Calculating dual-status exemption for a non-resident spouse

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redbeer
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Joined: Wed Apr 09, 2014 8:32 pm

Calculating dual-status exemption for a non-resident spouse

Post by redbeer » Wed Apr 09, 2014 8:42 pm

I have tried to find this in IRS Pub 519 and this forum, but no luck.

My wife and I are filing dual status for 2013 in the U.S. Both Canadian citizens moved to U.S. mid-year. Using 1040 since we are U.S. residents at the end of 2013.

In a nutshell, IRS Pub. 519 says that I can claim additional personal exemption for a spouse that is a Canadian resident, had no U.S. gross income and was not dependent of anyone else.

So, when filing dual-status do I prorate her exemption for the period of non-residency in the U.S., add my full exemption amount, and put that on 1040 Line 42?

I cannot claim exemption for her for the US resident period since she had some income and has to file a return. Does she claim her full personal exemption?

Thank you.

nelsona
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Post by nelsona » Thu Apr 10, 2014 10:04 am

Since if you choose dual-status you can't file jointly, you simply each get your own exemption.

You should re-examine filing full year.

Once you elect to file full year (which is a treaty right), then IRS Pub 519 goes out the window, and you file like any other US citizen, including exempting your CDn pre-arrival wages with 2555, and using form 1116.

You file full year, full exemption for you and spouse and kids.

Dual-status is a punitive filing method.

Can I ask why you chose dual-status?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

redbeer
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Post by redbeer » Thu Apr 10, 2014 5:29 pm

Thank you very much for responding, nelsona. You are doing a great service to all of us.

We are filing dual-status mainly because it turns out that we get better refund overall. Another reason is that we've already filed and got approved NR6 in Canada.

In 2013, I've had U.S. income, and a small RRSP withdrawn and closed.
My wife had Canadian income while in Canada, non in the U.S., but also a work pension rolled into RRSP.

I tried doing both resident and dual-status, and federal taxes were about the same. However, New Jersey taxes were too high since we would have to file full-year residents there too, since they want the same status as federal. NJ does not recognize foreign tax credits, and pension withdrawals are also taxable.

As I got a lot of deductions, ended up with $150 Alternative minimum tax, so I thought putting more effort into filing full-year resident gets me nothing.

In terms of my original question, I understood that I could claim spousal exemption for part of the year we were Canadian residents. Thank you for clarifying, I will claim one exemption then.

nelsona
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Post by nelsona » Thu Apr 10, 2014 5:42 pm

Your approved NR6 has nothing to do with how you file in US.

RRSP withdrawls are only taxable in US and NJ to the extent that they are on your 1040. If you took them out as a US resident (after your departure from canada) then they are taxable on 1040 whther you do dual-status or not.
Pension rollovers are not taxable.

The reason you paid AMT is likely BECAUSE you are filing dual-status. MFJ has a higher thresshold of AMT.

I've yet to see a case where filing dual-status is advantageous over full-year.

You do NOT have to file full year in NJ in any event. NJ asllows for part year filing.

Based on some of your other questions and comments, I would not be too confident in your decision to file dual-status, nor on how you are handling your RRSP/pension.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

redbeer
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Joined: Wed Apr 09, 2014 8:32 pm

Post by redbeer » Fri Apr 11, 2014 10:16 am

I appreciate your concern really. I will redo my federal MFJ/full-year resident to check for AMT. Just to confirm for this case, election to file full-year resident allows foreign income exclusion for my wife (for income she earned in Canada as Cdn resident)?

Also, with your suggestion to file part-year in NJ even when filing full-year resident federally, I will definitely be ahead. It makes sense.

From all your responses, it seems that filling full-year resident in US does not affect our filing as part-year residents in Canada, correct?

Just to explain my decision with RRSP. My RRSP situation was that it was $9K, BMO told me bluntly that they will be asking all non-residents to close accounts soon and definitely do not allow trading for NRs. I closed it while Cdn resident, had 10% withheld over two partial withdrawals, and after claiming US tax paid on US income (from my dual-status return), I end up with a chunk of that 10% refunded. My goal at the time before moving was to avoid complexity of tracking this RRSP account in the US.

Thank you.

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

Post by nelsona » Fri Apr 11, 2014 11:26 am

Full year MFJ over dual status has the folwing advantages: right to file joint with spouse, and right to standard deduction.

1040 allows you to exclude your wifes WAGES by using 2555.

Your RRSP is another matter. You ned to understand that withholding tax in not the same as income tax, which is calculated on your tax return.

So, since you collspaed your RRSP while still resiwnt, you need to include it on your departure return, and then determine, by prorating tax vs income what tax was related to each type of income you had. Wages, pension, interest, etc.

For US, -- only if you file full year -- you only need to report the gains in your RRSP for 2013, like a normal account (cap gains, interst and dividends. You can do this using form 8891. None of this income should be reported in Jersey. Then you use 1116 to take credir for any atx you calculated as arising from your RRSP. It is not the 10% withholding.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

redbeer
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Joined: Wed Apr 09, 2014 8:32 pm

Post by redbeer » Fri Apr 11, 2014 1:08 pm

I may be wrong in figuring form 2555. I am using TaxACT for 1040 and it is asking to enter number of qualifying days for my wife's wages exclusion, is this number of days in Canada in 2013 when she earned those?

If I enter 166 as number of days it appears not to exclude all income, so it looks like I have to go to form 1116, where I add up Cdn taxes as:
T1-Line 435 + T1-Line 308 (CPP) + T1-Line 312 (EI)

Can I deduct RPP or RRSP contribs?

nelsona
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Post by nelsona » Fri Apr 11, 2014 1:34 pm

It's not the days in canada, it is the days, it is the number of days from the beginning of the year until she moved to US.

This is to prorate the exemption limit, which is 97,600 for 2013, so if your spouse made less than ~50K, it should all be exempted.

As I said earlier, you need to divvy whatever income types you have and asign a prtion of your overall tax accordingly. EI and CPP go to wages only. And if you use 2555, whatever wages is excluded, you can't use that portion of tax cpp and eoi on 1116.

But be warned, If you can't use all of her wages on 2555, then you likely won't be happy with 1116 either.

Personal RRSP contributons are not deductible. Company RRSP and PRR contributions that you make are deductible from teh wage you report (you take it off before reporting the ammount on the wages line.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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