No matter where they live or how their money is earned, all US citizens and those with green cards must file US federal tax returns and pay taxes to the IRS. The good news is that you can claim IRS provisions to reduce double taxes. Don’t stress over US Tax For Us Citizens Living Abroad, we at US Expat taxes are here to help you.
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If you pay more income tax in Canada than you would have to in the US, the Foreign Tax Credit is
usually a better choice since you can carry the extra US tax credits forward for future use.However,
as both of these IRS provisions must be claimed by submitting the appropriate form, you still need
to file a US tax return even if your income is higher than the aforementioned minimal IRS levels.
A tax agreement between Canada and the US was established in 1980 and has subsequently
undergone four revisions. A clause in the tax treaty that permits information exchange and
collaboration between the two governments in tax collection is one of its provisions. The treaty
also specifies which income is taxed to which countries and which income is exempt. For people
and businesses involved in international trade, this is extremely crucial. The pact also covers the
IRS credit for foreign taxes that US citizens and permanent residents receive when paying
Canadian taxes on their US expat taxes.
The United States and Canada Tax Treaty prevents double taxation on income and capital gains,
however, the advantage is only available to Americans living abroad in Canada owing to a Savings
Clause.
Americans living in Canada can offset their US income taxes paid to the IRS with Canadian tax
credits for income earned in the US.
Expats must submit form 1116 together with their federal tax return to collect US tax credits
against any Canadian taxes they have already paid. By doing this, the great majority of US citizens
living abroad in Canada will avoid having to pay US income taxes.
A provision in the US-Canada Tax Treaty permits the Canadian government to provide IRS
information on US expats’ Canadian taxes as well as the balances of their Canadian bank and
investment accounts.
Furthermore, penalties for failing to file US federal returns, particularly FBARs, can be severe, and
the Canadian government has the authority to collect fines on behalf of the IRS.
Expats should utilise IRS fo