Monthly Archives: February 2016

Oriental Language Comments

For some reason the last few weeks I am getting a lot of comments in an Oriental language. I think that they are in Chinese but they could be Japanese. They are quite long and contain a few headings in English so it looks to me like they are written by someone who reads English.

I have no idea why they are being sent here. It looks like someone has gone to a lot of work writing them. As you can tell from my headings my main business is Canadian and US income taxes, which must be done in western languages. I don´t want to publish them because I have no way of finding out what they mean.

Can anybody tell me why they are being sent here so that I can decide what to do with them?

When To Incorporate

Many people make a big mistake by incorporating at the wrong time. One of my friends made this mistake and he was a Chartered Accountant. He was involved in a real estate development scheme. He incorporated the whole scheme prematurely. Their plans showed the development as becoming profitable at a particular date and he set up the incorporation a few months ahead. The rental market changed and they lost a lot of money for several months, or possibly two or three years.

Because they were incorporated they could not carry the business losses back to their personal tax returns so they had to pay it and could not take deductions for it. This was in Canada. The equivalent in the US would be changing from an S corporation or an LLC to a C corporation.

Before income tax became such a major drag on businesses it was only necessary to incorporate when many or most of the investors did not take an active part in running the business. Now income tax is a major factor, usually much more important than the operational point mentioned above.

It is always difficult to determine when a business is going to become profitable. Unless most of the investors have experience in the business they are guessing. There are also factors that come out of the blue to bite you in the behind. Once a long time ago I was working in a small steel fabrication business. We were churning out estimates for small metal-clad buildings for potential buyers. All of them expected the Canadian government to remove the sales tax on building materials at the next budget. The budget came and the tax stayed. All of a sudden we were not producing any estimates and I was unemployed.

In conclusion you should not set up a corporation or go from an S corporation to a C corporation until the business is actually making money and there are good reasons to expect it to continue to do so. You can never be completely certain but this will often save you from big disasters.

Educational deductions

There is one cute little trick that works like a charm to rescue a tax client who has taken a course that has something to do with his or her occupation but has not got an official receipt for this educational course.

I saw this done several times and I did it myself several times. It was never questioned by Revenue Canada and I am pretty sure that the IRS would not object to it either. There was a large school in Vancouver, Canada that offered courses in modelling, hairdressing and such things but was not registered with Revenue Canada so they could not issue official educational receipts.

What we did was place the school expenses on a business statement and then show nominal income on the same statement. As an example if the client had taken a hairdressing course we would show a business statement as a hairdresser and show say $25 income as a hairdresser and $800 or whatever had actually been paid as a business expense. The client then had a $775 business loss instead of an $800 educational expense. We might have done this statement for free or charged $5 for it because we had to fill in a bunch of stuff at the top of the page but it was still a really good deal for the client.

This worked first of all because it was very close to what had actually occurred, and secondly because Revenue Canada expected to see income from this business in future.

There are many more little dodges like this that can be used when a taxpayer has an expense that does not quite fit into any particular category but clearly has a business purpose. Using any of these little dodges must be done very carefully because if the paperwork is not clear the tax authorities will deny the deduction and maybe do more than that. It is necessary to balance the chance of trouble with the tax authorities against the loss of a legitimate business expense.

Recently I saw some expense claims that were ridiculous. One woman charged a new fur coat as an expense of advertising her business but her business had nothing to do with fur. I could not see any connection with her advertising and neither did the IRS. I think that they hit her with a penalty for this claim.

Border Hijinks

There are many strange things that happen at international borders. It seems like many politicians and bureaucrats make up rules for some purpose known only to themselves. Let me fill you in on some of those that happen at the US-Canada border.

For many years a white woman who lived in eastern Canada was hassled every time she crossed the line into the US. The reason was that a black man with the same date of birth and a similar name had done something in the US to attract police attention. Apparently it took her over half an hour every time to convince the border guards that she was not the bad guy. How long does it take you to tell the difference between a white woman and a black man?

The Canadian border guards will usually refuse entry to anyone who has been convicted of impaired driving. This created a problem once when a man who was in charge of the FBI for a couple of states came to Canada, with an invitation from the prime minister’s office, and was refused entry because of an impaired driving conviction. Going the other direction, a Canadian with a conviction for shoplifting was refused entry to the US.

In the US the right to bear arms is guaranteed under the constitution. The same does not apply in Canada. Many US citizens drive into Canada without realizing that it is illegal to transport guns across the border. Please be careful about this. Check the glove box of your car before entering Canada.

My friend George had several problems at the border. He was a citizen of India. He had taken part of his education, including his CPA and a Master’s degree in taxation, in the US. I could not imagine how a CPA could make such a stupid mistake but he let his visa lapse. He drove into Ontario on a vacation and tried to re-enter the US. He was told that since he had overstayed his visa he would not be allowed to re-enter the US for a set period, five years I think.

For some reason that was not clear to me he was really upset that it was a female officer who gave him this message. I do not believe that a male officer would have treated him any differently. I am not sure how he got a Canadian work permit but apparently he did not have a problem doing that. Eventually he applied for and received a waiver on the bar, which cut his exile time from about 5 years to about 3. He also applied for and received Canadian citizenship.

There is a type of visa that is usually referred to as a TN. It applies to the NAFTA countries. It allows entry for anyone who has a job offer in one of about 120 different occupations, generally those that require a bachelor’s degree. George got one as a Canadian citizen. On the north border these are given out at the border.

A little later he was working in California as a CPA. His visa was near expiry so he went across the border to Tijuana and attempted to return and get another TN visa. He was not allowed to do so. I do not know where he should have gone, possibly Mexico City. After a day or two he got a permit allowing him to go back into California, pick up his gear, and drive north to Vancouver. He arrived one evening and we had a nice chat. The next day he went to the border and asked for a TN visa. They gave it to him with no problem and he went back to his job in California.

A couple of times I prepared US and Canadian income tax forms for a Canadian man who was working in California as a Chief Operating Officer of a software company. Sometime after this job ended and he had returned to Canada he tried to enter the US using his Canadian passport. He was told that this was incorrect, since he had a green card and was supposed to present it. They stated that this was entering the US under false pretenses. They kept him at the border while his wife went back to their home in Vancouver to pick up his green card. They processed it and let him go. He was told that if she had not brought his green card he would have gone to jail.

Another Canadian man was not so lucky. He was a client of the company I was preparing income taxes for but I never met him. He went across the border to the US on a Sunday morning. At the border he told them that he and his wife were going shopping in Bellingham, a small town just over the border. Then he drove to the Bellingham airport. The border people had someone on duty at the airport and they closed in on him because this did not match what he had told them at the border. They searched him and discovered that he had scheduled a job interview in California. They were going to take him to jail in Seattle but my employer intervened and persuaded them to send him back to Canada. I am not sure if he got a 5-year or a 10-year bar from entering the US but he definitely could not take the job that he wanted to interview for.

Several years ago they ran a bus every week. It started at Seattle and went all the way to the Mexican border. At every stop along the way they picked up illegals from Mexico and Central America. At the border they told them all not to come back. We all thought that it was hilarious that sometimes some of the passengers were back in Seattle before the bus came back the next week.

Two different people made the same totally idiotic mistake. One had moved from the Deep South, say Alabama, to Canada many years before. He began driving into the US frequently. He saw that some people went right across, bypassing the lines of cars that were waiting at the border. About 2006 he inquired and was told that if he wanted to join them he could fill in a form to get approved. He filled it in and sent it off. Sometime later he got a message telling him to come to the US Customs office to pick up his certificate. He arrived and was told that he was on his way to a murder trial in Alabama. He was to be the defendant.

A few years later another man made virtually the same mistake. There are charter airlines that take Canadians to Mexican beach resorts. They usually go once a week. It is a direct flight. One man was on this and missed his return flight. He decided to take another flight, and selected one that changed planes in the US. As he went through Immigration he was informed that his travel plans had to be changed because the state of Washington was going to put him on trial for murder.

I cannot imagine what these guys thought they were doing. In both cases the charge was about 28 years old but no law enforcement agency writes off a murder.

I am passing them on to you because I thought that some of you might be interested. I do not want you to make the same mistakes.

As stated in another post here, I prepare US and Canadian income tax forms and would appreciate the chance to do yours this year.

Tax Season is Here

Today I interviewed by phone for a tax preparation job in Vancouver. It was with an accounting company. I do not know if they will offer me a job or not. The job was preparing T1 returns. They did not seem to be interested in my experience preparing 1040s.

US taxes are much more complex than Canadian taxes. This is because individual US legislators can add complexities to the tax code. This is usually done to provide a benefit to either a campaign contributor or a constituent. In Canada only the Finance Minister can add a complication.

The US taxes their citizens no matter where in the world they live. The only other country that does this is Eritrea. The US provides a system of deductions for earned income in other countries.

I have only ever seen 2 US citizens living in Canada who had to pay US tax after figuring their Canadian taxes. This is because they can treat their Canada Pension Plan and Employment Insurance as taxes. The only ones who have to pay are usually only in this category because they have made a capital gain that is taxable at a higher rate in the US.

If you want a price quotation give me an idea of the type and number of information slips. If you have financial accounts outside the US and the maximum value of these accounts is more than 10,000 I need to know how many of these accounts you have.

If you want to send me your job to do, do not send originals. Send only copies. Better yet, instead of sending me copies, use your printer-scanner to make images, then send me the images attached to an email. This simplifies the whole process.

I will prepare the returns and send them back to you as PDF files so that you can print them out, sign them and send them in. I can efile Canadian returns now. I hope to be able to efile US returns in late March but it is not possible to determine when the IRS will give me permission. It is to their advantage to have forms efiled because it means that they do not have to input them manually. I should note here that the Canada Revenue Agency charges tax preparation firms $25 per return for handling paper returns unless the firm prepares only a small number of returns.

It is very important to determine if your financial accounts outside the US add up to 10,000 or more. For this purpose take the maximum value that each account had during the year. Often if you take out a loan the loan amount appears in your checking or savings account for only a few minutes but this still counts for determining the limit.

If the total of the maximum value of each account comes over 10,000 then you need to include every financial account that you have signing authority for, even tiny ones like your gardening club, your kid’s Boy Scout troop, or anything like that.

Please send your tax questions

Please send me your tax questions. This time of year I am advertising my tax preparation services.

I do both Canadian and US tax returns, and of course I do returns for taxpayers who have to file in both countries. There is a tax treaty that determines which country gets to tax which income. This is important in cases where a person gets income from both countries in any one year, or when a US citizen is working or living in Canada.

If you want a price quotation give me an idea of the type and number of information slips. If you have financial accounts outside the US and the maximum value of these accounts is more than 10,000 I need to know how many of these accounts you have.

If you want to send me your job to do, do not send originals. Send only copies. Better yet, instead of sending me copies, use your printer-scanner to make images, then send me the images attached to an email. This simplifies the whole process.

I will prepare the returns and send them back to you as PDF files so that you can print them out, sign them and send them in. I can efile Canadian returns now. I hope to be able to efile US returns in late March but it is not possible to determine when the IRS will give me permission. It is to their advantage to have forms efiled because it means that they do not have to input them manually.