My_question_is: Applicable to both US and Canada
Subject: Exemption Statement
Expert: taxman at centa.com
Date: Wednesday May 03, 2006
Time: 12:33 AM -0700
QUESTION:
How and where do I get an exemption statement for the U.S. tax that is owing
on self-employment income earned in Canada. I have to do a 1040 declaring
this income but I'm already paying tax in Canada. I understand that it is
also taxable in the U.S. unless I get a statement to include with my return.
This is only my second year with self-employment income to report and last
year I had a loss so I didn't need a statement. I hope you can help and
thank you in advance for replying.
==================
david ingram replies:
You need to file form 2555 to claim the exemption or form 1116 to claim a
foreign tax credit. If you have US citizen children, you should file the
1116 to get the benefit of the $1,000 per child refundable tax credit.
In addition, if you have an RRSP, you need to file form 8891 - failure to
file this form if you are a US citizen in Canada or a US resident with a
Canadian RRSP or RRIF is 35% of the amount in the RRIF plus %5 for every
year unreported.
If you have more than $10,000 combined in all accounts including the RRSP,
you must file a form TDF 90-22.1 for each account - failure to file these
accounts bears a penalty of up to $500,000 plus 5 years in jail.
You can find all the forms at www.irs.gov and of course, we are always ready
to help you with the return
The following former Q & A might help you -
===============
Hi David,
I'm really confused. If I fill out section 10a to 10e of form 8891,
I've have to pay tax on interest, dividend, capital gains, etc. I
thought Canadians can defer paying this tax to IRS until withdrawal.
Also, according to the reply from the Department of Treasury below (last
paragraph), we should be able to defer paying tax. Does that mean I can
leave section 10a to 10e empty?
Looking forward for your response!
Thanks in advance,
-----Original Message-----
From: centapede-bounces+tha=microsoft.com at lists.centa.com
[mailto:centapede-bounces+tha=microsoft.com at lists.centa.com] On Behalf
Of centapede at lists.centa.com
Sent: Wednesday, March 29, 2006 1:42 AM
To: CENTAPEDE; Webmaster at Jurock. Com
Subject: [Income Tax Help - CEN-TAPEDE] Form 8891 - Need reading
USsmoke/mirrors - David Ingram expert income tax help andpreparation of
US Canada Mexico non-resident and cross borderreturns with rental
dividend wages self-employed and royaltyforeign tax credits
------------------------------------------
Subject: Form 8891 - Need reading US smoke/mirrors
Of course as many have probably found out that the IRS form 8891 as
clear as
mud. Definitions, the IRS phone agent told me in the box:
"beneficiary"
and "annuitant."; that I should be checking annuitant. However, if I
check
that box according to the instructions I would miss the critical line 6
step. So which is the correct one to check? Then you just enter plan
balance? Is that it.
Thanks
---------------------------------------
david ingram replies:
The proper box to check off if you bought it and it is yours is
Beneficiary and then answer all the questions.
For the Earnings, I do NOT break them into interest, dividends, etc
because it does not work cleanly because of exchange.
I use the both lines of explanation for line 10e and state the
following:
"A combination of internal earnings, change in value and a 30%
devaluation of the US dollar relative to Canadian currency has resulted in
a profit/loss of
$xx,xxxx.00
However, the following came directly to me from the Dept of Treasury in
an informal note last September.
=================
....
Hi there: We are trying to make Form 8891 better. Do you agree with
the comments set forth below?
For reasons that are not entirely clear, Form 8891 provides different
filing instructions for the "annuitant" and "beneficiary," even though they
are
the same person under the ITA. Form 8891 defines a beneficiary as someone
who would have to pay U.S. income tax on RRSP/RRIF investment earnings if
he
or she had not made a treaty election. It defines an annuitant as the
person designated as the annuitant under an RRSP/RRIF trust. However, the
ITA
defines an RRSP or RRIF annuitant as the person entitled to receive
retirement income from the trust, or, in the event of the account
holder's death, the surviving spouse or common-law partner - a definition
that
also includes the trust's beneficiary.
The Form 8891 instructions indicate that an annuitant should not
complete the treaty election in section 6 of the form. As a result, a
taxpayer
who follows the instructions for an annuitant will not provide sufficient
information to make the election. RRSP and RRIF owners should consider
following the instructions for a beneficiary to ensure that they claim a
treaty exemption from taxes on investment earnings, or should indicate
that they have previously made a treaty election.
Thanks!
Attorney
Office of Chief Counsel (International)
Internal Revenue Service
===========================================
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
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Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA) time -
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<http://www.david-ingram.com/>
Disclaimer: This question has been answered without detailed
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