common-law in Canada -- relevant in US?

readtheform · Post by **readtheform** » Mon Jan 03, 2011 7:50 pm

I am US citizen living in Canada with my common-law partner, a Canadian citizen. Does the fact that Canada recognizes us as common-law partners have any implications for how I do my US taxes?

If we get married, then how do I do my US taxes? Can I say "married, filing separately" and then do my taxes based on my income alone and basically ignore my partner for the sake of US taxes?

It seems that if I say "married, filing jointly", then we count world income for both of us -- that seems just complicated. Is there an advantage to filing jointly?

Thanks!

nelsona · Post by **nelsona** » Mon Jan 03, 2011 8:54 pm

Until you marry, you are "single".

Once you marry, you are married and must file accordingly, MFS or MFJ. Most USC's living in Canada file MFS, as it is not necessary to reduce your US tax by filing MFJ because your US tax is almost always nil.

andied · Post by **andied** » Wed Jan 05, 2011 1:01 pm

This is not my understanding.

from the IRS:

http://www.irs.gov/publications/p17/ch0 ... 1000170745

You are considered married for the whole year if on the last day of your tax year you and your spouse meet any one of the following tests.
You are married and living together as husband and wife.

You are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began.

You are married and living apart, but not legally separated under a decree of divorce or separate maintenance.

You are separated under an interlocutory (not final) decree of divorce. For purposes of filing a joint return, you are not considered divorced.

nelsona · Post by **nelsona** » Wed Jan 05, 2011 2:10 pm

Be careful, the word "state" in this context may refer to one of the 50 states, not the generic term for any political jurisdiction.

At worst (or best) until you are actually married, you can choose how you file. after marriage, you will ahve to file as I indicted above.

jordanclark · Post by **jordanclark** » Sun Jan 23, 2011 5:22 am

Thanks very much for answering this question, it helps me out with the same problem.

However I am planning to move from Canada to the US in the near future. I'm a dual citizen but have never filed US taxes (I didn't know it was required until recently). My interest is in applying for a mortgage in the future, so I thought applying jointly with my common-law wife would be beneficial to document our combined income.

I read it was possible for a spouse to voluntarily file US income tax as if they were a non-resident alien. Both incomes are individually below the $80k foreign earned income exclusion so we shouldn't owe anything, right?

As far as you know is this possible, does this make sense? Is there any down side to doing this like additional late filing penalties or something else?

nelsona · Post by **nelsona** » Sun Jan 23, 2011 5:53 am

You need to catch up your previous filings. There will not be any penalties, because it is very unlikley that you would owe IRS tax, but you need to file 6 years back.

You would only include spouse if you need to reduce your US taxes. For your back-filing, I doubt that it would be needed. Once you move to US, you will want to file joint return.

Documenting her income can be done without bothering to file her on the tax return. US mortgage lenders are not that picky.

jordanclark · Post by **jordanclark** » Sun Jan 23, 2011 6:03 am

Thanks Nelsona!

But wow 6 years back? That's a bit of a burden. I thought I read IRS typically only wanted 3 years? When I apply for a SSN will IRS request this many years back? Can I submit a written request for how many years they want, or is it always 6? Or could I just send in 3 years and see if that satisfies them?

Are there any IRS implications for owning my own Canadian controlled corporation with retained earnings? Will this be seen as a separate entity and not subject to US tax until the money is actually paid out personally to my wife & I later this year?

nelsona · Post by **nelsona** » Sun Jan 23, 2011 6:38 am

If you've read they require 3 years, then you've probably also read that they require 6 -- or at least now you have.

You should have been filing all along.

I don't deal with corporation stuff. see my signature

JGCA · Post by **JGCA** » Mon Jan 31, 2011 9:04 pm

For the corporation once you leave Canada and you own shares in a Canadian corp this will need to be disclosed to the IRS annually and the income accruing on the retained earnings will be taxed to you even if you leave the money in the corp, addittionally you will be subject to a Generation Skipping Tax on the value of the Retained Earnings, I suggest that you dividend out ll the Retained earnings before you leave or better still wind down the company.

jordanclark · Post by **jordanclark** » Mon Jan 31, 2011 11:29 pm

@JGCA

Thanks for the details, I had read about possibly having the corporation's income be taxable as if the retained earnings were paid to me personally. which would be a hassle/problem for back filing taxes. I assume from your statement this only applies to US Residents not foreign US Citizens?

I also thought winding down the corporation would be necessary. As another option would it work if I gave the shares of the corporation to a family member who is not a US citizen?

Thanks

JGCA · Post by **JGCA** » Tue Feb 01, 2011 12:43 pm

Selling your shares to a family member will result in a deemed disposition of shares at FMW Sec 61 ITA, so this would not be a good solution you will have a capital gain and they get a cost in the share ACB so if they ever pulled out dividends they would be taxed on the retained earnings as a dividend, your best bet is to wind it down or take out the R/E as a dividend.

nelsona · Post by **nelsona** » Tue Feb 01, 2011 9:44 pm

Another point. If this is a Cdn controlled corp, your departure triggers disposition as well.