Cdn renouncing American Citizenship - have questions

I found this site while looking into renouncing my US citizenship. I am 54, was born in Canada but my mother was American, hence the US citizenship. I lived in the US for 12 years, mostly a a child, but haven't lived there since 1977. I work in Canada and couldn't work in the US, even if I wanted to because I don't have the credentials to practice my profession there. I haven't been filling out US tax forms, although I know I don't owe them any money because I pay lots of Canadian tax. I travel on my Canadian passport. American citizenship provides me with no benefits and lots of potential hassles.
I want to renounce my US citizenship, but the process looks horrendous. Has anybody actually done this? I would be interested in hearing from someone who has been through it. I am worried I am opening a can of worms if I start. Any suggestions?

We're not quite there yet. My son will leave for Canada in April, just before his 18th birthday. He is considering keeping his US citizenship at this point. Wish I could help, but we're not even sure what we're doing!

I want to renounce my US citizenship, but the process looks horrendous. Has anybody actually done this? I would be interested in hearing from someone who has been through it. I am worried I am opening a can of worms if I start. Any suggestions?

I think the first question is why do you want to do it? Because renouncing it is more hassle than spending an hour or two every year filling in a 1040 and a 2555. The only reason to do it really is if your income is over the foreign tax credit cap of US$87,600.

Have you got a social security number?

The tax forms don't seem that easy to me. I stopped doing the taxes years ago, before i had much income to speak of, because they were driving me nuts. I'm now a self employed professional, so it's not just a 1040 (I don't get wages or a salary (or whatever they ask for on the 1040)). I think I need a "C" but i doesn't look like it fits my situation either. I could be close to the foreign income cutoff for 2555, depending on the exchange rate and my investment income. And you have to give the exact dates (which I don't necessarily have for the last few years) you were in the country, so they can reduce the cutoff proportionately. I actually thought it would be better to use the foreign tax credit 1116 (I think) because my tax paid is way bigger than anything the US would charge me. But by the end of trying to do the 2007 one I was just about loosing my mind.

I've structured my (saved) retirement income (I have no pension) to what works best in the Canadian system. Who knows how it will fit with the US rules. It doesn't seem right that the US government should have the possibility of claiming income tax on money I make here with absolutely no connection to the US. Also I'm trying to save my family from having to deal with US tax forms etc when I eventually die (which I don't expect to happen for a long time!).

So far, I've dealt with the problem by pretending it didn't exist, but the last time I went to the US to visit relatives, the customs agent managed to figure out I had a US connection, lectured me about not travelling with a US passport, flagged me and sent me into another room where another agent (very nicely) suggested I might want to consider renouncing my citizenship if i didn't want the hassle of 2 passports and sets of tax forms.

Now I have an elderly ill relative who may need frequent visits. If I spend more than 30 days there over the course of a year, I will have been deemed to be a resident! and it will decrease the foreign income deduction (if I used it), even though I won't have made any income in the US. Life wold be sooo much easier, if i could just be a Canadian citizen like my husband and my friends. The process of renouncing, if it even is accepted, means at least 5 years back and ten years in the future of tax forms, but at least after that it is over.

Argh.......

Margo

I think you have a misunderstanding of US tax law, you don't become resident for being there for 30 days. The physical presence test is a secondary test, the test you use is the "bona-fide resident" test and clearly if you are a Canadian citizen with residential ties to Canada, you are a resident of Canada, not the US. You can basically visit for as long as you like provided you maintain ties to Canada, although I have to say I wouldn't try pushing it too far (say beyond six months a year and you can't stay longer than that as a Canadian visitor anyway). You don't deduct days from the $87,600 cap where you were a bona-fide resident abroad, that is only really used if you move your tax home to the US, which you're not going to do, you would benefit from the full limit even if you spend time in the US as a visitor.

If you're self-employed in Canada that has no bearing on your filing status in the US, they don't care. You have your T4 and your T5s, you use that to complete your 1040 and do an exchange rate conversion. If your income is less than US$87,600 then you can use Form 2555-EZ which is pretty easy to fill in. Basically on your 1040 your income should show as zero once you've worked it out, if your income is below the cap.

Might take you an hour or two the first time you do it but it's not hard. Not as hard as renouncing citizenship at any rate. Basically you're just putting your name and address on a 1040 with "zero" at the bottom and declaring your foreign income to the IRS on the 2555.

If you were a resident of the US you would actually be in a better situation tax-wise than being non-resident, because you could claim a foreign tax credit for any amount as there is no cap for residents and you would file as a non-resident in Canada. You'd still pay the same amount of tax as the Canadian rates are higher. Frankly this is the way a lot of Americans get around the cap. Then you would need to use Form 1116.

Like I said above, the only reason to renounce citizenship is if your income is above $87,600 a year.

If you're having a problem remembering the exact dates those aren't really important unless you were in the US on a business trip (earning money), or you were subject to the physical presence test, neither of which apply to you. Just put your best guess down on the form, it has no real bearing on how much tax you pay.

The only other form you might need is 8891, which is for declaring RRSPs. Distributions inside RRSPs are no longer subject to income tax in the US under the 2008 tax treaty, it's just a declaration basically although income taken from them would be part of your income obviously. You also have to report your financial assets abroad worth more than $10,000 on the FinCEN FBAR form, but that's not a tax form.

http://www.fincen.gov/forms/files/f9022-1_fbar.pdf

This is interesing. maybe i am reading it wrong. but:
I don't get T4s and T5s because I am self employed and also it says i can't use 2555 EZ if I'm self employed, but that's OK. I can manage that.
Question 14 which is in the "bona fide residence" section" asks specifically about physical presence in the US. The question doesn't appear to refer to "on business", except later on where it asks about money earned in the US. It is confusing. Are you assuming that they only mean time working in the US , and not including vacation?
Then section 7 appears to decrease your allowable deduction by a proportion related to the days you were physically present in in the US, independent of whether you were working there. and it doesn't say it only applies to the "physical presence test" As I said before, Aargh.......

I have just looked at the 2555 and the 1040 again, and I can see where I went wrong, which simplifies things a bit (as long as I could ignore the physical presence stuff) . But then, I still need to report my "unearned income" (interest on bank account etc), on the 1040, as that's not included in foreign "earned income" (or do you think it is?) and that will generate some tax, for which I then have to get a foreign tax credit and do all that paper work. Or am I missing something else?
And also.....

" You also
have to report your financial assets abroad worth more than $10,000 on the
FinCEN FBAR form, but that's not a tax form."

You do?? Never heard of this one. Is this something one has to do every year? It's a bit unclear from looking at the form.


Margo

It doesn't really matter if you have a T4 and T5s, it's just simpler to work out what your income is using those forms, but the IRS don't care they just want you to submit the 2555. It also doesn't matter where your income comes from, you are self-employed in Canada - but not in the US so you just have to file a regular 1040.

You could for example be directly employed by a company in the US and get a W-2 and be self-employed in Canada, so you would have two sources of income, one does not relate to the other. In fact you can be self-employed in Canada and have another job for which you get a T4 and you put it all down on your T1.

Like I said, the physical presence test doesn't matter, if you work through the form you answer "yes" to question 1 then skip over question 2.

Have a read through the instructions at the end of page 2 where it shows you how to calculate your "qualifying period". Your tax home would be Canada all year, so the qualifying period is the entire year and you can take the full exclusion. The fact that you visited the US is irrelevant, you don't count those days because while in the US as a visitor you remain a bona-fide resident of Canada.

Likewise on the form you put down your full income for the year, so if it's less than $87,600 you end up with an income of zero on the 1040.

These are the instructions: http://www.irs.gov/pub/irs-pdf/i2555ez.pdf

Can't they also claim the foreign housing exclusion amount as well bringing their income down further if they make more than the 87,900 US?

If they qualify for it, the details are in the instructions for form 2555. The reality is that you have actually have to earn a fair bit over $87,600 before you get hit with any tax because you can claim the exemption and probably other deductions as well, so you've got to be earning roughly around $100,000 before the bill is anything of note.