Canadian spouse w kids, TINs and exemptions

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trailboss
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Joined: Fri Apr 20, 2018 8:48 am
Location: Canada

Canadian spouse w kids, TINs and exemptions

Post by trailboss »

TurboTax is indicating significant tax savings (US 1040) for married filing jointly and taking the foreign tax credit. We have two children living with us 1/2 time in Canada per divorce decree. Can we apply for TINs for wife and both children, and claim exemptions for the two children (ages 14 and 16, both in school)?

[Husband is US citizen, working full time in Canada as permanent resident, with pension and interest income in the US. Taking the income exclusion results in a high marginal tax rate - not ideal.]
nelsona
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Post by nelsona »

SO, I'll assume that neither child is his, so are NOT US citizens?

I agree that 1040 is *probably* the best way to go, but I wouldn't be making it too complicated.

Essentially, the only income that is taxable in US is the pension. So, are you finding that when using 2555 wages and 1116 on the other income, the US tax on the pension (there is no state tax per other post) exceeds what can he can use on the Cdn return as a foreign tax credit against the pension income? All you need to concer yourself with is your overall tax. Even joint return might not be necessary.



US filers in Canada have a lot of filing/reporting obligations that need to be considered. Are you up to speed on all these matters?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
trailboss
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Joined: Fri Apr 20, 2018 8:48 am
Location: Canada

Post by trailboss »

Correct, wife and two children are NOT US citizens.

On the US return, reporting joint income and taking the 1116 foreign tax credit results in lower overall tax in the US. The income exclusion route sends the marginal tax rate on the pension income into outer space.

But, in order to take advantage of the joint filing status, Canadian citizen wife will need a TIN every year. TurboTax seems to think claiming the two children complies with the tax code, but they would also need TINs. Before I mail in the TIN requests, I just wanted to confirm it is feasible & compliant.

Yes, we think we are completely compliant with the FBAR and Foreign Corporation filing requirements (another complication) and all the standard forms. The total filing package is about 30 pages and takes several days to prepare.
nelsona
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Post by nelsona »

Yes it is feasible. ITINs are a b!tch to get these days, so good luck with that.

However, like I said, lowering the US tax on your pension below your Cdn taxrate shouldn't require this. Have you looked at Head-of-Household?
if you file married, separate, you would still get exemption (for 2017 only) If she has no US income.

If your income is so high that your only source of US income is being taxed so much, gives me the impression that your Cdn taxes are also very high. All you want to do is use up the US tax that you calculate on that pension.

You are familiar with PFIC and trust reporting as well. Often Cdns have normal accounts that run afoul of these, like a TFSA or RESP. Including your spouse on a return when you do not have to isn't very useful.

Given that you didn't realize you have no state income taxes to pay makes me ask questions.

For example, your foreign taxes for FTC purposes are determined on both returns BEFORE applying FTCs. Any Cdn tax you paid during the year can be itemized on your return. Canada does not give credit for more than 15% tax on your US pension and no credit for the tax on your US bank interest, so you need to clim this back on your US tax with 1116s.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

Understand about the 15% limit on pensions. It means that if in doeing your simple MFS with 2555 yields a US tax on, say 40% on your pension, canafda gives you credit for 15%, and US MUST give you credit for the other 25%.

same for the 40% on your bank interest. They must give you credit for all of that.

The result is if you have excluded almost eign income by 2555, then the treaty forces IRS to tax you like you were a Cdn getting thix money from US, which is 15% for pension, 0 for bank interst, 10% on dividensds, and 0 on cap gains.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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