PERSONAL TAX RETURN 1040
Except in limited circumstances, tax returns are required annually by all U.S. citizens or resident aliens. In many instances, where there is no income from the United States, these filings do not result in any taxes owing to the United States. This is due to the ability to offset U.S. taxes with taxes paid in Canada and the tendency for Canadian tax rates to be higher than the U.S. Certain benefits, such as the foreign earned income exclusion or other various provisions within the Canada – U.S. Tax Treaty can prove quite beneficial to U.S. Citizens as well.
In addition to the traditional income tax filings, there are additional informational reporting requirements that may be required. Examples of this include contributors and/or beneficiaries of foreign trusts, certain owners of foreign corporations and Foreign Bank Account Reports.
Over the years, the U.S. has ramped up their enforcement of the requirement to file a tax return for U.S. citizens living abroad. This has been done through legislation such as FATCA increasing their ability to obtain personal tax information on U.S. Citizens from countries around the world. Recently, the IRS was granted powers to withhold passport renewals for U.S. citizens with tax debts exceeding $50,000. As such, compliance has become more important than ever.
NON-RESIDENT TAX RETURN 1040NR
A Non-resident tax return is required for any person with U.S. sourced income who is not a resident or citizen of the U.S.. This can come about for a variety of reasons such as:
- Sale of real property
- Operating of a vacation rental property
- Pension/Annuity/Royalty income
- Trust/Estate Income
In some instances, taxes may be withheld from the income you receive from the U.S. to cover taxes owing upon filing. Despite these withholdings (in many cases) covering your tax liabilty, the Canada Revenue Agency expects you to file a U.S. tax return to establish the right to offset your Canadian tax liability. Careful consideration should be paid when completing your W-8BEN as the U.S. withholds refunds for a minimum of 180 days from the later of June 15th (in year of filing) or when the return is actually filed. Donovan can assist in determining the correct withholding percentages under the Treaty and completion and filing of the W-8BEN form.
Although, as a non-resident, you are not entitled to a standard deduction, specific income is given preferential tax treatment in the U.S. Also, certain expenses incurred in order to produce this income may be eligible to be deduct. Donovan works with each client, ensuring all relevant deductions are explored.