Hi,
This if my first post on the site but I have been reading and it is very infomative.
I live in a border city and have been working in the US while living in canada (daily commuter) for the last 4 years under a TN Visa.
I am realizng that I am going to pay a ton of income tax this year in canada unless I can do something about this. My accountant last year told me that if I fied for RRSP it wouldn't save me any money because I had already payed the tax in US and canada wasnt going to give mena ny return (or something like this)
From my understanding the tax laws have recently changed (last year or two) and the IRA and 401k are now recognized in Canada. So my question is (since the end of the year is a week away), can I cram a bunch of savings into an IRA right now before the end of the year (I am told IRA & 401k have to be put in before the end of the year) to help me save some income tax when I file this upcoming spring(like people do with RRSP)? and if so how do I go about doing this? If not, do I have any other options to shelter myself from the bomb of tax I will be paying this year?
Any help would be very much appreciated. Thanks,
Canadian Commuter working in US - need to save tax with IRA
Moderator: Mark T Serbinski CA CPA
IRA is not recognized, but 401(k) is, since it must be done thru empoyer.
Your 401(k) has to be done thru employer, so it is too late to do anything about this for 2011, but you should consider doing it beginning next year.
There is little point putting money in an IRA (which can be funded as you say in the spring), since this only saves you US tax, which will gladly be taken as extra tax in canada.
Your US taxes should be drastically lower than your Cdn tax (if your accountant knows wha the is doing), so a mix of 401(k) and RRSP would probably be best.
Your 401(k) has to be done thru employer, so it is too late to do anything about this for 2011, but you should consider doing it beginning next year.
There is little point putting money in an IRA (which can be funded as you say in the spring), since this only saves you US tax, which will gladly be taken as extra tax in canada.
Your US taxes should be drastically lower than your Cdn tax (if your accountant knows wha the is doing), so a mix of 401(k) and RRSP would probably be best.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I didn't write that heading. It is accurate.
Only employer-sponsored pension plans (group RRSPs and 401(k)/403(b)) contributions are considered tax deductible.
Btw, a review of your tax sutuation would be in order because if you ar efacing a situation right now where your Cdn tax becomes significantly lower than your US tax, there is something wrong.
You didn't say whether you were single or marries, as this as some impact,
What "bomb" of tax are you paying. Your US wages are being taxed and withheld in US, so there is little chance that you owe very miuch at taxa time (unless you have improperly informed your employer about what he should withhold), and your RRSP contributions should have lowered your Cdn tax to zero after the US foreign tax credit.
I just don't see how you would be owing any money at year-end, unless I'm missing something. If your acct told you not to put RRSP then shame on him.
Only employer-sponsored pension plans (group RRSPs and 401(k)/403(b)) contributions are considered tax deductible.
Btw, a review of your tax sutuation would be in order because if you ar efacing a situation right now where your Cdn tax becomes significantly lower than your US tax, there is something wrong.
You didn't say whether you were single or marries, as this as some impact,
What "bomb" of tax are you paying. Your US wages are being taxed and withheld in US, so there is little chance that you owe very miuch at taxa time (unless you have improperly informed your employer about what he should withhold), and your RRSP contributions should have lowered your Cdn tax to zero after the US foreign tax credit.
I just don't see how you would be owing any money at year-end, unless I'm missing something. If your acct told you not to put RRSP then shame on him.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I am Married, and my wife also works in the US. (This is sort of new, last year she worked for a US company but as a sole proprieter).
My tax situation has been relatively simple and I haven't had to pay tons at tax time, however my wifes was a diferent story (obv. since she was sole proprieter).
When I say tax bomb I suppose that is a bad way to put it. My concern is that I now have a significant amount of income in the high tax brackets compared to what I had in the past, so I want to to see if I can avoid this by investing in 401k or RRSP. Also, like I mentioned my accountent did say that there wasn't much opportunity for me to save any tax by investing in an RRSP last year since I had payed all my tax to US (my foreign TAX credit covered my canadian tax amount?).
So it definitly sounds like I am overpaying US tax. Is there some specifics that I could ask my accountent (maybe get a new accountent :) ) to change the way my taxes are being filed in US that would reduce the tax I am paying there. Could it have somehow involved my wife's tax situation last year thta has made it that I am also paying more there?
Your help is greatly appreciated.
My tax situation has been relatively simple and I haven't had to pay tons at tax time, however my wifes was a diferent story (obv. since she was sole proprieter).
When I say tax bomb I suppose that is a bad way to put it. My concern is that I now have a significant amount of income in the high tax brackets compared to what I had in the past, so I want to to see if I can avoid this by investing in 401k or RRSP. Also, like I mentioned my accountent did say that there wasn't much opportunity for me to save any tax by investing in an RRSP last year since I had payed all my tax to US (my foreign TAX credit covered my canadian tax amount?).
So it definitly sounds like I am overpaying US tax. Is there some specifics that I could ask my accountent (maybe get a new accountent :) ) to change the way my taxes are being filed in US that would reduce the tax I am paying there. Could it have somehow involved my wife's tax situation last year thta has made it that I am also paying more there?
Your help is greatly appreciated.
First off you should not be using 1040NR. That is the worst way to file.
You should be filing a joint 1040 with your spouse, reporting all income and then taking every single deduction credit and exemption that a US citizen would. You are allowed to do this.
Or, filing an Article XXV 1040 procedure to lower the taxrate on your 1040NR
This should lower your US tax level to where you need your RRSP contribution to lower your Cdn tax 'just about' to the US level.
If you dop this, then you won't have to worry about US retirement funds (which wouldn't help this situation anyways).
You should be filing a joint 1040 with your spouse, reporting all income and then taking every single deduction credit and exemption that a US citizen would. You are allowed to do this.
Or, filing an Article XXV 1040 procedure to lower the taxrate on your 1040NR
This should lower your US tax level to where you need your RRSP contribution to lower your Cdn tax 'just about' to the US level.
If you dop this, then you won't have to worry about US retirement funds (which wouldn't help this situation anyways).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best