RRIFs, etc - Remember this!

[Steven]

As wel li was told: that yes the IRS wil not tax you on your RRSP--if you fill out form 8891, BUT your State may still tax you on them! Virginia doesnt.

I think you could go to court over that one. Treaties with foreign countries are the "supreme law of the land" and thus would be binding on the States, unless the treaty specifically talks about it only applying to the tax laws of the United States rather than specific States (I haven't checked).

[flames9]

Wasnt something that affected me, so i didn't look into it. I cashed in all my RRSP's a few years back, so it is no longer a hassle,lol

[Steven]

All I know is that I think you need to be almost clair voyant to be able to work out how to move your tax home to the US temporarily. I've lost track of all the forms there are so many. And they're not easy to fill out, have you ever filled out a Form 8833? Almost a blank sheet of paper, and the instructions basically say: "Fill in the other side." That's helpful.

So let's see theoretically, I'm Joe Average and I'm going to work in the US for five years, and I've figured I can save say, $10,000 a year if my tax home is in the US. And I leave for the US on say, July 1st. What forms do I need to fill out?

Er.

T1 for the year that I leave, pro-rated for the number of days I was in Canada. Plus the foreign tax credit forms, plus all the usual BS like a T4 and a T5. Plus any W-2s, 1099s, etc. attached to it. Plus I need to tell the bank that I've left, so next year I will get an NR4 which I have to use with my 1040.

1040NR for the period of time I was in Canada (maybe), and because I entered on July 1st I'm in the sticky position of not exactly knowing whether to use Form 8840 or 8833 to claim the tax treaty exemption for the time I was in Canada, assuming I need to file it, depending on how I earned my money.

Dual-status 1040 for the part of the year I was in the US. Plus also, W-2s, T4s, 1099s, etc. ad nauseum. And an NR-73 probably.

Then the following years I have to file 1040s, plus 8891s, plus Form 2555 for the Part XIII tax on my bank interest (assuming I can even claim that as a foreign tax credit), all the usual BS, W-2s etc.

Then I move back on July 1st five years later.

So for that tax year, it's what, a 1040-C? And a 1040, and maybe a 1040NR, 8840 or 8833, a T1, etc. Oh yeah, a Form NR-7R to get back the Part XIII tax for the part of the year I was in Canada. And maybe a 1042S if I'm still working for the US employer.

And God help you if you were self-employed, e.g. 1040-ES(NR) or started a 401(k) etc., or worse yet, got sent to the Cayman Islands for a month to do some work there.

And if you forget a form, congratulations, you win a tax penalty! Or if you're really lucky, dual-taxation! Woohoo! And you might even get hit by dual-taxation anyway if you earn over $80,000 some-odd during any bits you were a US taxpayer but non-resident.

I love the bit on the Form 8840 where it says you must claim by June 15th otherwise you cannot claim the tax treaty exemption.

And I'm willing to bet 99% of IRS employees and 99.9% of accountants are at best only vaguely familiar with most of these forms.

I'm sure there's a witty song in here somewhere.

[perkyj]

I agree, the paperwork can be a pain and for that reason we do not ever do our own tax returns, and we always buy the guarantee insurance. Even so, the cost is a fraction of that $10,000. Plus that $10,000 increases rapidly when the US dollar is strong. Our calculations in the first year we were here, showed a difference of closer to $20,000 per year because of the exchange rate applied to translate world income to Canadian dollars. I can buy a lot of accounting for that amount of money. Each person needs to do some math to come up with what makes the most sense for them. And, if and when you file those Canadian world income tax forms, don't forget that the FICA taxes (Medicare and SS) are admissible as foreign tax credits.

[Steven]

for that reason we do not ever do our own tax returns

I don't think I'd entirely trust an accountant with this stuff, but maybe there are whizz-bang accountants out there who do know about this stuff in detail, but I'm willing to bet they're all in Canada! It's easy to say get insurance, but there's always some catch to insurance imx, and I speak as someone who went through Hurricane Andrew.

For $10,000 though I'm willing to memorize IRS publications 515 and 519. Massive tax savings really are the only reason to do it, for a couple of thousand though I'd keep my tax home in Canada.

Like you say, for ten grand you can buy a lot of accounting. I did use Serbinski's in Toronto once, he did seem to know most of the ins and outs of it but I still think I'd double-check his math. I doubt most accountants would cotton on to forms like the NR7-R, even the CRA don't seem to know how to process it.

[Steven]

Oh yeah, and there's also the departure tax. Which is even more complicated if you plan on coming back, as you can get your money back based on return of part of the bond posted with the CRA.