Living abroad may be difficult due to both the financial repercussions and the cultural differences that exist between the people. The Internal Revenue Service (IRS), located in the United States, and its Canadian equivalent, the Canada Revenue Agency, are expected to exert tax pressure on American citizens living in Canada (CRA). Finding the criteria to satisfy both of these government entities can need experience with foreign tax issues, an experience that the experts at U.S. Tax Help are well-equipped to provide. Please contact US Expat Taxes if you or someone you know is an American residing in Canada and would want to learn more about Expat Taxes for US Citizens Living Abroad.
Although it might be tempting to believe that relocating overseas releases you from IRS tax responsibilities, the truth is quite the reverse. The United States is one of only two nations in the world that base taxes on citizenship rather than a place of residence or physical location, making them one of only two nations to do so.
A U.S. citizen paying taxes from Canada or anywhere in the globe must submit a tax return to the IRS, just like any other citizen, to meet these obligations. As with individuals who reside domestically, this tax return is due on April 15; however, expats are entitled to multiple extensions, including an automatic 2-month filing extension that moves their effective date back to June 15. Additional extensions allow Americans residing overseas to postpone their filing deadlines until October 15 or, in some circumstances, until December 15.
Expats frequently need to submit additional papers outlining their overseas assets, including stocks, dividends, real estate, and bank accounts, in addition to the standard income tax return. Due to these restrictions, documents like the FBAR, or Report of Foreign Bank and Financial Accounts, must be used.
If you relocate to Canada, you will still need the classic IRS Form 1040 since the U.S. government taxes your income globally, including what you make in Canada. However, several tax rules might lessen the financial restrictions Americans have while relocating overseas. The foreign earned income exclusion and foreign housing exclusion are the most well-known and efficient of these.
American taxpayers can effectively deduct more than $100,000 of their abroad-earned income from their taxable income under U.S. law because of the foreign-earned income exclusion, or FEIE.
You must submit Form 2555 to the IRS in order to qualify for the overseas earned income exclusion, but you must also meet one of two requirements: either the physical presence test or the honestly genuine residence test.
As with any filing obligations, there may be fines if the right forms are not submitted on time. As an expat, the penalties for filing taxes late can prove to be a significant financial burden. For example, failing to file the FBAR can result in thousands of dollars in fines, and failing to file your tax return on time can result in the accumulation of interest on top of an already sizable tax bill. You can escape these repercussions with the assistance of an expert in international taxation.
It can be challenging for American taxpayers to navigate the numerous tax complexities in Canada. Expats not only have to deal with the same problems that many domestic taxpayers have, but they also have a few more factors to take into account. Consult the professionals at our company US Expat taxes if you or someone you know resides in Canada but is still a citizen of the United States.