Every year, permanent residents and U.S. citizens must file taxes. You must file taxes even if you do not reside in the U.S. Most U.S. citizens living in Canada often wonder how to file U.S. tax returns while in Canada.
The first question you need to ask yourself is whether you must file U.S. tax returns at all. If you are a U.S. citizen or a green card holder, the law requires you to file tax returns even if you reside in Canada. As an American living in Canada, you must file returns even if you just moved to Canada recently or if you have been living in Canada for all your life. You also must file Canadian tax returns alongside the U.S. tax returns if you reside in Canada.
It is advisable for a Canadian filing U.S. tax return to keep in touch with the U.S. cross border tax changes because tax laws are always changing, and the changes affect your tax filing requirements.
At GTA Accounting, we understand that life can get busy, making it hard to file U.S. tax returns. We also know that you may not fully understand all the requirements of filing U.S. tax returns. It is for this reason that we offer affordable cross border tax accounting services.
We provide excellent solutions to keep you on top of your taxes. If you have any tax question, we would be glad to assist. No matter your tax situation, you can always count on us because we offer many types of tax preparation. We know that the process of filing U.S. tax returns can make you feel overwhelmed. We are willing to help you throughout the tax filing process and answer all the questions you may have.
Unique Tax Considerations if you Live Outside the U.S.
The law may not require you to file taxes in both countries, the U.S. and Canada if you do not exceed a certain income threshold. If you are above the required income threshold, you must file the general income tax form, form 1040. Typically, the 1040 Form is two pages. You may have to fill other forms and schedules alongside the 1040 Form. What should you know about U.S. tax returns?
Exclusion of Earned Income
Some good news for you. You can exempt income earned in Canada or any other income earned in a foreign country in U.S. taxation by filing Form 2555. Using form 2555, you can apply for exemption of Canadian employment income from US taxation. You no longer must use Form 1116 to reduce your U.S. calculated taxes on Canadian income.
Foreign Bank Account Reporting (FBAR)
If you are a citizen of the United States and you have financial interest earned on a foreign account that exceeds $10,000, the law requires you to make a disclosure. To disclose the interest in foreign accounts, you have to e-file the FinCEN114. What happens if you fail to make a disclosure of your interest in foreign accounts?
You may incur hefty fines that do not exceed $10,000. It is essential to get in touch with one of our experts at GTA Accounting to get insight on how to report the interest in foreign accounts. Tax experts help safeguard your assets by shielding you from incurring hefty fines.
FTC (Foreign Tax Credits Or Deductions)
For all the taxes you paid in Canada, you can make a claim for foreign tax credit on your United States tax returns. If you are a green card holder or a U.S. citizen, you must file the 1040 form on yearly basis if you meet a certain income threshold. You may be subject to S.E. tax exemption if you reside in Canada and you are exempted by the Canadian U.S. social security agreement. You will have to file disclosure to this exemption with the 1040 Form.
Other than filing the 1040 Form every year, you may be subject to additional tax reporting. Additional tax reporting may apply if you are a beneficiary or if you own Canadian Mutual Funds. You are also subject to additional U.S. tax reporting if you own or are a beneficiary of Canadian RPPs, RESPs, RRSPs, and TFSAs.
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