Tax Question / Rant

[SpanishFry]

I married a Canadian Citizen and she moved down to the U.S. in August 2008.

She had a job/income in Canada for Jan-July. Has not worked, so no income since moving to U.S.

Just got her Green Card first week of 2/09.


Because we were married, the IRS treats her as a U.S. Perm. Resident Alien. They also want to add her Canadian income to my income for tax purposes. They are graciously allowing us to use the Canadian taxes she paid as a credit. The problem is I will have to make up any differences between the 2 tax systems out of pocket, and it could also potentially move me up to a higher bracket.

Q: who does ATOT think I should see on this? HR Block, or an international tax-knowledgable CPA?


VENT: Why the fuck do I have to pay the U.S. government taxes on money that was earned in Canada? The govt. didn't do shit to claim any portion of that money. It never made it here, it was earned before we were married.

 

[Ns1]

Never go to H&R block. Their rates are fucking ATROCIOUS.

 

[Newbian]

Well your first issue is you married someone from Canada.

There is a tax on that alone.

 

[SpanishFry]

Originally posted by: Newbian
Well your first issue is you married someone from Canada.

There is a tax on that alone.

funny. Having USCIS funnel paperwork through their system cost over $2000 in fees.


I should've married a Mexican, they get in for free.

 

[Newbian]

Originally posted by: SpanishFry

Originally posted by: Newbian
Well your first issue is you married someone from Canada.

There is a tax on that alone.

funny. Having USCIS funnel paperwork through their system cost over $2000 in fees.


I should've married a Mexican, they get in for free.

Plus Mexican food is > Canada bacon.

 

[kranky]

Sounds like you don't really have a question, you just don't like the situation. What would you hope to get from a CPA or tax prep service?

 

[krylon]

This thread needs more crybear.

 

[alkemyst]

SHIT! THERE ARE CANADIANS WORTH MARRYING?!!?!?!



seriously though taxes are pretty clear on income earned being looked at for all 12 months of a year at the status you ended that year in.

This is why some people try to get married pre year-end and others post year-end

 

[KentState]

Similar thing happened with my state income tax for Ohio. I moved to Georgia at the beginning of August. For the time in Ohio, I earned $48k and then in Georgia I earned $77k for a total of $125k. Ohio taxes me on the total and then applies the ratio of my Ohio to Georgia income on the obligation. Basically, Ohio assumes that I would be in a higher tax bracket if I stayed and they want to tax me that way. I owe something like $300 which isn't bad, but I hate them basing the percent on the total tax obligation.

 

[dullard]

Originally posted by: alkemyst
This is why some people try to get married pre year-end and others post year-end

Yep. Timing of a marriage is critical to saving or blowing a lot of money on taxes. I found out the hard way through a divorce (same idea but in reverse). Had my divorce been finalized a little later, I would have saved at least $3000 in taxes.

 

[SpanishFry]

Originally posted by: kranky
Sounds like you don't really have a question, you just don't like the situation. What would you hope to get from a CPA or tax prep service?

Well, I'm hoping that a CPA would have some expertise on the subject and offer some advice to clear this up and help offset what I'm looking at here. For instance, maybe the Canadian Tax Credit would offset any additional taxes on this side. I don't know.

Originally posted by: krylon
This thread needs more crybear.

Lurk moar.

 

[KentState]

Originally posted by: dullard

Originally posted by: alkemyst
This is why some people try to get married pre year-end and others post year-end

Yep. Timing of a marriage is critical to saving or blowing a lot of money on taxes. I found out the hard way through a divorce (same idea but in reverse). Had my divorce been finalized a little later, I would have saved at least $3000 in taxes.

Nah, you would have just handed over $3000 more to her My ex wasn't smart enough to realize that even though we where separated, it would have been better to file together and we could have both received more back.

 

[JulesMaximus]

Originally posted by: Ns1
Never go to H&R block. Their rates are fucking ATROCIOUS.

You think he'll pay less to any other tax professional?

If you want to bash H&R Block because of the fact that half of their preparers are a bunch of inexperienced morons then fine but their fees aren't any worse than any other tax prep service.

 

[Blieb]

You could always just lie on your taxes.

muuuahahhahahhahaaa

 

[DaveSimmons]

Aren't you also getting increased deductions for CAWife too, eh?

 

[akshatp]

You could file seperately? Just a thought.

 

[Ns1]

Originally posted by: JulesMaximus

Originally posted by: Ns1
Never go to H&R block. Their rates are fucking ATROCIOUS.

You think he'll pay less to any other tax professional?

If you want to bash H&R Block because of the fact that half of their preparers are a bunch of inexperienced morons then fine but their fees aren't any worse than any other tax prep service.

Maybe maybe not. When I worked at a CPA office the rates @H&R comparable to said CPA office (some higher, some lower). Given the choice between a CPA office and a bunch of guys who underwent a 3 month training course in taxes, I'd take the CPA.

 

[jlee]

Originally posted by: DaveSimmons
Aren't you also getting increased deductions for CAWife too, eh?

Probably the same deduction whether she made any money or not.

 

[JulesMaximus]

Originally posted by: Ns1

Originally posted by: JulesMaximus

Originally posted by: Ns1
Never go to H&R block. Their rates are fucking ATROCIOUS.

You think he'll pay less to any other tax professional?

If you want to bash H&R Block because of the fact that half of their preparers are a bunch of inexperienced morons then fine but their fees aren't any worse than any other tax prep service.

Maybe maybe not. When I worked at a CPA office the rates @H&R comparable to said CPA office (some higher, some lower). Given the choice between a CPA office and a bunch of guys who underwent a 3 month training course in taxes, I'd take the CPA.

So, you're basically agreeing with me?

 

[Fern]

MFL

 

[spacejamz]

Originally posted by: alkemyst
SHIT! THERE ARE CANADIANS WORTH MARRYING?!!?!?!

Mmmmm....

 

[sactoking]

IRS information on Resident Alien:

7701(b)(1)(A) Previous TermRESIDENT ALIENNext Term . --

An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual meets the requirements of clause (i), (ii), or (iii):

7701(b)(1)(A)(i) LAWFULLY ADMITTED FOR PERMANENT RESIDENCE . --Such individual is a lawful Previous Termpermanent residentNext Term of the United States at any time during such calendar year.

7701(b)(1)(A)(ii) SUBSTANTIAL PRESENCE TEST . --Such individual meets the substantial presence test of paragraph (3).

7701(b)(1)(A)(iii) FIRST YEAR ELECTION . --Such individual makes the election provided in paragraph (4).

7701(b)(1)(B) Previous TermNONRESIDENT ALIENNext Term . --An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)).



7701(b)(2) SPECIAL RULES FOR FIRST AND LAST YEAR OF RESIDENCY. --

7701(b)(2)(A) FIRST YEAR OF RESIDENCY. --

7701(b)(2)(A)(i) IN GENERAL . --If an Previous TermalienNext Term individual is a resident of the United States under paragraph (1)(A) with respect to any calendar year, but was not a resident of the United States at any time during the preceding calendar year, such alien individual shall be treated as a resident of the United States only for the portion of such calendar year which begins on the residency starting date.

7701(b)(2)(A)(ii) RESIDENCY STARTING DATE FOR INDIVIDUALS LAWFULLY ADMITTED FOR PERMANENT RESIDENCE . --In the case of an individual who is a lawfully Previous Termpermanent residentNext Term of the United States at any time during the calendar year, but does not meet the substantial presence test of paragraph (3), the residency starting date shall be the first day in such calendar year on which he was present in the United States while a lawful permanent resident of the United States.

7701(b)(2)(A)(iii) RESIDENCY STARTING DATE FOR INDIVIDUALS MEETING SUBSTANTIAL PRESENCE TEST . --In the case of an individual who meets the substantial presence test of paragraph (3) with respect to any calendar year, the residency starting date shall be the first day during such calendar year on which the individual is present in the United States.

7701(b)(2)(A)(iv) RESIDENCY STARTING DATE FOR INDIVIDUALS MAKING FIRST YEAR ELECTION . --In the case of an individual who makes the election provided by paragraph (4) with respect to any calendar year, the residency starting date shall be the 1st day during such calendar year on which the individual is treated as a resident of the United States under that paragraph.

7701(b)(2)(B) LAST YEAR OF RESIDENCY . --An Previous TermalienNext Term individual shall not be treated as a resident of the United States during a portion of any calendar year if --

7701(b)(2)(B)(i) such portion is after the last day in such calendar year on which the individual was present in the United States (or, in the case of an individual described in paragraph (1)(A)(i), the last day on which he was so described),

7701(b)(2)(B)(ii) during such portion the individual has a closer connection to a foreign country than to the United States, and

7701(b)(2)(B)(iii) the individual is not a resident of the United States at any time during the next calendar year.

7701(b)(2)(C) CERTAIN NOMINAL PRESENCE DISREGARDED. --

7701(b)(2)(C)(i) IN GENERAL . --For purposes of subparagraphs (A)(iii) and (B), an individual shall not be treated as present in the United States during any period for which the individual establishes that he has a closer connection to a foreign country than to the United States.

7701(b)(2)(C)(ii) NOT MORE THAN 10 DAYS DISREGARDED . --Clause (i) shall not apply to more than 10 days on which the individual is present in the United States.



7701(b)(3) SUBSTANTIAL PRESENCE TEST. --

7701(b)(3)(A) IN GENERAL . --Except as otherwise provided in this paragraph, an individual meets the substantial presence test of this paragraph with respect to any calendar year (hereinafter in this subsection referred to as the "current year") if --

7701(b)(3)(A)(i) such individual was present in the United States on at least 31 days during the calendar year, and

7701(b)(3)(A)(ii) the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier determined under the following table) equals or exceeds 183 days:



The applicable
In the case of days in: multiplier is:

Current year ................................... 1

1st preceding year ............................. 1/3

2nd preceding year ............................. 1/6




7701(b)(3)(B) EXCEPTION WHERE INDIVIDUAL IS PRESENT IN THE UNITED STATES DURING LESS THAN ONE-HALF OF CURRENT YEAR AND CLOSER CONNECTION TO FOREIGN COUNTRY IS ESTABLISHED . --An individual shall not be treated as meeting the substantial presence test of this paragraph with respect to any current year if --

7701(b)(3)(B)(i) such individual is present in the United States on fewer than 183 days during the current year, and

7701(b)(3)(B)(ii) it is established that for the current year such individual has a tax home (as defined in section 911(d)(3) without regard to the second sentence thereof) in a foreign country and has a closer connection to such foreign country than to the United States.

7701(b)(3)(C) SUBPARAGRAPH (B) NOT TO APPLY IN CERTAIN CASES . --Subparagraph (B) shall not apply to any individual with respect to any current year if at any time during such year --

7701(b)(3)(C)(i) such individual had an application for adjustment of status pending, or

7701(b)(3)(C)(ii) such individual took other steps to apply for status as a lawful Previous Termpermanent residentNext Term of the United States.

7701(b)(3)(D) EXCEPTION FOR EXEMPT INDIVIDUALS OR FOR CERTAIN MEDICAL CONDITIONS . --An individual shall not be treated as being present in the United States on any day if --

7701(b)(3)(D)(i) such individual is an exempt individual for such day, or

7701(b)(3)(D)(ii) such individual was unable to leave the United States on such day because of a medical condition which arose while such individual was present in the United States.



7701(b)(4) FIRST-YEAR ELECTION. --

7701(b)(4)(A) An Previous TermalienNext Term individual shall be deemed to meet the requirements of this subparagraph if such individual --

7701(b)(4)(A)(i) is not a resident of the United States under clause (i) or (ii) of paragraph (1)(A) with respect to a calendar year (hereinafter referred to as the "election year"),

7701(b)(4)(A)(ii) was not a resident of the United States under paragraph (1)(A) with respect to the calendar year immediately preceding the election year,

7701(b)(4)(A)(iii) is a resident of the United States under clause (ii) of paragraph (1)(A) with respect to the calendar year immediately following the election year, and

7701(b)(4)(A)(iv) is both --

7701(b)(4)(A)(iv)(I) present in the United States for a period of at least 31 consecutive days in the election year, and

7701(b)(4)(A)(iv)(II) present in the United States during the period beginning with the first day of such 31-day period and ending with the last day of the election year (hereinafter referred to as the "testing period") for a number of days equal to or exceeding 75 percent of the number of days in the testing period (provided that an individual shall be treated for purposes of this subclause as present in the United States for a number of days during the testing period not exceeding 5 days in the aggregate, notwithstanding his absence from the United States on such days).

7701(b)(4)(B) An Previous TermalienNext Term individual who meets the requirements of subparagraph (A) shall, if he so elects, be treated as a resident of the United States with respect to the election year.

7701(b)(4)(C) An Previous TermalienNext Term individual who makes the election provided by subparagraph (B) shall be treated as a resident of the United States for the portion of the election year which begins on the 1st day of the earliest testing period during such year with respect to which the individual meets the requirements of clause (iv) of subparagraph (A).

7701(b)(4)(D) The rules of subparagraph (D)(i) of paragraph (3) shall apply for purposes of determining an individual's presence in the United States under this paragraph.

7701(b)(4)(E) An election under subparagraph (B) shall be made on the individual's tax return for the election year, provided that such election may not be made before the individual has met the substantial presence test of paragraph (3) with respect to the calendar year immediately following the election year.

7701(b)(4)(F) An election once made under subparagraph (B) remains in effect for the election year, unless revoked with the consent of the Secretary.

From the Tax Research Consultant:

7. What are the general rules for taxing nonresident alien individuals?

The U.S. subjects its citizens and residents to tax on worldwide income. However, nonresident alien individuals are generally taxed only on U.S. source income.

So:

Residents (including resident aliens) owe tax on worldwide income.
Someone who becomes a resident alien is only considered a resident for the period in which the test is satisfied.
A non-resident alien only owes tax on income earned inside the US.

Here's my personal interpretation:

She likely was NOT a nonresident alien from January to July. She does not owe US income tax on money earned outside the US as a nonresident.
In August, she became a resident alien. She owed US income tax on that portion of income earned worldwide AFTER her residency.
You are a citizen, and owe tax on worldwide income earned all year.
By virtue of the marriage, her income in Canada becomes your income in Canada.
As a citizen, you owe tax on her income in Canada.
If you elect "Married, filing separately" status, you should file on your income earned and she should file on her income earned.
By doing this, you should isolate her Canadian income to her tax return.
She will file a placeholder US return and have no tax liability.
Your marginal rate as "MFS" will be higher than "Married, filing jointly" for YOUR income, but should be lower overall since you don't include her income.

 

[amish]

ouch, sucks that they are treating her as a perm. res. alien. since they are treating her as a resident there really isn't anyway around declaring the income. if you can find a way to have her treated as a non-resident alien you would be in a better position.

if you have to file with her as a perm res, declare her income, take her as a personal deduction, and file an 1116 for the taxes she paid in canada.

below are the rates in canada to give you an idea of what the difference in tax rates will be on the income earned.

Canada: in CDN
* 15% on the first $37,885 of taxable income, +
* 22% on the next $37,884 of taxable income (on the portion of taxable income between $37,885 and $75,769), +
* 26% on the next $47,415 of taxable income (on the portion of taxable income between $75,769 and $123,184), +
* 29% of taxable income over $123,184.

US: in USD
$0 $16,050 $0 + 10% $0
16,050 65,100 1,605.00 + 15% 16,050
65,100 131,450 8,962.50 + 25% 65,100
131,450 200,300 25,550.00 + 28% 131,450
200,300 357,700 44,828.00 + 33% 200,300
357,700 and greater 96,770.00 + 35% 357,700

i'd go to a cpa instead of H&R Blows

 

[wetech]

I lived abroad for about 3 years. Taxes get complicated very quickly. I would definitely seek professional advice from someone with direct experience in these matters, as opposed to someone who's seeing it for the first time.

My gut says that you may be able to exclude her income up to approx 86k. This exclusion will be prorated for the time of the year living abroad. So perhaps 50kish if she lived in Canada through August. This exclusion counts towards the first dollars earned, so you may very well be in a higher bracket for your remaining income.

Check out Publication 54 from the IRS - . But absolutely see someone knowledgable in these matters.

 

[SpanishFry]

thanks you last 3. very helpful stuff here.