My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Friday, June 17, 2011

United States Citizens and Green Card holders must file U.S. tax returns

I was not going to write a blog today, however, I read the article entitled “U.S. taxman reaches north” by Barrie McKenna on Tuesday and want to highlight the income tax filing issues for citizens of the United States and Green Card holders, raised in the article.

If you are a U.S. citizen, you are taxed on your worldwide income and you must file a U.S. income tax return each year. This is still the case even if you live in Canada, file a Canadian income tax return and have no ties to the U.S.. The U.S. is one of the only countries in the world that taxes you for the privilege of citizenship rather than residency.

The same holds true for Green Card holders. While you hold a Green Card, you are considered to have the same filing obligations of a U.S. citizen as noted above.

As discussed in McKenna’s article, most people caught by these filing rules will not owe U.S. income tax if they do not have U.S. source income; as you can claim the foreign earned income exclusion and claim foreign income tax credits. However, returns and various reporting forms are still required, even if you do not owe any tax.

What the article does not not mention, is that in many cases you cannot just give up your U.S. citizenship or Green Card and walk away. There are complicated exit tax rules. I would strongly suggest that you engage an accountant familiar with these U.S. rules to advise you of the income tax consequences, before giving up your citizenship or Green Card. You probably also want to discuss the issue with an immigration lawyer.

Finally, if you are required to file a U.S. return, you probably want to voluntarily file before being contacted by the IRS.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

12 comments:

  1. Even an ex-treeplanter can appreciate good financial advice and good writing. My dad told me to always trust an accountant who had a sweet outside jump shot. Cheers from Kimberley.

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  2. Hey Cool,

    Your dad was a smart man and a visionary, who many would know if I stated his name. The jump shot disappeared many torn ankle ligaments ago, but once I was able to dunk, my b-ball ambitions were fulfilled. It was good catching up with you last week. Now that you found my blog, you can learn what to do with all the money you made and could not spend while working in some of those beautiful if not god forsaken locales.

    To anyone reading this, sorry for the personal repartee. But Anon and I grew up together and lost touch and I actually found him via someone who found me on LinkedIn. So even though I did not get in on the LinkedIn IPO, LindedIn has been beneficial for me.

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  3. This U.S. requirement always seems odd to me, especially the requirement that non-U.S. firms (e.g. Canadian banks) must now report to the IRS regarding assets of U.S. taxpayers.

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  4. The US requirement is unique to the world. When you have the bat and ball, everyone plays by your rules. The US brought down the secrecy of he Swiss banking system, so Canada will be silly putty in their hands.

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  5. I'm wondering how the Canadian banks will respond when asked for a list of all US Citizens/dual nationals that have accounts - of any type. I don't remember being asked if I was a US citizen when I opened my checking account.....

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  6. Anon- As you note, I don't think citizenship is a question on any bank account application form. However, I assume if the Cdn. banks give in to the US request, they would mount some sort of specific program to obtain the info

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  7. What are the penalties for failing to file a U.S return? Assuming you're a green card holder living in Canada with no income earned in the U.S, are there any late filing penalties even if you owe no tax?

    Thanks in advance.

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    Replies
    1. Anon, see this blog post I wrote

      http://www.thebluntbeancounter.com/2011/10/outrageous-penalties-that-can-be.html

      Where no tax is owing, it is the astronomical penalies for not filing information forms that are the issue.

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  8. I hold a 10 year green card but have never worked in the states. This is going to cost me $200-$350 every year to file?

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    Replies
    1. Anon

      A green card results in the same obligations as a US Citizen. I would engage an accountant who does US returns to confirm you have to file and that the green card is still valid.

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  9. Does a green card holder, over 70 years old, now living in Canada and receiving just a basic Canadian old age security pension need to file US taxes?

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    1. Hi Anon

      I do not prepare US returns, so not 100% sure. However, see this link I think it answers your question http://gedeonlawcpa.com/do-i-pay-us-tax-on-my-cppoas-income/

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