USCs resident in Canada: file jointly/separately?

[worryfreeinvestor]

My wife and I are Canadian citizens living in the U.S. who have just become U.S. citizens. We will shortly be moving back to Canada for my work (Sod's Law!) My wife is, and will remain, unemployed.

When we lived in Canada, we filed our tax returns separately but in the U.S., we have filed jointly.

We both have RRSPs, Rollover IRAs, and a taxable securities account which generates a small dividend income.

How must --- or should --- we file in Canada and in the U.S. to minimize our tax liability?

[rlb]

Canada has no provision for married couples filing jointly, so you will prepare separate income tax returns for each of you. The only income I am aware of that you can transfer to your wife is up to 1/2 of your pension, should you have one at this stage.

In the US, as always, you have the choice of filing jointly, or as married filing separately. As your wife has little income, almost certainly filing jointly will be more beneficial.

You will declare your world income to both countries. You will have to become experienced in deciding which income is US sourced (if any) vs. Canadian sourced, and using the foreign tax credits each country offers for income that has been taxed by the other country. The income from your job, up to certain limits, is most likely going to be excludable on your US 1040 by using form 2555 (Foreign Earned Income Exclusion).

There will be special handling for the year in which you move back.

If you believe the move back to Canada is likely to be permanent, consider converting any US IRA or 401(k) to a Roth **before** your moving date. (Search the forum on this.)

[worryfreeinvestor]

I'll look up the IRA conversion

[nelsona]

Pension transfer, while done to reduce overall taxation, may not be useful to a US citizen, becasue while Canada transfers the equivalent tax to the other spouses account, the IRS does not accepot this.

So, one could easily be lowering their own Cdn tax bill, but not their income in US terms, and the lowerd Cdn tax may make one taxabler in US.

Not all pensions are eligible for this spousal transfer.

You would also want to sell any losing positions in your non-sheltered before returning to Canada, as the capital loss will be of no use to you on your future US returns.