Husband and wife working in the US as NR
Moderator: Mark T Serbinski CA CPA
Husband and wife working in the US as NR
This is the first year (2008) my wife worked in the US/MI.
I have been working in MI since 2002 and was able to claim 3 dependents on my 1040NR (including our daughter), since my wife had no US income (MFS filing status).
Now I can only claim 2 dependents (including me) on the 1040NR ...
I noticed that now the tax burden is higher in the US than in Canada ... I played with the numbers, and I would not have had to pay additional taxes in Canada even if I paid US$3,000 less taxes in the US.
Unpleasant surprise, since I cannot reduce my tax burden in the US or in Canada (RRSP contribution doesn't help either).
Is this common or am I missing a deduction in the US?
Again, Canadian resident, 1040NR, MFS, both me and my wife working in MI. Thank you
I have been working in MI since 2002 and was able to claim 3 dependents on my 1040NR (including our daughter), since my wife had no US income (MFS filing status).
Now I can only claim 2 dependents (including me) on the 1040NR ...
I noticed that now the tax burden is higher in the US than in Canada ... I played with the numbers, and I would not have had to pay additional taxes in Canada even if I paid US$3,000 less taxes in the US.
Unpleasant surprise, since I cannot reduce my tax burden in the US or in Canada (RRSP contribution doesn't help either).
Is this common or am I missing a deduction in the US?
Again, Canadian resident, 1040NR, MFS, both me and my wife working in MI. Thank you
Cheers
You should be looking at the article XXV method of filing 1040NR (each of you). This is a non-discrimination clause which allows you to calculate your tax rate on a MFJ 1040 and then apply that rate on your US wages on the 1040NR.
I have described this elsewhere.
You were eligible to do this all along, but, since you say your ON taxarte was already higher than your US rate, it would noy have helped you much (although my guess is that you haven't bee taking full advantage of your RRSPs).
I have described this elsewhere.
You were eligible to do this all along, but, since you say your ON taxarte was already higher than your US rate, it would noy have helped you much (although my guess is that you haven't bee taking full advantage of your RRSPs).
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
Husband and wife working in the US as NR
Nelsona ... I am still reading the forum and banging my head against the wall.. I missed some tax rate opportunities for the last 7 years ...
Still, moving on, what else? Not much use in doing any retro paperwork (no carryforward RRSP) just so I can shift taxes from one place to another.
Now that I am using the 1040 pro-forma for calculating a tax rate to be used in 1040NR, I am looking for more tax deduction opportunities, other than property (real estate) tax. My daughter is at U of T, which I found to be recognized by FSA. Am I eligible to claim the tuition deduction with 8917 ($2,000)? This would reduce my AGI (Add deduction to line 34 in 1040)...
Would I need a special paper from the U of T for this?
Still, moving on, what else? Not much use in doing any retro paperwork (no carryforward RRSP) just so I can shift taxes from one place to another.
Now that I am using the 1040 pro-forma for calculating a tax rate to be used in 1040NR, I am looking for more tax deduction opportunities, other than property (real estate) tax. My daughter is at U of T, which I found to be recognized by FSA. Am I eligible to claim the tuition deduction with 8917 ($2,000)? This would reduce my AGI (Add deduction to line 34 in 1040)...
Would I need a special paper from the U of T for this?
Cheers
well, since you won't actually be making the claim, I wouldn't go thru the process of getting the form, but, yes, UoT would be aware of this for thier US students.
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
Tuition deduction
Nelsona: thank you again for your guidance.
My question was: can I actually use tuition deductions from 1040 to drive down my US tax liability? I am still paying more taxes in US than in CAN, even after property taxes (no mortgage ...).
Thanks again
My question was: can I actually use tuition deductions from 1040 to drive down my US tax liability? I am still paying more taxes in US than in CAN, even after property taxes (no mortgage ...).
Thanks again
Cheers
Your best option is still to file 1040NR using the non-discrimination procedure.
Thus, you 'pretend' to file a 1040. You're entitled to use all the deductions on the 1040 that anyone else would, including those for education.
But, are you getting my point, that you are not going to file a 1040. You are going to determine a tax RATE for use on your 1040NR which, presumably will be lower than the one you came up with using 1040NR alone (which has many deuctions of its own).
Thus, you 'pretend' to file a 1040. You're entitled to use all the deductions on the 1040 that anyone else would, including those for education.
But, are you getting my point, that you are not going to file a 1040. You are going to determine a tax RATE for use on your 1040NR which, presumably will be lower than the one you came up with using 1040NR alone (which has many deuctions of its own).
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
Understood, thank you for speaking "loud and clear", Nelsona!!
Use 1040 proforma to calculate a tax rate Line 44/Line 43, which then I apply to the Line 40 (Taxable Income) on 1040NR. Not forgetting 8833 indicating the Treaty and clause XXV (2) and/or(4).
I know you walked this process more than a few times :-) and I appreciate your patience!!
Use 1040 proforma to calculate a tax rate Line 44/Line 43, which then I apply to the Line 40 (Taxable Income) on 1040NR. Not forgetting 8833 indicating the Treaty and clause XXV (2) and/or(4).
I know you walked this process more than a few times :-) and I appreciate your patience!!
Cheers
Husband and wife working in the US as NR
Some more clarification, please ...
1) Using MFJ 1040 pro-forma, calculate Tax (line 44)/Taxable Income (Line 43, and not AGI Line 38) - - -apply the resulting rate to 1040NR Taxable Income (line 40, not to AGI Line 36). In other posts I saw discussions about using the tax/AGI rather than tax/Total income. Which one is correct?
2) I have US income from bank interest, my wife has bank interest from Canada. Do I need to include this in the 1040 pro-forma? In the past (filing 1040NR) I only paid 10% tax on US interest, and declared it also in Canada.
3) Similarly, my wife received 1099G unemployment from MI, also unemployment from ON (different time frames). Are both amounts included on the 1040 pro-forma?
4) After calculating the US taxes, and Can taxes, if there are any Can taxes to be paid, can I claim them as tax credits in the US return? Sounds like a never ending chase ...
Thank you again for your patience, Nelsona.
1) Using MFJ 1040 pro-forma, calculate Tax (line 44)/Taxable Income (Line 43, and not AGI Line 38) - - -apply the resulting rate to 1040NR Taxable Income (line 40, not to AGI Line 36). In other posts I saw discussions about using the tax/AGI rather than tax/Total income. Which one is correct?
2) I have US income from bank interest, my wife has bank interest from Canada. Do I need to include this in the 1040 pro-forma? In the past (filing 1040NR) I only paid 10% tax on US interest, and declared it also in Canada.
3) Similarly, my wife received 1099G unemployment from MI, also unemployment from ON (different time frames). Are both amounts included on the 1040 pro-forma?
4) After calculating the US taxes, and Can taxes, if there are any Can taxes to be paid, can I claim them as tax credits in the US return? Sounds like a never ending chase ...
Thank you again for your patience, Nelsona.
Cheers
1. I think you can figure this out.
2. On 1040NR you should not have paid ANY US tax on interest. Bank interest is not taxable for non-residents, even in US banks. So it should not appear on your 1040NR this year either.
3. Everything is included in the pro-forma. Its like a US 1040.
4. You cannot claim forign tax credits on the pro-forma, but you can claim them as a deductiion. One only iterates one time, not over and over.
2. On 1040NR you should not have paid ANY US tax on interest. Bank interest is not taxable for non-residents, even in US banks. So it should not appear on your 1040NR this year either.
3. Everything is included in the pro-forma. Its like a US 1040.
4. You cannot claim forign tax credits on the pro-forma, but you can claim them as a deductiion. One only iterates one time, not over and over.
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
4) Still stuck on foreign tax credit .. here's why I thought this can be revolving:
a) Based on US taxes (initially I am not showing any Canadian taxes as foreign taxes), I calculate my Canadian tax liability.
b) I then go back to the US taxes and enter these in Sch A of 1040 as foreign taxes, which will lower my US taxable income, and my US tax burden.... but then I need to re-adjust my Canadian taxes, which may (or may not) show a lower Canadian tax burden, which I then re-adjust in the Sch A 1040 .... this is what I mean by iterative process.
At some point I should hit a balance point ...
Is this how it is done or do I have something loose (in my head:-)?
a) Based on US taxes (initially I am not showing any Canadian taxes as foreign taxes), I calculate my Canadian tax liability.
b) I then go back to the US taxes and enter these in Sch A of 1040 as foreign taxes, which will lower my US taxable income, and my US tax burden.... but then I need to re-adjust my Canadian taxes, which may (or may not) show a lower Canadian tax burden, which I then re-adjust in the Sch A 1040 .... this is what I mean by iterative process.
At some point I should hit a balance point ...
Is this how it is done or do I have something loose (in my head:-)?
Cheers
The proforma includes ALL income for the year, from everywhere. It is used to come up with a fraction.
That fraction is used on your 1040NR, which should only US-source income. The fraction should be applied only to the US wages reported.
You only do the back-and-forth ONCE for the tax credit calculation. You calculate your Cdn return with no regard for foreign tax credit, then apply it to your US return, and that's it for US. You finish your 1040NR completely at this point. Then you return to your Cdn return with the final numbers from your US return
That fraction is used on your 1040NR, which should only US-source income. The fraction should be applied only to the US wages reported.
You only do the back-and-forth ONCE for the tax credit calculation. You calculate your Cdn return with no regard for foreign tax credit, then apply it to your US return, and that's it for US. You finish your 1040NR completely at this point. Then you return to your Cdn return with the final numbers from your US return
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
I think I understand:
1) 1040 Proforma includes all income, including US/CDN unemployment, US/CDN bank interest.
2) 1040 NR includes only US source income, e.g. excluding CDN unemployment, excluding US/CDN bank interest.
Also:
Because on the CDN side the foreign tax credits are more than what US Fed considers tax (Medicare, SS and State tax), I am basically shifting the tax burden from one country to another, not really lowering it to my advantage.. is this a true statement?.
E.g. on my 1040NR, after applying the tax fraction calculated with the 1040 proforma, my tax owing would be US$15k. From the CDN side, not including any foreign tax credits, I owe C$28k. So I can claim this as a credit on line 44 of the 1040NR (using form 1116?). This results in a lowering of the US tax burden ... does this not increase my CDN tax burden now?
1) 1040 Proforma includes all income, including US/CDN unemployment, US/CDN bank interest.
2) 1040 NR includes only US source income, e.g. excluding CDN unemployment, excluding US/CDN bank interest.
Also:
Because on the CDN side the foreign tax credits are more than what US Fed considers tax (Medicare, SS and State tax), I am basically shifting the tax burden from one country to another, not really lowering it to my advantage.. is this a true statement?.
E.g. on my 1040NR, after applying the tax fraction calculated with the 1040 proforma, my tax owing would be US$15k. From the CDN side, not including any foreign tax credits, I owe C$28k. So I can claim this as a credit on line 44 of the 1040NR (using form 1116?). This results in a lowering of the US tax burden ... does this not increase my CDN tax burden now?
Cheers