is that IRAs are not included as grantor trusts under Section 671-679 because the contributions and earnings in the plan are tax-free in the reporting year. But RRSPs do not fit that criteria. From the US standpoint, the contributions in an RRSP are fully taxable, and even the earnings in the RRSP are fully taxable unless the owner applies for a specific election. So RRSPs would seem to fall under grantor trusts covered by Section 671-679.
Furthermore, here is another article for you to peruse.
[url]http://www.stepjournal.org/journal_arch ... s_and.aspx[/url]
The article is examining issues from the perspective of a covered expatriate, but if you skip down to the section titled "Do you have any Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), or similar retirement savings arrangements?", then again you will see the differences between IRAs and RRSPs spelled out.
In any case, if you are not a covered expatriate, then the actual choice of Line 7 or Line 9 for RRSPs shouldn't be terribly important, as long as it is included somewhere. The main purpose of the Balance Sheet is to separate asset types for covered expatriates, because different types of assets get treated differently when it comes to the Exit Tax.
If you are a covered expatriate with Exit Tax considerations, then I would strongly advise finding a qualified accountant/attorney to assist you in preparing Form 8854 anyway.
2) Yeah, everything should be included on the Balance Sheet. It is a determination of your net worth - which means your total assets. Just like you would include a bank account with $500 in it, you most likely have at least $500 (and many people have a far more significant investment) in clothes and furniture and various other items. You pretty much have to go through everything you own of value, and include all the miscellaneous stuff on Line 19. But don't go crazy trying to figure out exact totals for everything (unless you are right on the threshold of the net worth limit for a covered expatriate). Just get a rough ballpark figure for each asset type (cars/clothing/jewelry/furniture/electronics/appliances/media/tools/music equipment/whole life insurance cash values/toys/etc.).
a little help please ...
This is a great thread but I have some questions I really hope someone can help me with.
I renounced my US citizenship in April 2013.
Living in NOrway for 20 years. ZERO days in US last year.
earned income under FEIE limit (with personal deduction and standard deduction)
I have been compliant for many years.
My last returns, from what I understand. May I just fill out a 1040 for the whole year? and if so...
I would then be able to use the 2555 ez or 2555 and just send that in?
plus 8854 of course.
I have no US source assets or income.
OR
Could I use the 2555 ez/plus 1040 for Jan-april(expatriation date) as main forms and attach a 1040 NR for the remainder? It would be filled with zeros anyway as non of the income is reportable or taxable.
I am so grateful for any help or tips.
Thanks in advance
waldemar
I renounced my US citizenship in April 2013.
Living in NOrway for 20 years. ZERO days in US last year.
earned income under FEIE limit (with personal deduction and standard deduction)
I have been compliant for many years.
My last returns, from what I understand. May I just fill out a 1040 for the whole year? and if so...
I would then be able to use the 2555 ez or 2555 and just send that in?
plus 8854 of course.
I have no US source assets or income.
OR
Could I use the 2555 ez/plus 1040 for Jan-april(expatriation date) as main forms and attach a 1040 NR for the remainder? It would be filled with zeros anyway as non of the income is reportable or taxable.
I am so grateful for any help or tips.
Thanks in advance
waldemar
Yes, you can do either way. Remember however to prorate your FEIE exemption for the number of days you are "US taxpayer" (~120 day, so ~1/3 of the annual exemption).
You cannot use the standard deduction in such case, so be careful that you are not creating a taxable situation on your 1040NR, depending on what other income you would need to report besides wages.
Since you are comfortable with 1040 full year, I would simply stick with this method, which is allowed in expatriation year.
You cannot use the standard deduction in such case, so be careful that you are not creating a taxable situation on your 1040NR, depending on what other income you would need to report besides wages.
Since you are comfortable with 1040 full year, I would simply stick with this method, which is allowed in expatriation year.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing