The situation is a former CDN/US dual citizen who renounced US citizenship earlier in the year. After the renunciation date, her employer sends her to the US for a conference. She doesn't not make any money on this trip other than her normal Canadian salary.
1) If she does a full year US return for her expatriation year (as has been recommended on this forum) using form 2555, how does that trip impact the FEIE? Does the salary earned on the trip have to be reported as "US sourced" with US taxes paid? (Keep in mind that she was not a US citizen at the time of the conference, despite filing a full year 1040.)
2) If the answer to #1 is that US taxes need to be paid on earning during the conference, how does she eliminate the double taxation on her Canadian return?
3) Depending on the answer to #1 and #2, might it make sense to file a dual-status return so that the US business trip is part of the 1040NR and therefore clearly not "US sourced"?
Thanks!
Form 2555 and business trip to USA
Moderator: Mark T Serbinski CA CPA
I'm afraid I have no answer to your question, but I have a similar but more general question. I have read many of the previous posts about filing your final year's tax return after expatriation, and I believe I understand the options of filing a 1040 for the full year or a 1040NR for a dual status year. What is not clear is whether one can use the Foreign Income Exclusion in either case. Form 2555 states very clearly at the top: "For Use by U.S. Citizens and Resident Aliens Only". Since an expatriate is neither of these on Dec. 31 of their expatriating year, can he use the Foreign Income Exclusion at all?
patti,
1. Technically, she sould not include it in her FEIE. But because She is using the bonefide residence clause in orfer to use 2555, her days in US don't matter, so you can still use 2555.
For the portion that is non-excludable by FEIE, she can use the trety exclusion (less than $10K US -- Article XV), to avoid US taxation.
2. see 1. Only Cdn tax will be owed. if there were tax owing.
3. Full year 1040, with 2555 and the treaty exemption for the money earned while in US is still best way.
Of course, neither method should yield a penny of US tax (a 1040 should get you $1000 for each child). so your decision doesn't carry much risk.
1. Technically, she sould not include it in her FEIE. But because She is using the bonefide residence clause in orfer to use 2555, her days in US don't matter, so you can still use 2555.
For the portion that is non-excludable by FEIE, she can use the trety exclusion (less than $10K US -- Article XV), to avoid US taxation.
2. see 1. Only Cdn tax will be owed. if there were tax owing.
3. Full year 1040, with 2555 and the treaty exemption for the money earned while in US is still best way.
Of course, neither method should yield a penny of US tax (a 1040 should get you $1000 for each child). so your decision doesn't carry much risk.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Hi Nelsona,
That is good news. How does one go about using the $10k treaty exclusion to avoid US tax on that income?
In part II of the 2555 on line 14, it asks for "days in US on business" and "income earned in US on business". Can she just put 3 days and $0 earned since the dollars earned is less than $10k? Or is there a more complicated process to recognize that treaty exclusion?
Thanks!
That is good news. How does one go about using the $10k treaty exclusion to avoid US tax on that income?
In part II of the 2555 on line 14, it asks for "days in US on business" and "income earned in US on business". Can she just put 3 days and $0 earned since the dollars earned is less than $10k? Or is there a more complicated process to recognize that treaty exclusion?
Thanks!
No, you need to put what was earned in US on 2555, and cannot exclude it.
Looking a little deeper into this, if you file a 1040 you cannot claim the under-$10K exclusion, so you need to do a little more work. So, the first thing you need to do is figure out if not excluding this income makes you taxable in US. Does it?
Since this is US source income on which Canada will not give you any credit, you create a 1116 form, under the "re-sourced by treaty" category. You will already have other 1116's due to interst, etc that you earned during the year, that is not excludaebl on 2555 in any situation.
Afte ryou have calculated your US tax after using 2555 (assuming ther is any, you need to earn quite a bit to be taxable), then you "re=source" enough of theat US-sourced wages, to reduce the US tax to zero.
Doing a 1040 rather than 1040/1040NR is only useful to you if you have children. Do you? If no, then don't bother with 1040 full year, and do 1040/1040NR, since you will file a zero tax retunr in either case. the 1040/1040NR will have more 1116's
Looking a little deeper into this, if you file a 1040 you cannot claim the under-$10K exclusion, so you need to do a little more work. So, the first thing you need to do is figure out if not excluding this income makes you taxable in US. Does it?
Since this is US source income on which Canada will not give you any credit, you create a 1116 form, under the "re-sourced by treaty" category. You will already have other 1116's due to interst, etc that you earned during the year, that is not excludaebl on 2555 in any situation.
Afte ryou have calculated your US tax after using 2555 (assuming ther is any, you need to earn quite a bit to be taxable), then you "re=source" enough of theat US-sourced wages, to reduce the US tax to zero.
Doing a 1040 rather than 1040/1040NR is only useful to you if you have children. Do you? If no, then don't bother with 1040 full year, and do 1040/1040NR, since you will file a zero tax retunr in either case. the 1040/1040NR will have more 1116's
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Hi Nelsona,
Single, no children. Earned income is less than the FEIE, so really the only US taxable earned income is 3 days worth at conference. Since there is enough passive income to use all of the standard deduction/exemption, I think this would mean US taxable, right?
There will already be a 1116 of resourced income for a few dollars US bank interest. Can 3 days of resourced earned income just be added to the bank interest on the same 1116? If that is the case it would still mean two 1116's (one for passive and one for resourced). Same as before.
Since there are no children, it sounds like you are suggesting it might be better to go with the 1040NR in this case? I think there would be three 1116's in this case (earned, passive, and resourced for US bank interest) reporting up until renunciation date. The 3 days of earnings after renunciation date would then be captured by the $10k treaty exemption and not need to be reported. This certainly seems somewhat "cleaner" than resourcing earned income that was earned as a non-citizen/resident; however, it requires learning a new form (1040NR)???
As for your question about crossing into USA... no problem. It was at Toronto Pearson airport and the agent did ask about having a US passport to which the answer was a simple "no". There were no follow up questions. Proceed as normal Canadian. My understanding is that there is nothing wrong with a renunciant crossing over although they could ask to see a CLN as proof that a US passport is not needed.
Single, no children. Earned income is less than the FEIE, so really the only US taxable earned income is 3 days worth at conference. Since there is enough passive income to use all of the standard deduction/exemption, I think this would mean US taxable, right?
There will already be a 1116 of resourced income for a few dollars US bank interest. Can 3 days of resourced earned income just be added to the bank interest on the same 1116? If that is the case it would still mean two 1116's (one for passive and one for resourced). Same as before.
Since there are no children, it sounds like you are suggesting it might be better to go with the 1040NR in this case? I think there would be three 1116's in this case (earned, passive, and resourced for US bank interest) reporting up until renunciation date. The 3 days of earnings after renunciation date would then be captured by the $10k treaty exemption and not need to be reported. This certainly seems somewhat "cleaner" than resourcing earned income that was earned as a non-citizen/resident; however, it requires learning a new form (1040NR)???
As for your question about crossing into USA... no problem. It was at Toronto Pearson airport and the agent did ask about having a US passport to which the answer was a simple "no". There were no follow up questions. Proceed as normal Canadian. My understanding is that there is nothing wrong with a renunciant crossing over although they could ask to see a CLN as proof that a US passport is not needed.
Resouced income is one category, you can combine the 2 incomes.
You are taxable in US becuase of the passive income , so you will need to file those 1116's in either case.
To sum up:
full 1040: 1040, 2555, 1116 passive (entire year), 1116 re-sourced (US bank interest and US trip earning) plus any renunciation and other forms
1040/1040NR: 1040, 2555, 1116 passive (from before renun), 1116 re-sourced (US bank intrest from pre-renun), plus any renunciation and other forms and then 1040NR:
Your 1040NR will esentially be blank, except fpr the information that should go on line 22. Your earning while in US are NOT considered CDn-sourced, they are indeed US-sourced, but you are using the treaty to exclude them.
Your 2555 has a smaller limit in this case, as it will run only from jan 01 to the renunc date, and prorate your limit, but it will only cover that period of earnings to, so it should be a wash.
My general advice to file full year when one renuciates is based on the premise that one typically doesn't have any US income in that year after renouncing. You do, and on top of that it is US income that has its own treaty exemption if you file NR.
So in your case, it makes sense to file 1040/1040NR. But really, all that will be differnt is one will have a 1116 that has more re-sourced income, vs a 2555 that has less FEIE income (and a 1040NR).
Really up to you
You are taxable in US becuase of the passive income , so you will need to file those 1116's in either case.
To sum up:
full 1040: 1040, 2555, 1116 passive (entire year), 1116 re-sourced (US bank interest and US trip earning) plus any renunciation and other forms
1040/1040NR: 1040, 2555, 1116 passive (from before renun), 1116 re-sourced (US bank intrest from pre-renun), plus any renunciation and other forms and then 1040NR:
Your 1040NR will esentially be blank, except fpr the information that should go on line 22. Your earning while in US are NOT considered CDn-sourced, they are indeed US-sourced, but you are using the treaty to exclude them.
Your 2555 has a smaller limit in this case, as it will run only from jan 01 to the renunc date, and prorate your limit, but it will only cover that period of earnings to, so it should be a wash.
My general advice to file full year when one renuciates is based on the premise that one typically doesn't have any US income in that year after renouncing. You do, and on top of that it is US income that has its own treaty exemption if you file NR.
So in your case, it makes sense to file 1040/1040NR. But really, all that will be differnt is one will have a 1116 that has more re-sourced income, vs a 2555 that has less FEIE income (and a 1040NR).
Really up to you
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Does the decision impact the need to file any other forms? i.e. 8891 for RRSPs, 8938 foreign assets, or FBAR.
Leaning towards the known (1040) versus the unknown (1040NR with 1040 attached). Been through the full year 1040 many times. Shouldn't be a big stretch to add a few dollars to the re-sourced 1116.
Thanks for sharing your wisdom.
Leaning towards the known (1040) versus the unknown (1040NR with 1040 attached). Been through the full year 1040 many times. Shouldn't be a big stretch to add a few dollars to the re-sourced 1116.
Thanks for sharing your wisdom.
You will need all these forms either way, since you were a US citizen at some point during the tax year. That is why I mentions renunciation and other forms in both decisions, there is no difference for these.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing