Foreign Earned Income

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nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Boy, you really like to make things overly-complicated.

Your Cdn wages, whatever they are for 2004, are excludable for 2004 (who cares about previous year). Your only interest in anything that happened in 2003 is to determine if you had a qualifying period of foreign base.

So all your Cdn wages for 2004 will be excluded. period.

And of course, by FEIE rules, NONE of the Cdn taxes (including CPP and EI) owed on those wages are eligible for foreign tax credit.


The only time you would have to split hairs is if you would exceed the FEIE limits (if you do, I would suggest you should probably stay in Canada -- you are doing quite well[:D]).

The only 'Cdn' things you will be reporting on your 1040 are cap gains/loss (although these too are supposed to be excluded by treaty), interest, dividends, and rental or pension income, and you will only be using the pro-rated tax you owed on those amounts on your various 1116s.

So if you made $50K and $500 was this other income, then 1% of your final fed tax, 1% of your prov tax, and none of your CPP or EI are even eligible for FTC, if you choose to FEIE.



<i>nelsona non grata</i>
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Just so you'll know : Capital gains and interest etc, are NOT earned income.

You can't exclude this with FEIE.



<i>nelsona non grata</i>
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

Indeed the exercise price less the strike is earned income.

And yes, it is the difference between exercise and sale taht is a cap gain/loss as you say

<i>nelsona non grata</i>
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Lookit, I've said this before:

You bought you house for US$XX and you sold it for US$YY, and had selling expenses US$ZZ.

You cap gains were YY-ZZ-XX. Period end of story.

Pick an exchange rate when you bougt and one when you sold.

Forget all this discharge crap. Roll it into the determination of the proceeds from your home, and be done with it.

Using your logic, the next time you go to Canada and buy a pack of gum, you had better keep track of the exchange rate at which you got the money and and the exchange rate when you bought the gum, and calculate the gain/loss on the transaction.

<i>nelsona non grata</i>
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Hey, your house wasn't <i>that</i> big.

<i>nelsona non grata</i>
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

I guess it didn't help that the US$ was tanking during this period either.

But, for all the time it is taking you (this is of no value to you in future) you would have been just as well off filing dual-status (remeber it was my suggestion to FEIE that is saving you -- nothing else).

<b>And, by the way, you haven't prepared your 8833's yet</b>. It'll be interesting how you make your case for allowing Cdn to use FEIE. If IRS questions you you will either need a pro, or have to include it in income (you won't be allowed to revert to dual at that point), which will effectively eat up any tax savings you envisioned.

For all your arithmetic convulsions, the only thing that will really help you is FEIE. Barring that (and you were not going to use this remember), you would have been fine filing dual-status and forgetting all about the house.



Those with cash in their RRSPs will also have to be tracking when the 'bought' and 'sold' their cash in determining their cap gains/losses in their accounts.

Keep an eye on this space, as the new RRSP form will be officially released any day now.



<i>nelsona non grata</i>
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Time is money and CPA is money; Tax is money. Saving taxes is not always saving money.

You are correct about the fact that having been more than 183 days in US makes full-year filing optional without treaty provisions.

You would have to double-check about FEIE in such cases, as you are, on the one hand, claiming to be a tax resident in US for full year, and on the other hand claiming to have a tax home elsewhere for FEIE. I seem to recall that as being the hiccup in the process (ie. making simultaneous elections that disagree with each other).

A citizen doesn't get to make such election about full-year, so their chioce to FEIE is made all by itself and is not contradictory.

THAT is where the non-discrim provisions have to be used, I believe, and they are not straightforward.

<i>nelsona non grata</i>
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