Hi there,
I'm a Canadian citizen. I work for a Canadian company and I am paid in Canadian dollars into my Canadian bank account.
I've been in the US on B-1 status for almost 183 days on a work assignment.
I have the option to stay a bit longer i.e more than 183 days thus becoming a resident alien (1040) or I can leave in time to be non-resident one (1040NR) when it comes to tax purposes.
My ties are closer to Canada (employer, domicile, driver's license, bank accounts, relatives) and I am aware that I'll have to file both US and Canadian tax returns for 2007.
My question is this. Is there a significant financial advantage to being a non-resident alien as opposed to being a resident one when it comes to filing US taxes?
I have the US-Canada tax treaty in mind. I'm just wondering if there is any nasty surprises that I'm not taking into account.
Returning to Canada, questions on 1040 vs 1040NR
Moderator: Mark T Serbinski CA CPA
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loom_weaver
- Posts: 5
- Joined: Thu Feb 01, 2007 8:18 pm
As a Cdn resident, you are entitled to choose whether you wish to file a 1040NR, or a 1040, regardless of the days spent in US (note: this is because you are a Cdn resident).
Generally, a 1040 gives better tax rate, but you must includse all world income. The return is more complicated, but yeilds lower US tax.
But since you will still file in canada and report all income, there is little point in aggressively reducing your US tax, since it willjust make your Cdn tax bigger.
You can wait to make this decision (staying more than 183 days isn't going to matter) and the determine your Cdn tax (including I hope the overseas employment tax credit that you will be entitled to, and your RRSPs), then do your US taxes using 1040 and 1040Nr, and see what you get. Your state tax should be the same regardless of how you file for IRS: you will be part year resident.
The result will either be, use 1040NR, as it makes no difference to your overall taxarte, or Use 1040, as your Cdn rate is low enough that it benefits you to cut your US tax as low as possible.
Once you determine that, you back off your RRSP deduction until the numbers even out. No use taking too much RRSP deduction if it doesn't really lower your over all tax.
Generally, a 1040 gives better tax rate, but you must includse all world income. The return is more complicated, but yeilds lower US tax.
But since you will still file in canada and report all income, there is little point in aggressively reducing your US tax, since it willjust make your Cdn tax bigger.
You can wait to make this decision (staying more than 183 days isn't going to matter) and the determine your Cdn tax (including I hope the overseas employment tax credit that you will be entitled to, and your RRSPs), then do your US taxes using 1040 and 1040Nr, and see what you get. Your state tax should be the same regardless of how you file for IRS: you will be part year resident.
The result will either be, use 1040NR, as it makes no difference to your overall taxarte, or Use 1040, as your Cdn rate is low enough that it benefits you to cut your US tax as low as possible.
Once you determine that, you back off your RRSP deduction until the numbers even out. No use taking too much RRSP deduction if it doesn't really lower your over all tax.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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loom_weaver
- Posts: 5
- Joined: Thu Feb 01, 2007 8:18 pm