Implications for Canadian wife if filing MFJ with RRSPs

Ingtar17 · Post by **Ingtar17** » Wed Oct 29, 2008 9:49 am

I'm doing my taxes for the first time (6 years worth - ouch). I am dual Can/US and my wife is Canadian. We both have RRSPs (hers is spousal RRSP through mine). I am thinking of filing married jointly, but I do not know the implications to her in the future. For example, What happens if in the future she makes more than me and we want to change to married filing separately (ie. I would file and she wouldn't). Would the IRS then tax her on all her previous RRSP deferred tax? Also, when I die, can she just stop filing? Anything else I haven't thought of? She's somewhat hesitant to end up dealing with the IRS since she's Canadian.

Thanks.

nelsona · Post by **nelsona** » Wed Oct 29, 2008 10:14 am

Electing to deferr the tax on yearly RRSP income does NOT mean that she will have to pay tax on that income in future if she no longer has to file in US.

So, should you eventually stop filing jointly (which would be a good option, say, when she takes RRSP monies out) then she would not have to pay any IRS tax on any portion of that withdrawal for that year.

I would try to avoid filing jointly if I were you, since it is unlikley that you would owe any US tax even if filing MFS. You still get to claim her as a dependent and itemize. Your Cdn taxes should still outweigh any IRS tax.

Ingtar17 · Post by **Ingtar17** » Wed Oct 29, 2008 11:28 am

We're thinking of moving to the States for a couple of years, so I figured that if I did MFJ, we'd get more foreign tax credits from the past 6 years. Of course, having said that, I have VERY skimpy data on her in the first few years. Are there any pitfalls in doing MFS for 2002-2004 and then switching to MFJ for 2005-2007?

Thanks!

nelsona · Post by **nelsona** » Wed Oct 29, 2008 12:36 pm

No pitfalls.

You should be using FEIE (Form 2555) for 2002 thru 4 as in those years the anti-stacking rules had not kicked in, so unless your income (in USD) was well over 110K, there was no chance of US tax.

Ingtar17 · Post by **Ingtar17** » Wed Oct 29, 2008 1:09 pm

Wow. I didn't know about the anti-stacking. I've just read old posts about it using the search command, but have a question or two (don't I always?)

1) When does the anti-stacking kick in?

2) I believe I can use the 2555EZ form in every year (2002-2007), which doesn't mention anti-stacking. Can I use this one instead and not worry about anti-stacking? If not then why doesn't the form mention it?

(Now thinking about going MFS and excluding every year of the catch up due to lack of info requried to go 1116 route)

nelsona · Post by **nelsona** » Wed Oct 29, 2008 1:54 pm

I'm not sure which year it came into effect. Of course you can use 2555 every year, it just that when anti-stacking came in, the taxrate calculation changed. Its not on the form per se, since it only determines the excluded income. The tax is determined using a worksheet provided in the guide for each year since anti-stacking, This workshheet, which one must use if using 2555), in effect, averages out the tax you would pay on each unexcluded dollar, rather than the old way where it took your excluded income 'off the top'.

Big difference -- and has forced many Cdn 1040 filers (most who have any other non-wage income) to switch to 1116. to avoid US tax.

Ingtar17 · Post by **Ingtar17** » Wed Oct 29, 2008 2:40 pm

Ah - I see it.

One more question - If I lived in 2 foreign countries in 2004 (Canada in January, Australia in Feb-Nov, Canada in December) do I fill in two 2555EZ forms or do I squeeze the addresses of both onto one?

Thanks.

nelsona · Post by **nelsona** » Thu Oct 30, 2008 5:42 am

You're a big boy now. I think you can figure this out

Ingtar17 · Post by **Ingtar17** » Sun Nov 02, 2008 2:32 pm

Ok, ok.... sorry for asking micro-questions. I've never filed any US forms before so I am a little more anxious about making a mistake.

Thanks!