Due to its geographic location and continuous partnership with U.S. business relations, Canada has increasingly been the top destination for American expats; currently, there are close to 1.1 million Americans living in Canada. Over the years, many clients have chosen our professional expertise to assist them in cross-border U.S. tax planning.
Our main priority is to help you appropriately file U.S. taxes from Canada and abide by dual legal obligations. Expats must annually report their entire income and assets, just as they did before moving abroad.
We are qualified tax professionals (including professional tax accountants) that deal with careful tax planning to mitigate negative consequences that will arise if federal taxes are not adhered to properly. U.S. Tax IQ is here to answer your questions and relay peace of mind during the tax season.
What is the Due Date for Filing a U.S. Income Tax Return?
The general due date for filing a federal individual income tax return is April 15th. Your return is considered properly filed if it is filed no later than the mentioned date. When a filing due date alls on a weekend or holiday, the due date is the next business day. For example, for the 2022 tax year, the filing deadline is April 18, 2023. If you are not managing to file your U.S. income tax return on time (for example, you may be waiting on Schedules K-1, K-2, K-3 from a partnership in which you made an investment and the partnership would only provide you the referenced Schedules after September 15), you can request a six-month extension by filing Form 4868 with the IRS. That extension does not require consent from the IRS and is automatically granted. If you filed an extension, your filing deadline extends to October 15, and filing by that date is considered timely.
However, if you are currently residing outside of the United States, you are automatically entitled to a 2-month extension until June 15th. Note that the automatic 2-month tax return filing extension does not apply to the tax payment deadline that remains April 15. If you owe any U.S. taxes, you should make the payment by April 15 for it not to be considered late.
For further information, refer to Publication 54, IRS Tax Guide for U.S. Citizens and Resident Aliens Abroad. Please note that this link may not be updated and you should ensure that you are accessing the current publication.
How do I File Taxes as an American Citizen if I Live Abroad?
U.S. citizens and green card holders living in Canada are required to file a U.S. tax return each year when they meet the filing requirements. As an American citizen, you have an ongoing U.S. tax obligation to report your worldwide income, no matter the source, even when you file and pay taxes in the country where you reside (even when the taxes in such foreign country are higher than in the United States).
American taxpayers with foreign bank accounts or financial assets that in the aggregate exceed US $10,000 in value or account balances are required to file with the U.S. Department of Treasury Form FinCEN 114 (Report of Foreign Bank & Financial Accounts (FBAR)). Please note that this link may not be updated and you should ensure that you are accessing the current information. Note that you must disclose all of your foreign bank accounts and certain financial assets, once the filing threshold is met. Penalties for failure to file FBAR or to file FBAR on time are substantial, even for non-willful violations. You should consult your qualified U.S. tax advisor to ensure you understand your U.S. filing and reporting obligations and are compliant.
If your foreign financial assets exceed US $200,000, you must abide by the FATCA filing requirements and may be required to file Form 8938, Statement of Specified Foreign Financial Assets. Please note that this link may not be updated and you should ensure that you are accessing the current information.
Choosing to deliberately skip U.S. tax filing or additional asset reporting can result in steep fines, a revoked passport and even jail time. It is imperative to work with a qualified cross-border tax advisor to ensure that you are adhering to the appropriate IRS procedures and requirements.
Do Dual Citizens Pay U.S. Taxes?
U.S. citizens who have dual citizenship also in Canada must continue filing taxes in the United States. U.S. citizens living in Canada may be required to file taxes in both countries depending on their facts and circumstances.
American citizens may take advantage of two mechanisms to mitigate potential double taxation:
- Foreign Tax Credit – U.S. tax law allows a dollar-for-dollar credit for income taxes paid in Canada or outside the United States, subject to various limitations.
- Foreign Earned Income Exclusion – U.S. tax law also allows you to exclude from U.S. income foreign earnings, provided you meet certain requirements.
- For the 2022 tax year, the amount of Foreign Earned Income Exclusion is US $112, 000.
- For the 2023 tax year, the amount of Foreign Earned Income Exclusion is US $120,000.
Do Canadian Citizens Need to File a U.S. Tax Return?
If you are not a U.S. citizen or a Green card holder or are not otherwise treated as a U.S. tax resident, you are generally only required to file U.S. tax return and be subject to U.S. tax if you have income from U.S. sources.
If you work in the United States, even for a day, you may be subject to U.S. tax and/or have U.S. tax return filing requirements. If you are working in the United States for a Canadian-based employer, you generally would be subject to U.S. taxation if your compensation from services performed while you were physically present in the United States exceeded US $3,000.
The Canada-U.S. income tax treaty provides limited exemption for Canadian-based employees working in the United States on behalf of their Canadian employer. Such Canadian-based employees should not be subject to U.S. tax, if their compensation did not exceed US $10,000 or if they were not present in the United States for more than 182 days during a twelve-month period, and the compensation was not paid by, or on behalf of, a U.S. resident or permanent establishment of their Canadian employer. Notably, you must file a U.S. tax return and attach Form 8833, Treaty-Based Return Position Disclosure. Please note that this link may not be updated and you should ensure that you are accessing the current information.
Please note that there are many other factors that may require a Canadian to file a U.S. tax return or pay U.S. tax. You should consult your qualified U.S. tax advisor to ensure applicable tax compliance.
We are qualified cross-border tax advisors who can assist you with an understanding and addressing your U.S. tax filing and reporting requirements.
Tax Season is Here – Ensure You’re Prepared with Qualified U.S. Tax Planning
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DISCLAIMER: Please note that the information contained in this article is general in nature, is current only as of the date of posting the respective information on the website, and does not (nor is intended to) provide legal or tax advice or an opinion on any matter or issue discussed. You should consult your qualified U.S. tax advisor for any advice on any matters or issues discussed in this article.