Monthly Archives: April 2013

health care tax

Hurry! The Healthcare tax could hurt your Streamlined Filing Procedure

Americans living in Canada who haven’t been filing taxes might have an added incentive to file in the near future thanks to Obamacare. As The Globe and Mail reported, earlier this year, US citizens living in Canada need to file their income tax in both countries, but usually don’t need to pay anything in the US because the taxes they’ve paid in Canada offset any tax owing in the US.

Now, there’s a potential wild card. As Barrie McKenna reports, the new US health care tax will not be offset by the usual foreign tax credits.

This means that some US citizens living in Canada will now need to pay taxes to the IRS. If you’ve been reading our blog and are familiar with the Streamlined Filing Procedure, you’ll know that the IRS is giving Americans living abroad the chance to settle up their unfiled tax returns without penalties as long as they owe less than $1,500 a year. This meant that US citizens who had been living in Canada and had no idea that they were supposed to file taxes in the US could find themselves off the hook for neglecting to file.

If you would like to learn more about your legal obligation to file in both the US and Canada, read our post about filing in both countries.

The Globe and Mail’s Barrie McKenna expands on the topic of what the healthcare tax could mean for US citizens taking advantage of the Streamlined Filing Procedure:

 “The new tax could put some individuals over that [$1,500] threshold, making them ineligible for the amnesty from 2013 onward, said Ian Macdonald, a U.S. tax expert with PricewaterhouseCoopers in Toronto.

‘That [amnesty] may be in jeopardy now. People may not be able to use it,’ he said. ‘I would hope that most people would [choose to] get through this streamlined process now.’

The situation is further complicated by new, higher U.S. income tax rates that also kick in this year, pointed out Jim McConnery of Welsh LLP in Ottawa.

That could mean some expatriates owe U.S. taxes for the first time.”

Read the entire article in the Globe and Mail article here.

If you’re a US citizen living in Canada and you haven’t been filing US taxes, now is a good time to visit your tax professional and get help to start the Streamlined Filing Procedure. The new health care tax is an added bonus incentive, but we think that the IRS forgiving late penalties is a good enough reason to take advantage of the Streamlined Filing Procedure, don’t you?

If you would like to speak with a tax professional in Toronto, please get in touch with us!

foreign currencies

Tax Dictionary: Form 3520

A 3520 form lets the IRS know what money is moving between the US and other countries. If you are a US citizen and are transferring money to or from a foreign trust, you should be filing Form 3520.

While transferring money between US and international trusts isn’t necessarily taxable, the IRS still requires you to file the form so that they can track what is coming in and going out of the US.

When do I need to file a 3520?

Generally, grantors or beneficiaries of a foreign trust need to file a Form 3520 if they’ve have had a reportable event. The form is due on the same date as their tax return.

Reportable Events

Reportable events refer to major changes in a foreign trust. Of course, we all have different yardsticks for how we measure major changes, so here is a list of what the IRS considers to be a reportable event:

  • forming a foreign trust
  • transferring cash or assets to a foreign trust
  • receiving distributions from a foreign trust
  • receiving a bequest from a foreign person of more than $100,000
  • receiving a gift of more than $14,723 from a foreign person, partnership, or corporation
  • making any loan transactions between a foreign trust and a beneficiary

There are some exceptions to filing certain events on a 3520, but we highly recommend that you consult with your accountant before omitting anything from this form.

Failing to file in a timely manner or providing incorrect or incomplete information could set you back $10,000 or a percentage of your property’s gross value, distributions you’ve received, or your trust’s assets.

In other words, file on time and file correctly! As always, we are happy to help with Form 3520 or any other tax information for US citizens living abroad.

Note:

If you have foreign accounts, you may need to file a Report of Foreign Bank and Financial Accounts (FBAR). Take a look at our post “If I am a US citizen living in Canada, do I need to file a US tax return?” for more information.

 

Canadian Flag

If I am an American living in Canada, do I need to file a US tax return?

Ask an accountant:

Question:

If I am a US citizen living in Canada, do I need to file a US tax return?

Answer:

The short answer to this question is a simple, “Yes.” Americans living in Canada are required, by law, to file complete tax returns along with a report about their foreign bank and financial accounts (FBAR).

This subject has been a popular one, lately, as many Americans are just learning about these obligations and the consequences of not filing. Because US citizens living in Canada usually file their Canadian tax returns, most think that they are covered and don’t need to worry about anything south of the border.

Unfortunately, this is not the case. The IRS requires any US citizen to complete their tax returns and pay anything that they owe. Fortunately, what you’ve paid in your Canadian taxes works against what you would have paid in the US.

The process is really quite simple. The problem is that no one seems to know that, simple or not, they still have to file. In fact, neglecting to file tax returns can make you subject to sizeable fines, even if you owe very little or nothing at all.

Why do you have to file in both places?

So many people are confused because Canadian tax law requires you to file taxes where you live and American tax law requires you to file where you have citizenship. This doesn’t mean that you have to pay twice as much, but does mean that you need to do your due diligence and get your paperwork to the correct places.

I haven’t been filing! What do I do?

I have wonderful news for you! The IRS recently launched a process to forgive US citizens living abroad for unintentionally neglecting to file US tax returns and is waiving fines to qualifying Americans. In other words, if you act now, you can start fresh and not have to pay any overdue fees. The program is called the Streamlined Filing Compliance Procedure.

The best thing you can do is contact an accountant who deals directly with US citizens living in Canada. There is a fair amount of paperwork to go through, but the process has been made more efficient because of the sheer volume of people recently informed of the law.

Check out our full blog post on the Streamlined Filing Compliance Procedure, here.

Additional Information:

– Because you’re living abroad, you have an extra two months to file your US tax return, making the deadline: June 15.

– Check with your accountant to see if you can qualify for form 2555. This form attaches to your US tax return and can exclude up to $92,900 of income earned in Canada from your report if you have been living in Canada for 330 days of the last 12 months.

As always, we are happy to help with any questions you may have! Please contact us to set up an appointment with an accountant who specializes in US citizens living in Canada.

 

US Taxes

Streamlined Procedure waives US Tax penalties for US citizens living abroad

If you’re a US or dual citizen living in Canada, do you know that you should still be filing US taxes? You also need to disclose your reports of any foreign bank and financial accounts (FBARs). Before you panic about whether or not you owe penalties or are subject to other consequences, there is good news.

As of September 1, 2012, you can take advantage of Streamlined Filing Compliance Procedures. This new process basically means that the IRS is waiving certain fees and penalties for US citizens living outside the US who weren’t aware that they were supposed to file US taxes and who want to do so now.

Eligibility

Before we go any further, we should address eligibility. You might be eligible for the Streamlined Filing Compliance Procedure if you have lived outside of the US since 2009 and have not filed US taxes in that period. You will also need to fall under the “Low Compliance Risk” category. People who are considered a low compliance risk would include those who have simple returns and who owe little or no US tax (under $1,500 per year).

If you are fixing a past tax return, otherwise known as an amended return, you are not eligible because you are not considered to be a non-filer.

Why the program began

The IRS started this program because they found that many US citizens living in other countries were becoming aware that they should be filing taxes and became swarmed with people filing past tax returns. As a way to speed up the process, they introduced a reward system for people coming clean with simple returns.

Rewards for settling up

Eligible US taxpayers using the Streamlined Procedure can look forward to faster return reviews and waived late penalties. Considering that penalties can run up to 25 percent of owed taxes, that’s a pretty good reward. On top of that, unintentionally neglecting to disclose your FBAR could cost you $10,000!

Next steps

Talk to your accountant and gather the following items to submit:

  • Your completed tax returns for the past three years with the top of each first page labeled “Streamlined”
  • Your payment for all of the taxes you owe
  • Your FBARs for the last six years for which you should have been submitting FBARs
  • A completed questionnaire
  • An Individual Taxpayer Identification Number application (only if you don’t already have a Social Security Number or an ITIN)

Additional Information:

While the most basic purpose for the Streamlined Filing Compliance Procedure is to offer incentives to US non-residents filing US taxes for the first time while living abroad, there are also opportunities to extend past deadlines and defer income from retirement savings plans. Make sure to check with your accountant about the guidelines for this part of the procedure.