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US Taxation for Canadian Individuals

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Steven E Miller, CPA PC

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U.S. Taxation for Canadian Individuals

Traps to Avoid

Governments around the world are operating at huge deficits and running up incredible amounts of debt. In order to reduce deficits, they are combing through every possible nook and cranny to find additional revenues.

Guess where tax revenues come from? Your pocket! Our objective is to provide a brief outline of some important tax traps to avoid or steps you can take to minimize the damage if you are caught in the trap.

Different Countries – Different Tax Laws

Whether you live in Canada or the USA or are considering a move to the USA, you really want to understand the basic differences in how these two countries tax their people.

Canada – Water’s Edge

Canada follows a general tax regime like most other countries around the world. If you are living and working in Canada, they tax you. BUT if you leave for another country, they stop taxing you once you are gone.

USA Taxes you Everywhere All the Time

The U.S. tax system taxes its citizens and residents on their worldwide income NO MATTER WHERE they live. It makes no difference if you live in New York City, Buenos Aires, or Toronto, if you are a U.S. citizen or have a U.S. Green Card, the USA taxing authority (The Internal Revenue Service) demands you file a U.S. income tax return. So you could be in the British Virgin Islands working for a company and working on your tan and pay no tax to BVI. But Uncle Sam wants his share!

Why does that matter to you as a Canadian? Because you can get caught up in the U.S. tax net very easily in many ways.

One is you move to the U.S. on a work visa. One important item to note is that you can become a U.S. resident for tax purposes without having obtained a Green Card. All it takes is to spend too many days physically present in the U.S. 183 days or more during the year and you’ve been hooked!

You don’t even have to be working here. If you spend too many days in the USA you could be taxed on your worldwide income! Not exactly what you were expecting when you decided to take that motor home on an extended vacation or spend a lot more time on your golf swing.

That describes the “accidental” resident. Let’s take a minute to discuss another example. One common situation is where a Canadian & U.S. citizen marries. If both decide to live in the USA, you are both subject to taxes on your worldwide income.

>br /> But in today’s complex world, the U.S. government has created a lot of bureaucratic tax forms for you to file you may not be aware are required. No big deal you say? We are talking penalties starting at $10,000 per instance, risk of prison and plenty of sleepless nights!

There are many ways to be caught up for this onerous U.S. system. Let me mention just a few common ones:

  • Bank or Securities accounts in Canada
  • RRSP or other Canadian Retirement Accounts
  • Rental Properties in Canada
  • Ownership in a Canadian corporation or partnership
  • Beneficiary of a Canadian Trust

Imagine having your Canadian retirement account taxed just because you didn’t know to file a tax election and the proper tax forms on your U.S. return each year. Now start adding in these penalties. It can take your breath away.

Key Points

If this discussion rings some bells for you the first step is to find out if you have a problem. If so, you may not be hit with penalties if these forms are filed for prior years back to 2004 (if you’ve been here that long).

Don’t take the ostrich approach. Deal with it and get professional help. It takes some time but saves money and stress over the long term.

If you’re considering a move to the U.S. for work or to get married, STOP! When you move to the U.S. may cost you more you more money depending on when.

We offer planning and options to consider before undertaking such a big step.

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