Taxation of Canadians in America

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David Levine. Taxation of Canadians in America

TAXATION OF CANADIANS IN AMERICA: Are YOU at risk?

Introduction

1. The Basics of US Taxation

1. History of the Internal Revenue Service (IRS)

2. The Basics

3. Dealing with the IRS

4. The IRS Examination (Audit) Process

5. Filing

Table 1: INCOME THRESHOLDS FOR FILING

5.1 When to file your Individual Income Tax Return (Form 1040)

5.2 Electronic filing

5.3 Penalties and interest for underpayment, late filing, and late payment

5.4 Filing status

6. Notifying the IRS about Your Change of Address

2. Your First Year in the US

1. Determining US Residency

1.1 First year elections

Table 2: US IMMIGRATION OPTIONS

Table 3: YOUR STATUS: NONRESIDENT ALIEN OR RESIDENT ALIEN

2. How Do I Get an Identification Number?

3. The Treaty

Table 4: TREATY ARTICLES

1. Residency

2. Real Property

3. Dividends, Interest, and Royalties

4. Gains

5. Personal Services

6. Artists and Athletes

7. Pensions and Annuities

8. Social Security

9. Government Service

10. Students

11. Taxes Imposed by Reason of Death

Table 5: TYPES OF INCOME AND WITHOLDING RATES

4. Canadian Taxation of Nonresidents

1. Who Is Considered a Nonresident of Canada?

2. Selling Property in Canada

5. Foreign Tax Credits

1. What Are Foreign Tax Credits?

2. Types of Foreign Income

3. How to Calculate the Foreign Tax Credit

4. Alternative Minimum Tax (AMT)

6. Registered Retirement Plans, Pensions, and Social Security

1. Registered Retirement Plans

1.1. Deferral

1.2 Distributions

1.3 Planning

Table 6: RRIF MINIMUM WITHDRAWALS BY AGE

1.4 How the taxes work

1.5 Other types of accounts

2. Pensions

3. Social Security

3.1 The Windfall Elimination Provision

7. Investments

1. Securities Law

2. Mutual Funds

Table 7: SUMMARY OF EXPENSES

2.1 Passive foreign investment company (PFIC) rules

2.1a Qualified electing fund (QEF)

2.1b Mark-to-market election

2.1c Excess distribution

3. Tax Reporting Slips

4. Taxation of Specific Types of Investments

4.1 Municipal bonds

4.2 Government bonds

4.3 Annuities

4.4 Personal residence

4.5 Investment real estate

5. Treaty Rules That Affect Your Securities

8. Common Deductions

Table 8: THE FORMAT OF THE US INDIVIDUAL INCOME TAX RETURN (FORM 1040)

1. Above-the-Line Deductions

2. Trade or Business Expenses

Table 9: TRADE OR BUSINESS EXPENSES

3. Vacation or Rental Home Expenses

Table 10: VACATION/RENTAL HOME

4. Depreciation, Amortization, and Depletion Expenses

Table 11: CLASSES OF DEPRECIATION PROPERTY

5. Individual Losses to Property

6. Alimony and Child Support

7. Contributions to Individual Retirement Accounts (IRAs)

8. Moving Expenses

9. Health Savings Accounts (HSA)

10. Qualified Education Expenses and Student Loan Interest

11. Exemptions

12. Standard Deductions or Itemized Deductions

12.1 Standard deductions

Table 12: STANDARD DEDUCTION AMOUNTS

Table 13: ADDITIONAL DEDUCTION AMOUNTS

12.2 Itemized deductions

13. State and Local Taxes

14. Interest Expenses

15. Medical Expenses

Table 14: LIMITS ON MEDICAL DEDUCTIONS

16. Employee Educational Expenses

17. Charitable Contributions

18. Miscellaneous Itemized Deductions

19. Credits

19.1 Child and dependent credit

19.2 Credit for the elderly or disabled

19.3 Child tax credit

19.4 Earned income credit

19.5 Education credits

19.6 Retirement savings contributions credit

19.7 Other credits

9. Tax Planning

1. Tax Planning in General

2. Specific Tax-Planning Opportunities

2.1 Your principal residence

2.2 Other real estate investments

2.3 Securities

2.4 Series EE bonds and I bonds

3. Tax Breaks for Senior Citizens

4. State Income taxes

5. Community Property

10. US Estate and Gift Taxes

1. US Nonresident Estate Tax

2. US Resident, Noncitizen Estate Tax

Table 15: GIFT AND ESTATE TAX RATE SCHEDULE

Table 16: UNIFIED TAX CREDITS AND EXCLUSION AMOUNTS

2.1 Jointly held property

3. Gift Taxes

4. Generation Skipping Transfer Tax

5. State Estate and Inheritance Tax

Table 17: STATE ESTATE AND INHERITANCE TAX

11. Leaving the US

1. Expatriation

1.1 Your rights after renunciation of US citizenship

1.2 The Reed Amendment

2. Tax Planning before You Leave

Conclusion

Resources: Contact Information for State Taxing Agencies

Acknowledgments

About the Authors

Notice to Readers

Self-Counsel Press thanks you for purchasing this ebook

Contents

Отрывок из книги

We estimate that more than 1 million Canadians file tax returns in the US and another 1 million should be filing, but don’t. Based on our experience, many of those that do file have a number of mistakes that could be very costly if the Internal Revenue Service (IRS) were to discover those mistakes. Of those who don’t file, but should, we find the main reason is that they do not fully understand the US residency requirements and therefore the requirement to file US tax returns.

As Canadians, you can hardly be blamed for the fact that, as a group, your US tax returns are most likely being done incorrectly. Taxation in general is complex enough, add to that rules that are seldom used by most tax preparers, then toss in the Treaty that can modify the Canadian Income Tax Act and the US Internal Revenue Code and you have a very complex set of rules. If that were not bad enough, in a number of cases, there are no clear rules or regulations addressing the issues you are facing, which makes it very difficult to file correctly even if you are trying to do the right thing.

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• Information matching: Some returns are examined because payer reports (i.e., tax slips), such as Forms W-2 from employers or Miscellaneous Income (Form 1099) statements from banks and brokerage firms, do not match the income reported on the tax return.

• Related examinations: Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for examination.

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