IRS Calling! US Citizens in Canada File Your Tax Return

Income Tax

The USA tax collector Internal Revenue Service (IRS) has stepped up their search for U.S. citizens living outside of the country and not filing their returns.

Thousands of “lost” U.S. citizens living in Canada are getting the call from the IRS.

Here are some tips on how to get caught up:

*Dual citizens: Even if you moved to Canada and became a citizen or resident, unless you go through the formal process of renouncing your U.S. citizenship, you are considered a dual citizen. The IRS still expects you to file your annual income tax return form 1040.

*1040 Form: U.S. citizens and green card holders (even expired ones) are expected to file a 1040 every year.

*Foreign Earned Income Tax Credits: You do receive a foreign tax credit on your U.S. return for income taxes paid Canada. You may also be able to take advantage of some of the U.S. credits and benefits. For year 2010, USA Foreign income tax credit is upto $91,500.

*Canada Pension Plan: The Canada-U.S. tax treaty exempts CPP and Ola Age Security payments from tax in the U.S. if you live in Canada.

*Getting caught up: It is recommended filing three years of returns to show there is no tax owing. If you do owe tax, then it is recommended six years of filing, though the IRS may ask you to go back further.

*Financial accounts: The U.S. requires USA citizens outside of the U.S. to complete a Foreign Bank Account Report and send it to the U.S. Treasury for previous year, by June 30th of the following year. This is separate from the tax return and you must report your highest account balance of all of your accounts at any time during the year. So if you have chequing, savings account, GIC and RRSP, you should be reporting all of the accounts to the Treasury.

*Offshore Voluntary Disclosure Initiative (OVDI): Not filing or not reporting your accounts carries considerably penalties and prison timw, in the U.S. The voluntary disclosure program is offering reduced penalties until September 9, 2011.