how to deduct us tax from Canadian tax return

jliacc · Post by **jliacc** » Fri Feb 04, 2011 9:45 pm

Hi,

My husband worked in the US the full year in 2009. I was in Canada.When my husband filed his Canadian tax return, he wrongly picked oversea tax credit. Now we know it's only for certain kinds of employer. He works for a US company
CRA delined the oversea tax credit and demands us to pay Canadian tax. Under this situation, whan can we do? I heard there is a tax treaty between US and Canada to solve double tax problem. Aren't we supposed to deduct the tax paid to US to avoid double tax on the same income? What form we can file so as to claim the tax paid in the states?

Thanks a lot

jliacc · Post by **jliacc** » Fri Feb 04, 2011 9:53 pm

I forgot to indication my husband works under TN visa.

nelsona · Post by **nelsona** » Sat Feb 05, 2011 5:02 am

There is a line for foreign tax credit on both the federal and provincial tax forms. He should include his US fedarl tax calculated on 1040NR, his state tax, and his FICA towards this.

jliacc · Post by **jliacc** » Sat Feb 05, 2011 12:06 pm

Thanks a lot. May I ask you more questions? Thanks in advance.

1) My husband contributed RRSP in 2009, can he claim it on his US 1040NR return? If we can, which line should we put it?

2) After we redo the 2009 Canada tax return by taking the foreign tax credit correctly, it ends up we owe Canada 2000 dollars. That's fine.
My question here is that can we take the 2000 paid to Canada as credit on US 1040NR return? If so, how?

JGCA · Post by **JGCA** » Sat Feb 05, 2011 12:57 pm

No the RRSP claimed in Canada is not a deduction on the 1040NR.

The US 1040NR will only tax you to the extent you have earned income in the US and therefore the tax is calculated on this income on the 1040NR and paid to the IRS, afterwhich this amount due to the IRS is claimed rightfully by you a a foreign tax credit on your CND tax returns, if you still end up owing more tax to Canada, as is the usual case, this extras tax is not credited back on the 1040NR since the US can only tax you at their rates and no more this is extra tax due to Canada and is not owed to the IRS.

jliacc · Post by **jliacc** » Sat Feb 05, 2011 3:08 pm

Thanks a lot. Your answer is very clear and useful.

Now I have to ask some questions regarding my husband's US tax return for 2009. Since he filed married but seperatly, IRS evaluated the tax return and calculated the AMT. It ends up he owes tax to IRS. We did some research and found out that we may file jointly for 2009 even I was non resident alien (I was in Canada), but I have to file my Canada income in 2009. Is it true we can file jointly for 2009? If so, how should I do it?

jliacc · Post by **jliacc** » Sat Feb 05, 2011 3:09 pm

Sorry. I forgot to let you know that I have ITIN now.

JGCA · Post by **JGCA** » Sat Feb 05, 2011 5:05 pm

Your marital status at the beginnig of the taxation year determines your filing status for the entire year, it is possible to have changes throughout the year so the IRS allows you to chhse the one that's best for you. In your case as long as you were married at the beginning of the year then yes you should file jointly as :'Married filing Jointly" especially since you have your TIN number.

It is simple to Amend the tax return your husband filed you just need to file a form 1040X this will allow him to file jointly with all your information on his return too and adding in your income to his then the rate will change along with the exemptions and thresholds for claiming other types of deductions.

nelsona · Post by **nelsona** » Sat Feb 05, 2011 6:22 pm

If he is owing tax to US, then you should consider filing an Article XXV 1040NR whereby you calculate spouses US tax based on a pro forma 1040 which includes all joint worls income and gets all credits and deductions, including Cdn tax withheld.

A

nelsona · Post by **nelsona** » Sat Feb 05, 2011 6:28 pm

.... A joint 1040 would not be the answer here. The treaty has specific remedy for this situation (one spouse working in US but both resident in canada)

jliacc · Post by **jliacc** » Sat Feb 05, 2011 10:47 pm

Thanks for all the inputs.

I found I made a mistake in my original input. The tax return that my husband filed is 1040A instead of 1040NR. He lived and worked in US the full year in 2009 and didn't have income from Canada. I worked and lived in Canada in 2009. Sorry about the mistake. Under this situation, is there any way that we can take to benefit ourselves? Currently IRS treated my husband's return as married filed seperately. with our limited tax knowledge, we assume that we may file jointly based on our research.

Welcome any suggestions.

Thanks in advance.

nelsona · Post by **nelsona** » Sun Feb 06, 2011 7:31 am

The reason IRS "treated"your husband you as married filing separately, is because that is how he filed. He could have filed joint, or he could have filed 1040NR as non-resident, or as 1040NR using XXV.

This can be fixed by correcting the filing.

jliacc · Post by **jliacc** » Sun Feb 06, 2011 10:30 am

Thanks for your inputs. If I understand your suggestion correctly, [b]my husband [/b][b]can file 1040NR even he had been working in US the full year of 2009[/b]? Acutually he has been in the States since then.

jliacc · Post by **jliacc** » Sun Feb 06, 2011 10:41 am

Sorry I didn't put all my questions in one post. Based on my understanding of your suggestion, we have 3 choices right now.

1) file jointly
2) file 1040NR
3) file 1040NR using XXV

Is that right?

nelsona · Post by **nelsona** » Sun Feb 06, 2011 12:41 pm

Yes, and your goal should only to reduce the US tax (including FICA) to below the amount you can use on your Cdn return. Doing anything more only increases your Cdn tax.
So, in order of trying it should be

1040NR, and then Article XXV. I wouldn't bother with 1040 joint, unless you are declaring Cdn non-residency.