Tax Services for US citizens and Green card holders residing in Canada
Consulting | Planning | Compliance | Preparation
Global workforce is becoming increasingly mobile, and the United States is no exception. Gone are the days when people stayed in one city or one country for their entire career. Today, it’s very common for US people to accept international assignments to anywhere in the world, from London to Singapore to Sydney. In fact, studies show that to be a successful executive in this age, international experience is a must. The same is true for global entrepreneurs, nomads, international students, and just people who like to travel the world and see places. Not to mention millions of “cross-border” families who may have several homes and several passports.
All these exciting trends keep tax professionals busy! It’s no surprise that expatriates, global executives and entrepreneurs, are subject to taxes in more than one jurisdiction and often have to deal with more complicated tax provisions and regulations. We’re here to help you navigate the complex world of global individual tax planning and compliance with a focus on US citizens and Green card holders residing outside of the United States.
We are sure that you know the main rule that should always be kept in mind – the United States has a worldwide taxation system (as opposed to a territorial taxation system that many other countries employ), and that means that a US individual (a citizen, a Green card holder, and a person who is otherwise treated as a resident for US tax purposes) is subject to tax on their worldwide income, even if they moved out of the country for good. As a US person living abroad you are required to file tax returns, unless you didn’t meet the exempt threshold of income, which currently is just over US $10,000 (the minimum threshold amount for filing your US tax return for the 2016 tax year is US $10,000; note, however, that under certain circumstances a US tax return may be required to be filed even if the amount of your income is below the said threshold). If you feel like you failed to file returns for some years, give us a call right away!
Our Expertise Will Help in These Situations
it’s probably one of the most generous provisions of the US Internal Revenue Code that can help exclude more than US $100,000 (the amount of foreign earned income exclusion for the 2016 tax year is US $100,000) of your income earned abroad. And that’s a per person exclusion, so if you’re married and your spouse works, your return could exclude over US $200,000 of income from your US taxable base. We have right experience and expertise in claiming this exclusion and can assist you in completing and filing Form 2555, Foreign Earned Income Exclusion with the IRS.
In addition to the foreign earned income exclusion discussed above, the IRS allows an additional deduction for qualified housing expenses when working abroad. This can take the IRC Section 911 exclusion even further! The housing exclusion is also claimed on IRS Form 2555
If you paid taxes to a foreign government, or had taxes withheld, even on passive activities (such as interest, dividends, royalties and other similar income) you may be eligible for an FTC. This is a dollar for dollar credit, which means you don’t just get to deduct your foreign taxes when calculating your US taxable income (which you technically could in lieu of FTC; see immediately below), you actually get to reduce the tax itself. For example, a 100 dollars paid in Canada can result in a direct reduction of your US tax bill for the same amount. FTC can get pretty complex, with many limitations and special rules around claiming this credit, but that’s what we’re here for – to determine your tax exposure and help you in taking advantage of all available credits and deductions, including maximize the benefit of the foreign tax credit.
As an alternative to FTC (note that the taxpayer will have to choose whether to claim FTC or to take a deduction for foreign taxes paid), and for certain types of taxes, taxes paid abroad may be taken as a deduction. For instance, property taxes, or other non-income based taxes paid abroad can be claimed as a deduction on Schedule A attached to your US tax return. Many taxpayers miss out on this opportunity to get an additional deduction, including the ability to deduct sales/transaction taxes, like GST/VAT paid on routine purchases.
The United States has an extensive network of tax treaties (income tax treaties are most popular, but there are also estate and gift tax treaties, totalization agreements, and other agreements concluded between the US Government or the IRS and foreign governments or foreign tax authorities, as applicable), which can be a great source for tax planning and optimization ideas. Generally, the purpose of a tax treaty, especially an income tax treaty, is to relief the taxpayer from economic double taxation. As such, understanding what treaty provision a taxpayer can rely on to reduce or eliminate double taxation, as well as the ability of the taxpayer to plan its transactions, considering potential treaty relief, are quintessential with US persons, because most US tax residents residing outside the United States or generating non-US source income (including US citizens or Green card holders) are by definition in a double tax situation, given the worldwide taxation regime in the United States. We have an experienced team who can carefully analyze the applicable US tax treaties relevant to the jurisdictions you touched in any given tax year, and provide practical recommendations and diligently develop tax positions to save you your hard-earned dollars!
Another key determination is what item of income are you receiving (for US federal income tax purposes) and where each of your revenue streams should be sourced. This can get pretty complex and may not be as straightforward as you think. It’s somewhat easy to determine the nature of the payment and the source of income if we’re looking at rental income from a property located in a given country, or interest paid from a bank in another country. But consider this: you are a US national and an executive who had multiple assignments during the last five years. Let’s assume you spent two years in London, one year in Hong Kong, six months in Tokyo, a year in Moscow, and currently you are back in New York… And now imagine that a major component of your compensation package is made up of restricted stock and options, and that the vesting period extended over the same five years that you were travelling the world. This means that you earned the income from your stock options exercise that happened at the end of the period in five (!) different countries, since you were working there while the option was vesting (being “earned” in other words). That also means that you may be subject to tax in more than one jurisdiction, and you should carefully review your compensation package and plan accordingly. This is just one example of how complex sourcing and expatriate taxation can get.
Major assets held, rented, bought or sold in different jurisdictions can add to the complexity. Just think about Foreign Investment in Real Property Act of 1980 (FIRPTA)! We will be happy to advise you on the optimal structuring of your real estate investments and personal properties and any transactions with them.
Are you planning to invest in a foreign enterprise, start a business, become part of joint venture or a partnership, lend a significant sum of money, get a big loan, move money across the border, accept a key role like an officer or director of a foreign enterprise? All of these, and many other circumstances not mentioned here, can have big US and non-US tax implications. We’re here to analyze and help you stay compliant and plan around your business and career events.
More than likely you are subject to the increasingly robust foreign bank account reporting (FBAR) and foreign international information returns reporting (for example, Forms 5471, 5472, 926, and other similar forms). Heavy penalties may be charged for non-compliance with the applicable rules, filing, and reporting requirements. Just because your company is losing (or not making money) in the United States, the reporting and filing requirements may still apply. We have experience in all this and will help you stay in compliance and minimize any potential risks.
Are you getting married to a citizen of a foreign country, permanently moving abroad, planning to retire abroad, or move back to the United States? There are so many life events that can have an impact on your personal tax situation. We’re here to help analyze your specific situation and identify events that matter, and help you maximize the tax benefits and stay aware of potential tax ramifications.
Special and very complex option might be available to you. We can prepare a tax memorandum that will document all the details of your personal situation, your tax home and connections to your country of citizenship and primary tax residency and take a position that you are a non-resident under the tax treaty, which may qualify you to file Form 1040NR, and report only US effectively connected income (ECI) on your US tax return, rather than your worldwide income on Form 1040, which would typically be required of a Green card holder. Note: this option is not available to US citizens.
The items highlighted above are just a sample of some popular solutions we can assist with. There is a multitude of other tax planning, structuring and optimization options available, and we will be happy to speak to you about them. Just give us a call today or set up a personal consultation using our easy online scheduling tool. Let us help you save some taxes!