Author’s note: While I was able to get TaxAct to work for me for the 2011 taxes, 2010 is another story. I think Tax Act probably works fine as long as the taxpayer doesn’t have too much unearned income.
My new Canadian accountant has declined to help me create self-prepared tax return. I found that if you go to this IRS site, there was a number of free software programs. I chose TaxAct, because it included the following features:
- Adjusted Gross Income: $57,000 or less, and
- Age: between 19 and 55, and
- Live in any state or U.S. Citizens and resident aliens with foreign addresses
I started a few days ago with TurboTax and it started asking me for money once it realized that I needed to fill out form 2555 to claim the Foreign Earned Income Exclusion. TaxAct did that for free and I think that it prepared my tax form as well as anything my previous accountant did; I added forms 8833 and 8891 for my RRSP (it probably would have done that but I didn’t need any help for that).
One important point I want to make is this: I have refused to do my taxes passed the 7 April date that the State Department says that I expatriated. So I’ve only counted income received before that date. It should be 28 February, the actual day that I ceased being an American, but the tax would have been ZERO either way, so I shan’t quibble. That’s the difference between me and the IRS: they only care that the form gets filled out correctly.
Now on to 2010, which I have still to do. I’ve mentioned my 2009 tax woes (here, here and here). Then I will send in 8854 with “FIFTH AMENDMENT” written over any information that could potentially incriminate me under what? Things like FBAR etc.
Gah, I wish I had known about that service! H&R block’s online tax prep lets you fill it out for free too, but their interface isn’t the most user-friendly.
@ zucchero I had go back and do a Foreign Compensation and Pension Form — and 2555, before it would do the tax correctly. But eventually its starts looking correct. But I think most folks here at Isaac Brock can save a bunch, if they use the free software. If it makes a mistake, then sue the software company!
I received this last nite via USTAX@stu.ca. Thought I would pass it on here after all, after seeing you mention free software, as this person did. Also posted on forum.
*******
I filed a tax return, without the help of an accountant. I didn’t think I should have to shell out for an accountant when I knew perfectly well I didn’t owe the IRS any tax. It was not easy, but I did eventually prevail, and now I will pass on my hard-earned knowledge to others who are thinking of filing but don’t want to hire an accountant.
One thing that was helpful, although not as helpful as I’d hoped, was Free Filing. Several companies offer online free forms you can use; they are listed here: http://apps.irs.gov/app/freeFile/jsp/index.jsp?ck. Not all of them are useable by non-US residents. The first one I tried, 1040.com, wouldn’t let me enter a non-US address, even though it is supposed to serve “U.S. Citizens and resident aliens with foreign addresses,” according to the IRS web page. It doesn’t. Next I tried H&R Block, and that did let me enter foreign addresses, so that was the one I used. It wasn’t perfect; I address its limitations below. I had trouble getting my taxes owed to zero and ended up resorting to paper forms to figure out what the problem was. But it did let me know which forms I needed to concern myself with, which was good because there appear to be hundreds.
Here are some tips for doing your US taxes, either with an online form or on paper:
1) The main tax form is 1040. To obtain this and other forms in fillable and printable PDF format, go to http://www.irs.gov and click Individuals, and then Forms and Publications.
2) This concerns the online form. Your income earned in Canada is foreign income, so it doesn’t go into the Wages, Salaries and Tips section–you only fill that in if you received a W-2 slip. However, you still put your foreign interest under Interest, even if it’s foreign and you didn’t receive a 1099 slip. I found that confusing.
3) You have the option of either itemizing your deductions (on Schedule A) or using the standard deduction (see line 40 of form 1040). Unless you have a lot of deductions, use the standard deduction. You want to use whatever amount is larger. This is the kind of thing that a decent tax software package would work out for you. H&R Block’s online form doesn’t. This really tripped me up.
4) To get a tax exemption, you have to fill out either form 2555 (Foreign Earned Income Exclusion) or form 1116 (Foreign Taxes Not on Form 1099-INT or 1099-DIV). My impression is that 2555 is intended more for people who make their home in the US but travelled outside it to work. It asks a lot of questions that are awkward for someone who’s never made their home in the US (such as the date you moved to your current “tax home”). I recommend using 1116, which is under the Credits heading on the H&R Block online form.
5) Line 45 of 1040 is Alternative Minimum Tax. This is a nightmare of interlocking forms. Fortunately, the IRS has an interactive form called the AMT Assistant that will tell you whether you need to worry about calculating AMT or not. It’s at http://apps.irs.gov/app/amt2011/index.jsp?ck.
I hope this helps somebody
If you contributed to a TFSA you may also have to worry about 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) as well as a substitute 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner) Normally the financial institution is responsible for the 3520-A, but because you’re dealing with a foreign institution that wouldn’t do this for you, you may have to file a substitute 3520-A on their behalf. These forms are a real headache. Fortunately, someone else has gone through the trouble of figuring out how to fill out these forms specifically for a TFSA and has provided detailed step-by-step instructions. See http://forums.serbinski.com/viewtopic.php?t=4187&postdays=0&postorder=asc&start=0
Whether I have a TFSA is none of the IRS’s business. If I did have TFSA or made contributions to it, it is the same as FBAR; reporting it to the IRS is out of the question on Fourth Amendment grounds.
I made sure, however, that I had no income in any potential possible TFSAs that I might or might not have had.
I should mention that the lack of eligibility for TFSA was a major consideration in my decision to tell the USA where they could put their citizenship.
@Brad
problem with 3520A is that it is due March 15. 🙁
@nobledreamer: I’m pretty sure that only applies to the financial institution. If the individual is filing a substitute form it is filed along with the 3520. My feeling is that the earlier date is so that the IRS can receive the 3520-As from the FI’s ahead of time so they can match them up when the 3520’s arrive.
@Petros: Yes the TFSA is something we’re concerned with as well. My wife is a US citizen. Right now the TFSA’s are not an issue because they’ve only been around for a few years and at the max of $5,000/year there’s only so much one could have in the way of gains — so unless you had a really good year it likely still falls within the personal exemption. It will be an issue in the future, however.
@Brad
Would you be able to tell me where you got that info? I went to a lot of trouble to do that 3520A on time because I could not find anything that said it wasn’t due on March 15. Thanks.
@Petros – me too 🙂
@nobledreamer: The instructions for form 3520 state:
Line 22. If “Yes,” … (not relevant) …
If “No,” to the best of your ability, complete and *attach* a
substitute Form 3520-A for the foreign trust.
The key word here is “attach”, which means attach to form 3520. Finally, under “When and Where to File” (for form 3520), it states:
“Form 3520 is due on the date that your income tax return is due, including extensions.”
This means that form 3520 is due on the same date as form 1040, which for those living abroad is June 15. Since 3520-A (if it is a substitute 3520-A filed by the taxpayer) is attached to form 3520, it will be due on the same date.
One other important point: The form is *due* on the date your 1040 is due but it is *not* filed along with your 1040. It is filed separately to the following address:
Internal Revenue Service
Center, P.O. Box 409101, Ogden, UT 84409.
@brad, thank you for that information, and @nobledreamer, I too had thought that something for the TFSA was due in March. I was also confused about the 3520 vs the 3520A.
I’m having a lot of trouble with 2010 taxes. I can’t seem to avoid double taxation using the TaxAct. I know I shouldn’t have to pay any taxes in the US given my income level and the fact that I’ve paid all my taxes in Canada. But no matter how much I manipulate the program it says I still owe something.
Part of the problem is that investment income doesn’t work the same way in Canada as in the US and it is not set up to show how much taxes I pay on the investments. So if I take out the total taxes that I pay on both earned and unearned income, then the the Foreign Earned Income Exemption doesn’t apply. But it appears not to count as a dollar per dollar credit for tax, because even though I owed x dollars in the states, and paid x dollars in Canada, TaxAct says I still owe 1/2 x in the US. So if I use this program, I will be double taxed.
And I don’t know how to input my RRSP contribution. How does apply ? Does it come off of unearned income or earned income. It has an input for IRA but none for the RRSP.
So this is the final word about using Tax Act for those who have unearned income: it is probably not helpful.
@Brad,
Thank you. I never read 3520, just noticed at the last minute that the 3520A was due (at that time, in less than 2 days), panicked and sent the form. Oh well, at least I think I would not have to worry about a failure to file penalty 🙂
@Petros,
I am under the understanding that the
RRSP is simply reported on 8891. Do you have to put it somewhere else as well?
@Petros,
After thinking, the 8891 is so you can defer owing anything on the RRSP so I wouldn’t think it comes into play anywhere else. Forgive if I am missing something here.
@ Noble Don’t you see, that if it is not counted as deduction from income, then you have to pay tax on your contribution. Then the US will charge you tax when you take it out too. So how do you deduct it from your income. TaxAct only has room for the IRA deduction.
@ all, I double checked: if I include neither a foreign earned income exclusion nor a foreign tax credit, I owe x. I paid exactly x in taxes according to my Canadian 2010 notice of assessment: therefore I should owe x-x = 0 ; but I don’t know how to get TaxAct to figure that out. Otherwise, the there is double taxation.
@Petros
No, it doesn’t work tit for tat exactly. If all your income (which is where you get the $ for your RRSP) is offset by FEIE, it ends up that there is no tax on what you contributed to the RRSP. Then, you fill out the 8891 to defer any gains on the RRSP.
The Letter of the law kills. I can’t do my 2010 taxes myself. There are too many contingent possibilities.
Neither can I. I hired a CPA EA from NYC and she seems to be good.
Where the real nightmare comes in is if you have invested in mutual funds in Canada (or any other foreign mutual funds) outside of your RRSP. These are considered “Passive foreign investment corporations” (PFICs) and are subject to really what is punitive taxation (taxation at the highest marginal personal income tax rate, regardless of your actual income, and the standard deduction does not apply). In addition, the forms for this (8621) and the calculation for the tax owing are utterly incomprehensible.
@Petros Why bother?
I’m doing my own – preparing them as fully and accurately as I can. Then I’m having an EA who specializes in international and expat taxes check them over to make sure I did them right. This will not only save me a lot money, but also educates me so I know exactly what documents and information I need, and am familiar with all the forms and processes. I want to be able to think knowledgeably about what the EA tells me. I’ve also realized that so much of the time-consuming stuff I’d have to do myself anyway, like gathering statements etc.
But yes, it is a nightmare, and the whole system must have been devised by some really perverse people.
Now to get on the phone to try to track down bank statements from a foreign bank which no longer exists, so I can get info about an account that was closed four years ago, so I can diligently report the under $200 interest they paid! What an excellent use of my time, and how beneficial to the US government!