Expat Tax Filings
Learn more about our US Expat Tax Filing Services
Are US Expats Required to File US Taxes ?
All US Citizens, US green card holders, and full year US residents are required to report worldwide income to the IRS on an annual basis (with certain exceptions for very low income levels). In addition FinCEN requires US citizens with foreign bank accounts and other foreign financial accounts to complete and submit a separate FBAR filing on an annual basis.
What Filings are Required for US Expats?
Typically US Expats Need To File A US 1040 Federal Income Tax Return, And An FBAR Filing On An Annual Basis. The US Tax Return Has A Number Of Additional Foreign Reporting Items And Transactions That Need To Be Considered / Incorporated – For Those Living In Canada (See Below). In Addition US State Tax Returns May Be Required Where You Have US State Income That Has Been Earned And Needs To Be Reported.
What Key Factors need to be Considered when Preparing US Expat Tax Filings?
1. Foreign reporting forms – both the IRS and FinCEN have a number of additional foreign reporting forms that need to be included with filings for US persons who have foreign income and foreign assets. Failure to properly disclose and report this additional information can result in significant penalties.
2. Foreign currency translations – all US tax returns and filings need to be in US Dollars. This means that foreign assets and income need to be converted into US Dollars for reporting purposes. This area becomes more complex where foreign property (stocks, real estate….) needs to be translated using historical cost basis.
3. Different tax treatments – the US and Canada can have differing tax treatments for certain transactions. Examples include TFSA (tax free savings account) investments and income, how RESP and college savings plans are treated, how capital gains are reported, and how real estate sales are treated. Understanding the nature of the Canadian transactions, the US Income Tax Act, and the US-Canada Tax Treaty, are all key in ensuring accurate tax reporting.
4. The US-Canada Tax Treaty is not accepted by all US States. US States are not required to follow the terms and conditions agreed to in the US-Canada Tax Treaty. Although most US States follow what’s set up at a US Federal level there are a number of large US States that do not follow the Treaty. This results in differing treatments between Federal and State tax reporting and understanding where these differences exist is key in accurately reporting US State Returns (where applicable).
5. Elimination of Double Tax. As a resident of Canada, US expats are required to report worldwide income on their T1 Personal Canadian Income Tax Return. As a US person, worldwide income also needs to be reported on your US 1040 Federal Income Tax Return. What is key in mitigating double tax is understanding how foreign tax credits work, together with the terms and conditions of the US-Canada Tax Treaty.
The above list is not an exhaustive list but it should provide valuable insight into the factors and complexity of US Expat Tax Filings. If you are a US Expat, we encourage you to connect with us so we can discuss your situation and see if we are a good fit to work together.
How Can US Taxes Toronto Help?
If you need help with your Expat Tax Filings, our team provides hands on ongoing support throughout this process. We make preparing and completing your tax filing onvenient and easy. If you would like to get more information on how we can help please reach out to us via our contact page.