4.13.2006

taxes, u.s. edition

US citizens, no matter where they live, have to file US tax returns. You have to show all your income, no matter in what country it's earned. However, unless you're in a fairly high income bracket, you'll be exempt from US tax.

If you live in a country with a tax treaty with the US - such as Canada - you also receive a credit for taxes you've already paid in that country. So you shouldn't be taxed twice on the same income.

The year you move, however, is tricky. Because we lived in the US and worked for US companies during most of 2005, our income is not yet exempt. In addition, we have to declare whatever we earned in Canada, and get credit for any taxes paid on that.

To complicate things further, my freelance work is for U.S. companies, so I still have some US income, and no taxes are withheld from that in advance.

Each word of every sentence on this post represents a form to fill out and a barely comprehensible instruction book to follow.

We also have to file Canadian tax returns. From what I've heard, these are much more straightforward. (We haven't done them yet; I'll let you know.) Also, this will be the first time we fill out one tax form for both of us. Because we are not legally married, according to U.S. tax law, we're single.

Filling out two sets of tax forms every year, and continuing to grapple with the convoluted US system even if we don't pay US taxes, is incentive enough to try to give up my US citizenship as soon as I'm eligible.

We have to be Permanent Residents of Canada for three years before we can apply for Canadian citizenship, and then - of course - it takes some time to get it. I've heard that it's not so easy to give up citizenship. But I'll tell you, it might be worth the effort.

9 comments:

Alex said...

I wouldn't worry too much about the tax situation. I did the two tax returns (or more importantly, H&R Block did them) and it worked out that I owed in Canada and got a refund from the U.S. In the end, they balanced each other out.

Don't be too quick to give up your U.S. citizenship either - it's actually easy to give up and damn near impossible to get.

laura k said...

it worked out that I owed in Canada and got a refund from the U.S. In the end, they balanced each other out.

You're lucky. That isn't how it looks over here.

it's actually easy to give up and damn near impossible to get.

I'm glad to hear it's easy to give up - I've heard just the opposite. Either way, I'm up for the challenge. If Canada will take me as a citizen, that will be enough for me.

So many people act like having US citizenship is this special status that gets you so much around the world. (I'm not saying you're saying that, Alex.) Yet somehow, millions of people manage to live their whole lives without it, and they get along just fine.

I'll be very happy to travel with a Canadian passport and to never have to fill out another US tax form for the rest of my life. But that's still several years in the future.

Alex said...

So many people act like having US citizenship is this special status that gets you so much around the world.

It does get you so much the world. With a U.S. passport, you get $0.05 off colour copies at Kinkos every second Tuesday of the month. Also, flashing your U.S. passport to the bouncer at Pinguin Club in Berlin will get you past the long line ups.

laura k said...

Between that and being hated in 47 different countries, who could resist?

iwant said...

I have a friend that's Iranian and only been here for a few years now and got his Canadian Citizenship last month. I think I'd check into that again about how long a wait it is after the first 3 years. I don't think it's all that long but I may be wrong.

Wrye said...

If I may...

Your US passport will always give you an easier time crossing that border to visit family stateside. That's something not even a Canadian passport can guarantee.

laura k said...

Thanks, iwant - I'll check.

Your US passport will always give you an easier time crossing that border to visit family stateside.

That will be something to weigh in the mix, for sure. I'm not sure I'd stay a US citizen just for that reason, but then, this is right after my bruising session with these #$%?^! tax forms.

Alex said...

I checked into the three year deal for citizenship - if you have a workpermit (as I do) - you get a half day credit for every day here. So my two years has gotten me one year credit towards citizenship. Pretty sweet deal - I wish I could use Airmiles towards it.

laura k said...

Are you planning on applying for citizenship?

For Permanent Residents, it looks like the three year mark is still in effect.