Filing US Taxes from Canada

an american filing their US federal taxes in Canad

Filing US Taxes from Canada

An estimated 700,000 Americans call Canada home. Making Canada one of the top destinations for Americans living abroad. If you are an American living in Canada you can be called an American Expat living in Canada. And as an American expat living in Canada, do you know the things that you should know about filing your US expat and Canadian taxes?

If you still don’t know by now, the US is one of the very few countries in the world that has its taxation system based on citizenship instead of residency. So if you are a US citizen or a green card holder, you are required to file your US federal income tax return and pay the taxes due to the IRS. Regardless of your physical location and residence. There is some sliver of good news though, the IRS placed several provisions that you can claim as an American expat to mitigate double taxation.



What American expats need to know about filing US taxes

what you need to know about filing US federal taxes from CanadaA certified financial planner and financial management adviser with Investors Group in London, Ontario, notes that “generally, as a U.S. citizen living and working in Canada, you are taxed for money earned in Canada.”

The US requires all Americans and green card holders to file taxes on their worldwide income above $12,550 for single or married filing separate, or if they earned more than $400 through self-employment. That’s one thing to keep in mind about filing US taxes from Canada.

While filing taxes from Canada, expats must convert their Canadian income into US dollars. They may use any reputable currency conversion resource they wish, so long as they use the same one consistently.

You must file Form 8938 if you have financial assets worth over $200,000 per person registered in a foreign country including Canada.

Having a total of $10,000 in foreign financial accounts at any time during the tax year means that you must also file FinCEN form 114. More commonly known as FBAR which stands for Foreign Bank Account Report.

There are two methods available to Americans living in Canada to reduce or eliminate their US tax liability: The Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).

The Foreign Earned Income Exclusion allows you to exclude from US income tax the first US$110,000 of your worldwide income if you can demonstrate that you are resident in Canada. So if you have $100,000 worth of rent payments from your apartment building and $10,000 worth of interest payments from your savings account, then your entire $110,000 worth of income will be excluded from US tax. Meanwhile, the Foreign Tax Credit allows you to reduce or eliminate any Canadian taxes paid by dollar-for-dollar credit against your US tax bill. This means that if you pay $10,000 in Canadian taxes during a year and owe $10,000 in US federal taxes, the latter will be offset against the former.

The Foreign Tax Credit can be beneficial for those who pay more income tax in Canada than in the US, as you can carry the excess US tax credits forward for future use.

But don’t celebrate just yet! Both the FTC and FEIE provisions from the IRS must be claimed by filing the necessary forms. If your worldwide income exceeds the minimum IRS thresholds, you are still required to file your US Federal Income Tax Return.


US – Canada Tax Treaty

US Canada Tax TreatySince the taxes in the US are based on citizenship and not on residency, one can’t help but think of the possibility of double taxation. Luckily, the relationship between the US and Canada goes way back. This enabled them to create an amicable tax treaty between the two countries. The US-Canada tax treaty helps both its citizens and residents to avoid double taxation when it comes to income tax and capital gains tax. However, a Savings Clause is in place that limits its benefits for American Expats in Canada.

The primary solution for American expats to mitigate the risk of double taxation is to claim US tax credits of the same value that they have paid to the CRA or the Canada Revenue Agency.

If an American expat in Canada has income originating in the US, the American expat can claim Canadian tax credits against the income tax paid in the US to the IRS. For an American expat to claim US tax credits against paid taxes in Canada, you must file Form 1115 when you submit your US federal income tax return. If you do this, you may be able to minimize your overall taxes.

Much to dissatisfaction of American taxpayers, the US-Canada tax treat actually has a clause that allows the Canadian government to provide the US with the Canadian tax information of American expats. This information is given to the IRS, which may include their Canadian investment and bank account balances. The treaty also allows the Canadian government to demand and collect fines and penalties on behalf of the IRS when an American expat fails to file their US federal income tax returns.

U.S. citizens who move to Canada should know that many investment instruments available in Canada are subject to U.S. tax, including Registered Retirement Savings Plans, Tax Free Savings Accounts, and Canadian-based mutual funds.

Furthermore, the IRS doesn’t fully exempt capital gains on the sale of a primary residence. As such, US expats in Canada should always consult with a US Enrolled Agent to ensure that they understand the implications of buying or selling their home or Canadian investments.


What American expats need to know about Canadian taxes

If you are just about to make your move to Canada, you should know that their tax day is on April 30. This is also the date that you have to file your taxes, unless you are self-employed, then you get to file on June 15. The CRA or the Canada Revenue Agency is the Canadian equivalent of the IRS, and the personal income tax return form is called T1 General or simply T1.

Income tax rates in Canada range from 15% to 33%. American expats in Canada are commonly considered Canadian residents for tax purposes if they happen to maintain an abode in Canada. However, several factors may be taken into consideration, like having a bank account, club memberships, business relations, and location of dependents and spouses.

If you think that you still have plenty of things to know about your tax situation as an American expat living in Canada, you should get in touch with an Enrolled Agent to help you navigate both your US federal income tax return as well as your Canadian income tax returns.

Lucky for you our Enrolled Agent is ready to help you navigate your US federal income tax obligations! Just send us a message today and we’ll get in touch with you today!

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Why Are Social Security Benefits Taxable?

why are my social security benefits taxable

Why Are Social Security Benefits Taxable?

Retirement and disability benefits administered by the Social Security Administration (SSA) are taxable. You pay federal income taxes on your benefits only if you have other substantial income in addition to your benefits. Your income and filing status affect whether you must pay taxes on your Social Security benefits. About 40 percent of Social Security beneficiaries pay federal income taxes.

The Social Security Administration will send you a Form SSA-1099, Social Security Benefit Statement, each year to show the amount of benefits you received. Include this statement with your federal income tax return to find out if you must pay taxes on your benefits.

You can determine whether any of your benefits are taxable by adding one-half of the Social Security money (collected during the year) to your other income. Other income includes pensions, wages, self-employment, interest, dividends, capital gains, and any other taxable income that must be reported on your tax return. On the 1040 tax return, your combined income is the sum of adjusted gross income plus nontaxable interest plus half of your Social Security benefits.


Filing an Individual Federal Tax Return

  • If your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000 for the year, you may be required to pay income tax on up to 50 percent of your benefits.
  • If it is more than $34,000, up to 85 percent of your benefits may be taxable.

Filing a Joint Federal Tax Return

  • If you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income taxes on up to 50 percent of the amount of any Social Security benefits that you receive.
  • Up to 85% of your benefits may be taxable if your combined income is more than $44,000.

Filing Separately as a Married Taxpayer

Up to 85% of social security benefits may be taxable if you are:

  • A married taxpayer who lived apart from your spouse for all of 2021 with more than $34,000 income
  • A married taxpayer who lived with your spouse at any time during 2021

Work Pension

If you receive a pension based on work for which you paid Social Security taxes, your pension will not reduce your Social Security benefit. If you are retired or disabled and receive a pension from employment not covered by Social Security, your Social Security benefits may be reduced.

Retiring abroad?

Generally, in other countries, you’re not taxed on income that you receive as retirement pay from the United States. As a U.S. citizen who is retiring abroad and receiving Social Security, for example, you may owe U.S. taxes on your income but may not be liable for tax in the country where you’re spending your retirement years.

Tax laws treat benefits from the Social Security program differently from most other forms of income. For some individuals, Social Security benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources and are a citizen or resident alien of the United States, or are a citizen of another country but are covered under the U.S. social security system because you worked in the United States, then you may have to pay U.S. taxes on some of your benefits – the same as if you were still living in the U.S.

You may also be required to report income earned in the country where you retired and pay taxes on that income. Each country is different, so consult a local tax professional specializing in expatriate tax services.

Help is just an email away

If you receive Social Security and you’re not sure if it is taxable, an Enrolled Agent can help you determine if some or all of your benefits are taxable!

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Bookkeeping and tax services Katy TX

How to choose the best tax preparer near you – Here’s what you should look for!

how to choose the best tax preparer in my area

How to choose the best tax preparer near you – Here’s what you should look for!

Do you feel like taxes are getting harder and harder every year? Do you find yourself asking how will you find the best tax preparer in my area? Well, you’re not alone! Taxes are getting harder and harder as the years go by, if tax preparation is too much to handle yourself this year and think that you need some help with tax preparation this year, check out this checklist to find the right person for the job.

When you hire a tax preparer, it helps to ask what credentials and certifications they have.

It might come as a surprise to you, but tax preparers have access to your most personal details, including your bank accounts, marriage, and kids — and your Social Security number.

Taxpayers should ask prospective tax preparers some key questions before hiring them. Here are 5 things that to consider that can help you choose the best tax preparer near you.


  1. Find a tax preparer with an Enrolled Agent designation

The Enrolled Agent designation is one credential that stands out when it comes to the field of tax preparation! Enrolled Agents are certified by the Federal Government through the IRS to prepare taxes for everyone. Enrolled Agents also go through the IRS’ Annual Filing Program to ensure that they are up to date with the latest rules and guidelines concerning your taxes. The Accredited Business Accountant/Advisor and Accredited Tax Preparer programs prepare people to fulfill annual filing season requirements. These credentials require varying amounts of study, exams, and ongoing education.


  1. Watch out for Tax Preparer Red Flags

Because there are many people claiming to be tax preparers, it can be difficult to know who’s right for you. Here are a few red flags that could mean someone isn’t legitimate.

    • Promises the moon when it comes to your tax refund

      When looking for a tax preparer you can fall for the “it’s-too-good-to-be-true” trap. The trap involves promises of high tax returns that are significantly higher than what you usually get for the past few years. Unless your income, family situation, or the tax law has changed significantly, your tax refund should be similar from year to year. Be wary of anyone who says they can get you a refund far in excess of anything you’ve received in the past.

    • Won’t sign the return

      The law requires those who prepare taxes to sign the tax return that they have prepared! If you find yourself with a tax preparer that outright refuses to sign a return, do not put your signature on the paper. Find another tax preparer that will willingly sign the tax return that he or she has made and then you can have the peace of mind of placing your signature on the return since your tax preparer placed theirs on the return.

    • Doesn’t have a website

      You should choose an independent tax preparer who has a permanent business presence and is easy to find. You’ll want to be able to find him or her if you’re audited or have any questions about your return.

    • Charges you based on your refund

      Legitimate tax preparers charge their clients either an hourly fee or a flat rate for their work. Avoid those who charge based on the size of your refund; this practice is considered unethical by the National Association of Tax Professionals.

    • Listen to your gut

      When deciding on a preparer, go with your gut and trust your instincts. If something about a tax preparer doesn’t feel right—they seem to gloss over or misunderstand your questions or tax situation, for instance—it might be best to keep looking for someone else to handle your return.


  1. Interview Tax Preparers in your area

You can learn a lot by researching the tax preparer online, but nothing beats a personal discussion. This is particularly true when you’re looking for a long-term tax preparer that you can trust. Tax season is busy, so don’t expect a deep conversation. But make sure to ask your tax preparer for a five to ten-minute phone call at least. During the call, get the following information if it is not readily available on the preparer’s or professional’s website:

  • How they handle and store your sensitive financial documents.
  • Are the charges based on a flat fee or an hourly rate?
  • How many years have they been in the business?
  • Do they prepare the returns themselves or have a staff to assist.
  • Do they file tax returns electronically?
  • Are they an Enrolled Agent.


  1. Runaway from Tax Preparers who still file by paper

Tax preparers who file 10 or more taxes per year are required to file electronically. If your tax preparer refuses to file electronically, this might mean that they don’t do that much tax preparation to have the knowledge and skills to properly file your taxes.


Bottom line

Anyone can pose themselves as a tax preparer by simply having a PTIN. However, preparing taxes is complicated work that requires years of experience and technical tax knowledge to properly execute. Getting stuck with a tax preparer that doesn’t have the experience or technical tax knowledge of an Enrolled Agent might result in mistakes in your tax returns and it could lead you to hot waters. Take these tips in mind when you are looking for a tax preparer so you can save yourself the hassle of an IRS audit!

Rushing to meet the 2022 tax deadline and need a trustworthy tax preparer to help you out? Don’t worry we’ve got you covered!

Get in touch with us today! We are located at 24044 Cinco Village Center Blvd 100, Katy, TX. You can call us at +713 855 8035

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