Foreign Earned Income

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

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

Post by nelsona »

You've entirely lost me, as I presume was your goal with all the verbage.

All the best.

<i>nelsona non grata</i>
gpacino
Posts: 22
Joined: Thu Mar 10, 2005 4:25 pm

Post by gpacino »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>

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.

<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

I decided to speak to a CPA who specializes in US-Canada tax issues, and this what I was told-

I am a US Citizen, all 2004 income from US sources, resided in both US and Canada in 2004. My wife is not a US citizen/resident, all 2004 income from Canadian sources, lived in Canada for all of 2004.

I was expecting to be able to file a joint US return by having my wife elect to be treated as a resident (Non-resident alien spouse of a resident). Then, use FEIE to exclude her EI.

However, the CPA told me that this cannot be done. I didn't get his explanation, but it was similar to nelsona's: "making simulataneous elections that disagree with each other."

I really don't get this. I found this at the IRS site:
---
Q: I am a nonresident alien. Can I take the foreign earned income exclusion if I meet the bona fide resident test or physical presence test? If yes, what is the tax form used for nonresident taxpayer?

No, nonresident aliens do not qualify for the foreign earned income exclusion. Only if you are a U.S. citizen or a resident alien of the United States and live abroad, may you qualify to exclude up to $80,000 of your foreign earned income for 2003. But, <b>if you are the nonresident alien spouse of a U.S. citizen or resident alien, you can elect to be treated as a U.S. resident in order to file a joint return</b>. In this case, <b>you can take the foreign earned income exclusion if otherwise qualified</b>. Refer to Publication 519 , U.S. Tax Guide for Aliens , for detailed instructions on how to make this election.

FROM: http://www.irs.gov/faqs/faq13-3.html
---------

There is the "if otherwise qualified" clause there, but I can't figure out how we are not qualified: my wife's tax home is obviously Canada, and she was physically present in Canada for practically the entire year (probably 350 days or so). The above info is what I thought cemented our case for the FEIE.

According to the CPA, we could file jointly and take the FTC. But, it looks to me like doing that rather than FEIE will result in a few thousand dollars more tax owed.

Can anybody explain why we couldn't take the FEIE? I am still not convinced.

ON the other hand, if I end up owing the IRS a few thousand $ more, I would be able to claim that as a foreign tax credit on my Canadian return. Would it just balance out in the end (or is it too complicated to give a quick answer to that question??)


nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Your 'expert' is wrong, TWO ways.

First, as you indicated, the IRS allows by its own rules for you to do it. The otherwise qualified refers to the physical presence tests for FEIE, which your wife likely qualifies for.

Second, as I have previously outlined, even if the IRS didn't allow it, the treaty would, since it allows Cdn citizens to ber treated just like US citizens (or more accurately, just like German citizens).

To his defense, though, most experts have blindspots.

Remember that CPAs make the bulk of their money off BUSINESS tax preparation, not personal.

But, a cross-border specialist who doesn't have a full grasp of taxes in a migration year, or does not understand how RRSP taxation in US works, is kinda like a tennis 'expert' who can hit a backhand.



<i>nelsona non grata... and non pro</i>
gpacino
Posts: 22
Joined: Thu Mar 10, 2005 4:25 pm

Post by gpacino »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>

Your 'expert' is wrong, TWO ways.

First, as you indicated, the IRS allows by its own rules for you to do it. The otherwise qualified refers to the physical presence tests for FEIE, which your wife likely qualifies for.

Second, as I have previously outlined, even if the IRS didn't allow it, the treaty would, since it allows Cdn citizens to ber treated just like US citizens (or more accurately, just like German citizens).

To his defense, though, most experts have blindspots.

Remember that CPAs make the bulk of their money off BUSINESS tax preparation, not personal.

But, a cross-border specialist who doesn't have a full grasp of taxes in a migration year, or does not understand how RRSP taxation in US works, is kinda like a tennis 'expert' who can hit a backhand.

<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

My guess is it's a blindspot. I don't want to name names, but i'm not dealing with H&R Block here....

Edit:
I just called the IRS International tax hotline, and confirmed that we could use the FEIE.
I'm a bit disappointed in the CPA I spoke to. His way would have cost me thousands extra, it looks like
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Pretty embarrassing that an IRS phoneline (notorious for not knowing anything -- call back six times and I bet you get a differnt answer each time) was able to throw a dart and give you a better answer than your pro.

Move on.


<i>nelsona non grata... and non pro</i>
jade
Posts: 10
Joined: Mon Mar 28, 2005 11:30 am

Post by jade »

To claim Foreign Earned Income Exclusion, you need to answer yes to the following question:
Were you physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months?

This "any period" does not have to be the tax year we are looking at (2004)?

For a Canadian who came to US in the middle of 2004, his tax home was Canada in the first half of 2004, and was US in the second half of 2004. Can he claim Foreign Earned Income Exclusion?
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

This has been sufficiently elaborated on:

Your period would include the year <i>UP until </i> your arrival in US. In your case form mid-year 2003, to mid-year 2004. You would prorate the exclusion to cover 2004 (roughly half of the ~80K exclusion would be available to you).

This only applies to wages.

You do need to make the treaty election outlined countless times in this forum.


<i>nelsona non grata... and non pro</i>
jade
Posts: 10
Joined: Mon Mar 28, 2005 11:30 am

Post by jade »

Hi,
I have a few more questions regarding Form 2555. They are all basic questions (but not basic to me). Sorry if they are too basic to you.

1. Line 1: Your foreign address
What if one has moved out of Canada, and do not have an address in Canada now? Can one use a friend's address in Canada? Or does this refer to one's address when one was still in Canada?

2. Line 2 & 3: occupation, Employer's name.
This refers to one's occupation/Employer's name while in US or during the period in Canada when the foreign income occurred?

3.For a Canadian who lived/worked in Canada before May 2004 and came to work in US in May 2004, he meets both Bonda Fide residence Test and Physical Presence Test.
Does it make a difference which test he chooses to use?

3.
Instruction for Line 13 in Form 2555: "If you submitted a statement of nonresidence to the authorities of a foreign country in which you earned income.., you are not considered a bona fide resident of that country."

Does this "nonresidence" refer to tax nonresidence? When one leaves Canada, one becomes a tax nonresident. This does not affect his claim that he was a bona fide resident of Canada before his departure. Right?

4. For our scenario (i.e., one who left for US in May 2004), do we need to make a treaty claim & use Form 8833?

5. Instruction for Line 13 in Form 2555: "If you claim either of the exclusions, you cannot claim any of the deduction (including moving expenses).. that is definitely related to the excluded income."
Is our moving expense from Canada to US in May 2004 related to the excluded income?


I'm asking a lot of questions. As you can see, we are struggling with our tax now :)
Thanks a lot for your help. Really appreciate it.


jade
Posts: 10
Joined: Mon Mar 28, 2005 11:30 am

Post by jade »

I just saw Nelson's posting about taking a break, which he should definitely.

Could some other tax guru or anybody who has filed Form 2555 give me some help please? Thanks!
wology
Posts: 5
Joined: Fri Jun 16, 2023 5:25 am

Re: Foreign Earned Income

Post by wology »

I think nishtyak!
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