US-Canada Tax Accountant: Avoid Double Taxation for US Expats in Canada
Navigating the complex world of expatriate taxes is downright confusing, especially for US expats staying in Canada. Filing US taxes from abroad comes with its own set of issues – whether it is understanding which forms to submit or determining which treaties to take advantage of. That said, one common problem that almost all US expats in Canada face is the chance of getting taxed twice i.e. double taxation – being taxed by the US as well as Canada. This is where FEIE and the US-Canada tax treaty come into play.
The FEIE or the Foreign Earned Income Exclusion allows US expats to exclude a significant portion of their foreign-earned income from US taxation, however, understanding its limitations or application requires expert guidance. This is why you need a US Canada cross border tax accountant. Additionally, the US-Canadian tax treaty contains different provisions that mitigate the risk of double taxation. That said, mistakes while filing the form can be costly.
To comply with the rules of expat US taxes and better optimize the tax benefits, it is crucial for you to consult a professional who understands the tax process and has a working knowledge of how to file American taxes in Canada.
Everything about FEIE
Maximizing Tax Savings with the Foreign Earned Income Exclusion (FEIE) for US Expats in Canada: How a US Canada Tax Accountant Can Help You File American Taxes
Consult a US Canada Cross Border Tax Accountant to navigate the complexities of FEIE, and optimize your tax savings while you file American taxes in Canada.
The Foreign Earned Income Exclusion is one of the basic/ common tax benefits that US expats have at their disposal. If you’re eligible, it excludes all or a portion of your foreign-earned income from US taxes. So, if used properly, the FEIE as it is popularly referred to, can save you thousands of dollars on expat taxes. However, it is not a blanket foreign income exclusion. Instead, it has conditions on what can be excluded from taxes and what cannot be.
FEIE is not available to everyone and is not automatically applicable. You need to meet certain conditions/ qualifications and then file the appropriate paperwork/ Form 2555, for the same. That said, the Foreign Earned Income Exclusion isn’t your only tax relief option when you file the US expat taxes in Canada. Consult with your US Canada tax accountant on what other options you have based on your specific situation.
Of course, FEIE is a great help in reducing the US tax burden, but it is only applicable for earned income i.e. it doesn’t apply to investments or any passive income. So, FEIE only includes the following.
- Salary
- Bonus
- Wages
- Commissions
- Income from self-employment
Common problems with FEIE and Form 2555
When you opt to file American taxes in Canada on your own, you are bound to face many challenges and may also come to know the rules a little better. Here’s some of that info to make things a little easier for you.
- Most US expats have the notion that if they qualify for FEIE, it will automatically be included in their tax filing, but that’s not the case. Individuals will have to separately fill out and submit Form 2555.
- United States government employees cannot claim the famed Foreign Earned Income Exclusion. This is not for them.
- If you make a mistake in calculating the FEIE, you will not be able to get the correct amount excluded. So, it is always better to reach out to a US Canada cross border tax accountant for help.
- You must track your time correctly if you want to pass the Bona Fide Residency or Physical Presence tests. Being off by even a few hours can jeopardize your chances.
- If you are living abroad and don’t quite have an active income, but instead living off passive income or even investments, you are not eligible for FEIE.
- It’s good that you’ve claimed FEIE but you would still need to pay self-employment taxes.
Introduction to the US-Canada tax treaty
The United States and Canada have a great relationship and the same even shows in the tax laws. As you might have guessed, the US-Canada tax treaty dictates/ states as to how the US and Canadian citizens living within each other’s geographical confines should be taxed.
Like most other countries, Canada too has some form of taxes in place that the residents are obligated to pay. This can be of problem for US expats because Americans have to pay taxes even if they aren’t living in the US. In fact, the US is one of the few countries which imposes taxes based on citizenship. So what does one do? Well, one of the purposes behind the US-Canada tax treaty was to avoid double taxation. But there’s more to it than meets the eye! The same treaty also brings transparency in expat financial reporting between the two nations.
That said, one subject that we at Expat Global Tax keep coming across while we file American taxes in Canada is Canadian retirement plans, and we would like to assure everyone that if as a US expat living in Canada, you receive benefits from the Old Age Security Plan or the Canadian Pension Plan, the US Internal Revenue Service (IRS) treats it as the same as US’ own social security payments for tax purposes.
So, if you’ve still not decided to take help from a US Canada tax accountant (though you should), and you are not sure how to go about this, know that a vast majority of the benefits that are available to US expats through the US-Canada treaty don’t have to be claimed, but if you’ve somehow landed in a weird situation, you’d have to file Form 8833 and state your situation in the summary. However, once again, we will urge you to come to us at Expat Global Tax for a free consultation before you go about it.
Key takeaway
At Expat Global Tax, we understand the complexities of filing US expat taxes from Canada. In fact, navigating the intricacies of FEIE, the US-Canada treaty, and avoiding double taxation can all be quite confusing, more so when you are not familiar with the ins and outs of the expat tax laws. Our team of US Canada cross border tax accountantspecializes in handling cross-border expat taxes, maximizing tax benefits, and helping you in avoiding costly tax mistakes.
So, if you want your taxes handled right, connect with us at Expat Global Tax. Take the hassle out of US expat tax filing.
