Taxes making me cry Dual-Status or 1040 for the year

Steven,

After reading through the emigrant's guide to Taxes, I finally realized what you meant about the mountain of work you have to do if you move your tax home if you're only leaving for a year. You were referring to the deemed disposition of property, the declaration of property and the deferral of interest right? This is FINALLY making my husband want to file as a non-resident of US (after all these months of trying to convince him).

I'm not sure if you can confirm this for me as the emigrant's guide is not that clear on 'property' which is why I skipped it the first time I read that section. Any mutual funds are considered property if they are not in RRSPs right? And essentially you would have to find out the exact value of each of those stocks within the mutual funds and report them (not just the gross mutual funds amount) as well as their deemed disposition value? He has over 12000 in mutual funds which is probably going to trigger a huge capital gains tax to be paid if we file as non-residents.

Thanks for any last minute help you can provide.

-- Thu Apr 02, 2009 10:01 pm --

Actually one last question, given that we both moved to the States, bought a car here, rent an apartment here, but are on a TN status, what are the chances filling out the 8833 correctly will allow us to file as non residents?

After reading through the emigrant's guide to Taxes, I finally realized what you meant about the mountain of work you have to do if you move your tax home if you're only leaving for a year. You were referring to the deemed disposition of property, the declaration of property and the deferral of interest right? This is FINALLY making my husband want to file as a non-resident of US (after all these months of trying to convince him).

Well that's departure tax which is only one problem. On the Canadian end it's usually not too hard because departure tax only hits assets outside of a tax shelter. Your principal residence is exempt and so are RRSPs and the like so most average Joes don't normally have to pay it. The mountain of paperwork I'm referring to is on the US end, because you have to file dual-status twice and all the other paperwork when you move your tax home back to Canada.

Even if you are subject to departure tax, if you come back after a year or so the tax will be virtually nil as you can pro-rate it to that period of time, although it is a lot of paperwork.

He has over 12000 in mutual funds which is probably going to trigger a huge capital gains tax to be paid if we file as non-residents.

Only if you're going forever, if you plan on coming back you can pro-rate it, but it's even more paperwork.

You need to work out the difference in the taxes to establish whether it's worth moving your tax home to the US.

Actually one last question, given that we both moved to the States, bought a car here, rent an apartment here, but are on a TN status, what are the chances filling out the 8833 correctly will allow us to file as non residents?

I had a problem with the IRS because they simply didn't believe anymore that I was non-resident and they sent me a letter asking me to provide proof of residential ties abroad. So you need to keep some. For the first year it's relatively easy to do that but after a few years it becomes harder. The IRS usually gets suspicious after a few years of getting 1040NRs with a US address on them.

Steven,

In a previous post you mentioned filing jointly on an NR. The form doesn't seem to let you take any standard deductions though that come with filing jointly. Is this simply to receive the additional exemption?

Thank you!

Well you're filing as non-resident, so you're not entitled to the standard deduction in the US, you claim the standard deductions on your T1.

This may also have a bearing on whether you want to file dual-status for the year or non-resident for the whole year, because if you file as non-resident for the whole year you can claim the full standard deductions in Canada, whereas if you file dual-status the Canadian deductions will be pro-rated to the portion of the year you spent in Canada, and dual-status taxpayers in the US cannot claim the US equivalents.

Once again it depends on various factors like how much you earn, when you moved and so on.

Personally if it were me I'd just file as a US non-resident for the whole year and tell the CRA I left on 31st December if I was going to move my tax home to the US (in fact I think I'd try and move on that date if I could), but that has more to do with not having to deal with a pile of paperwork and pro-rating everything. Then you would just file a 1040 for 2009 like anyone else does.

I suppose it depends on how keen you are on not paying more tax than you have to, if you file dual-status and you're in a higher tax bracket in Canada and you moved to the US mid-year you'll probably save money even with the reduction in the standard deductions.