Claiming standard deduction on 1040NR?
Moderator: Mark T Serbinski CA CPA
Claiming standard deduction on 1040NR?
I couldn't find the answer to a rather simple question...
As a married resident of Canada, can I claim the standard deduction by treaty?
As a married resident of Canada, can I claim the standard deduction by treaty?
Yes, there is, by filing as I said.
In any event, reducing US tax only helps if your Cdn tax will be lower, otherwise Canada will simply eat up more.
But seriously, XXV(3) was made for peaople exactly like you. Itr is prooably worth doing.
In any event, reducing US tax only helps if your Cdn tax will be lower, otherwise Canada will simply eat up more.
But seriously, XXV(3) was made for peaople exactly like you. Itr is prooably worth doing.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
But filing a 1040NR with a pro forma 1040 for MFJ rates won't give me the standard deduction, I will have to itemize, right?
It is definitely worth and I will do it, but even then, there is still room to lower my US tax in about $1600 until it is the same as Cdn tax... that is why I am trying to find other deductions.
It is definitely worth and I will do it, but even then, there is still room to lower my US tax in about $1600 until it is the same as Cdn tax... that is why I am trying to find other deductions.
On the the pro forma 1040 you use ALL the deductions and credits that anyone else is entitled to, and figure your tax RATE from this, and then use that rate on your 1040NR. So you in effect get the MFJ standard deduction.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
I didn't think I could use the standard deduction on the pro-forma 1040 because I read this document: http://www.irs.gov/pub/irs-trty/canatech.pdf
On page 48, it says: "The formula limits the United States tax with respect to wage income to that portion of the total U.S. tax that would be payable for the taxable year if both the individual and his spouse were United States citizens as the individual's taxable income [b](determined without any of the benefits made available by paragraph 4, such as the standard deduction)[/b] bears to the total taxable income of the individual and his spouse."
On page 48, it says: "The formula limits the United States tax with respect to wage income to that portion of the total U.S. tax that would be payable for the taxable year if both the individual and his spouse were United States citizens as the individual's taxable income [b](determined without any of the benefits made available by paragraph 4, such as the standard deduction)[/b] bears to the total taxable income of the individual and his spouse."
What this paragraph is saying is the income will be determind by 1040NR, which does not permit standard deduction.
If you read on, the same paragraph states that "In determining total taxable income of the individual and his spouse, the benefits made available by paragraph 4 are taken into account, but a deficit of the spouse is not."
So what they are saying, which exactly what is done in practice, is that you determine the pro forma exactly has anyone else would, using all available credits, deducutions, etc to determine the tax rate that will apply to the US wages reported on his 1040NR. But you cannot use the stadard deduction on 1040NR to reduce the income that you will make the final calculation from.
If you read on, the same paragraph states that "In determining total taxable income of the individual and his spouse, the benefits made available by paragraph 4 are taken into account, but a deficit of the spouse is not."
So what they are saying, which exactly what is done in practice, is that you determine the pro forma exactly has anyone else would, using all available credits, deducutions, etc to determine the tax rate that will apply to the US wages reported on his 1040NR. But you cannot use the stadard deduction on 1040NR to reduce the income that you will make the final calculation from.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
[quote="nelsona"]I don't think it works that way. this implies that only 1/10th of your family world income is reported on 1040NR.
Is that the case?[/quote]
No! Actually, all of my income comes from my job in the US and my wife has no income, so 100% of it goes on form 1040nr. You lose a lot comparing to the 1040 because it alters the ratio between your taxable income on 1040NR versus 1040.
I'll illustrate with an example.
Let's suppose a family of 4 (2 kids) and one income of 60,000.
Form 1040NR:
Income: 60,000
Itemized deductions: 3,000
Exemptions: 14,600
Taxable income: 42,400
Situation 1: Itemized Pro forma Form 1040 will be the exact same as 1040NR (taxable income is 42,400, assuming, of course, that you don't have additional deductions to itemize) but we'll be able to use the MFJ table and the tax will be 5,514.
Situation 2: Pro forma Form 1040 with the standard deduction of 11,600 brings the taxable income down to 33,800 and the tax will be 4,224 (almost 1,300 less).
Now applying the formula: Form 1040NR Taxable income/Form 1040 Taxable Income X 1040 Tentative Tax = Tax
Situation 1: 42,400/42,400 * 5,514 = 5,514
Situation 2: 42,400/33,800 * 4,224 = 5,299. That's only $215 less.
So it was not exactly 10% for this example, but you get the idea. The actual savings will be different according to the marginal tax rate.
Is that the case?[/quote]
No! Actually, all of my income comes from my job in the US and my wife has no income, so 100% of it goes on form 1040nr. You lose a lot comparing to the 1040 because it alters the ratio between your taxable income on 1040NR versus 1040.
I'll illustrate with an example.
Let's suppose a family of 4 (2 kids) and one income of 60,000.
Form 1040NR:
Income: 60,000
Itemized deductions: 3,000
Exemptions: 14,600
Taxable income: 42,400
Situation 1: Itemized Pro forma Form 1040 will be the exact same as 1040NR (taxable income is 42,400, assuming, of course, that you don't have additional deductions to itemize) but we'll be able to use the MFJ table and the tax will be 5,514.
Situation 2: Pro forma Form 1040 with the standard deduction of 11,600 brings the taxable income down to 33,800 and the tax will be 4,224 (almost 1,300 less).
Now applying the formula: Form 1040NR Taxable income/Form 1040 Taxable Income X 1040 Tentative Tax = Tax
Situation 1: 42,400/42,400 * 5,514 = 5,514
Situation 2: 42,400/33,800 * 4,224 = 5,299. That's only $215 less.
So it was not exactly 10% for this example, but you get the idea. The actual savings will be different according to the marginal tax rate.