Hello Nelsona,
Please could you explain what this statement really means?
I have learnt alot from this forum on cross border tax as most accountants dont know this and few I met only want to handle one side only and asking that you go find another accountant on the other side.
When i re-evaluated my tax return using regular 1040NR (taking deduction for a family of 4) and check the impact on Cdn return I will be paying back on the money received from IRS to CRA, I also did the 1040 proforma (world income and use this tax rate on 1040NR) but realized the 1040NR is a lower tax rate due to all the family deductions.
So the only way I got around this without taking money from IRS and giving back to CRA is that I completed 1040NR and take only deduction for myself and spouse as against the family of 4. In this case I will only be getting $750 back which i dont think worth re-visiting my tax return for both U.S and Cdn, as such my question, what exactly am i doing or looking for when you mean all you are trying to do is just lower your U.S taxrate below the Cdn one, at what point does this happens.
Thank you
Lowering U.S taxrate below your Cdn rate
Moderator: Mark T Serbinski CA CPA
It is quite simple.
When you prepare a 1040NR, it is usually at an unfavorable taxrate, over other methods to file. It is however the simplest, if you are non-resident.
Now, when you do your Cdn taxes, you are allowed to take crerdit for the US taxes you pay.
Many times, when one puts in the values from their 1040NR, their state tax return and their FICA, they fingd that they cannot use it all. This overage is of no use to you, since it cannot be carried forward: Your US taxrate is higher than your Cdn rate.
If one has no overage, then there is nothing that needs to be done: your US taxes are being completely used up, which is good --- as long as you are using all the good tax deductions available on your CDn return, RRSP, and the rest. As you say, any further tax savings that you claim in US would merely be eaten up by CRA. So there is no need to go any further: Your US taxrate in lower than your Cdn one.
But if you do have overage, then it is often advisable -- and the treaty even encourages it for married coupels -- to fins a BETTER way of filing in the US, which involves the married filing jointly tax rates, as well as the deductions and credits that are available on 1040 which are not on 1040NR.
So, when do you know? When, after using all your CDn deductions, you input your US tax on the Foreign tax credit lines and you have nothing left over. (You can test this by adding $10 to that line and seeing if it changes your Cdn tax.
When you prepare a 1040NR, it is usually at an unfavorable taxrate, over other methods to file. It is however the simplest, if you are non-resident.
Now, when you do your Cdn taxes, you are allowed to take crerdit for the US taxes you pay.
Many times, when one puts in the values from their 1040NR, their state tax return and their FICA, they fingd that they cannot use it all. This overage is of no use to you, since it cannot be carried forward: Your US taxrate is higher than your Cdn rate.
If one has no overage, then there is nothing that needs to be done: your US taxes are being completely used up, which is good --- as long as you are using all the good tax deductions available on your CDn return, RRSP, and the rest. As you say, any further tax savings that you claim in US would merely be eaten up by CRA. So there is no need to go any further: Your US taxrate in lower than your Cdn one.
But if you do have overage, then it is often advisable -- and the treaty even encourages it for married coupels -- to fins a BETTER way of filing in the US, which involves the married filing jointly tax rates, as well as the deductions and credits that are available on 1040 which are not on 1040NR.
So, when do you know? When, after using all your CDn deductions, you input your US tax on the Foreign tax credit lines and you have nothing left over. (You can test this by adding $10 to that line and seeing if it changes your Cdn tax.
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