Common IRS forms for Americans living in Canada
I am often asked, “What are the most common U.S. tax forms for Americans living in Canada when preparing their income tax return?"
Since the U.S. Congress established the Foreign Accounts and Tax Compliance Act (FATCA) it has become harder to hide from the IRS, especially for U.S. taxpayers living in Canada.
FATCA requires United States persons, including individuals who live in Canada to report the principal amount held in their Canadian bank and brokerage accounts. Furthermore, Canadian financial institutions now report relevant information on accounts of U.S. persons to the Canada Revenue Agency (CRA). The CRA exchanges the information with the IRS through the provisions in the existing Canada-U.S. Tax Convention.
This means that Americans living in Canada still have to file US federal income tax on their worldwide income, regardless of where it is coming from and Americans living in Canada usually need to file separate forms detailing all their Canadian and non US financial accounts.
Here’s a list of some of the common tax forms for Americans living in Canada:
Form 1040: U.S. Individual Income Tax Return – This is the tax form that U.S. taxpayers use to file their annual income tax returns.
Schedule B: Interest and Ordinary Dividends – This is used to report interest and dividend income you receive during the tax year. It’s important that taxpayers with foreign bank and/or brokerage accounts complete part III.
Form 1116: Foreign Tax Credit – Allows U.S. taxpayers to take a tax credit and subtract the taxes they paid to another country from whatever they owe the IRS for income taxes
Form 2555: Foreign Earned Income Exclusion – This is one of the most important forms and is used to reduce taxable income. Citizens and residents living and working in Canada may be entitled to the foreign earned income exclusion if they meet certain residency tests. Also, included in this form is the foreign housing exclusion, which allows citizens and residents to take an exclusion for specified foreign housing expenses.
Form 3520: Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts – Used to report gifts, inheritances or transactions from a Canadian or non U.S. individual, estate, corporation or partnership.
Form 4868: Application for Automatic Extension of Time File U.S. Income Tax Return – Used to apply for an extension of time to file an income tax return until October 15.
Form 5471: Information Return of U.S. Persons with Respect to Certain Canadian Corporations – Used to report information if you own a business, real estate, investment assets through a Canadian corporation.
Form 8858: Certain U.S. persons that own a foreign disregarded entity (FDE) directly or, in certain circumstances, indirectly or constructively use this form and schedules to satisfy the reporting requirements of sections 6011, 6012, 6031, and 6038, and related regulations.
Form 8621: Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund – Used to report actual distributions and gain as well as income for certain “pooled investments” (mutual funds, insurance products, pension plans) located outside the U.S.
Form 8938: Statement of Specified Foreign Financial Assets – Used to report your Canadian financial assets if the total value is above a specific amount.
FinCEN form 114 (FBAR): Report of Foreign Bank and Financial Accounts – Used to report your foreign financial assets in Canadian financial institutions or non U.S institutions if the total value is above a specific amount.
For more information about overseas tax returns, you should check the IRS’s website. A good starting point for any new overseas American is Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad.
Have additional questions? We are happy to review your specific situation and guide you through which forms need to be filled out. Contact us with any questions that you have or get started on your US income taxes today.