Tag Archives: retirement savings

Ready for Tax Year 2014

I finally finished preparations for Tax Year 2014. I took the 2-hour ethics course, the 10-hour tax theory course, and the 6-hour update course. I passed the exams for these courses as well. Today I spent a frustrating time renewing my IRS license, otherwise known as a PTIN or tax preparer identification number. This number has been required for the past couple of years for anyone who prepares US income taxes and charges for this preparation. As nearly as I can tell their intention was that if they find a fraudulent tax return they can easily zero in on the preparer who was involved and check a few more of the returns that he or she prepared to see if the fraud was confined to the return that they found fraudulent entries in or if the preparer was really in the business of preparing fraudulent returns. Last year a postie notified the IRS that he had delivered dozens of refund checks to one address and had dozens more to deliver there. They stopped payment on all of them. The person who wrote this up said that it was not clear why the IRS had not noticed this themselves.

Two years ago the IRS also required preparers to obtain credit for a tax course. Someone fought them in court over it and the final result was that it was declared that it was not necessary. This year they have announced that anyone who takes and passes the courses, similar to those I described above, will be listed in a directory that they will publish in January. It seems that since they can´t force preparers to take the courses they will bribe them with free advertising. I took these courses partly to get the free advertising and partly because I wanted to get up to date before tax season starts.

A lot of the course work was devoted to the Affordable Care Act, also known as Obamacare. It is unbelievably complex. If you are having your taxes prepared anywhere please remember to get all of the information from your employer or from your insurance exchange or both. It is frustrating to have to send a taxpayer back to get more information. It means that the preparer will have to start all over again. In many cases the client will not be willing to pay for this extra time spent on his or her return. This will lead to friction and bad feelings all around.

It is difficult to see how anyone believed that adding 51 insurance exchanges and lots of new complex regulations could possibly reduce overall costs. In my blog on the subject I pointed out 5 or 6 things that could have been done to reduce medical costs. As nearly as I can see none of them have even been attempted.

Above I referred to a problem renewing my PTIN. What happened was someone in the IRS did not bother to check that the renewal page would work with both of the most common browsers. I was left facing a screen that wanted three entries but would not tell me what was to be entered in these spaces.

Anyway I will be available to help with US or Canadian taxes this year. My specialty is taxpayers who have to file in both countries. These are typically people who have moved across the border in either direction in 2014 or US citizens who live in Canada.

Retirement Savings Accounts

There are many different tax-advantaged saving accounts in Canada and in the US. Unfortunately they are radically different in each country. In the US there are Keogh, IRA, traditional and Roth, 401k, and many others. In Canada there are RRSPs, TFSAs, and many others. In addition to these there are plans that are sponsored by employers. In most cases tax-advantaged savings accounts in one country are not recognized in the other.

Let me describe some of the problems related to RRSPs. Their full name is Registered Retirement Savings Plans. In 2005 the US came up with form 8891 to report these plans. For some reason that is not clear to me they required that these plans be reported to the IRS in US dollars. The RRSP records are kept in Canadian dollars. The conversion to US introduces a very large error in these reports, since the two currencies move up and down faster than the securities in the average account gain in value. For 2013 most RRSPs will show a large decrease in value when converted into US dollars, regardless of how well they do in Canadian dollars.

For some reason California believes that it has the right to charge state income tax on the RRSPs owned by California residents, including those caused by changes in the exchange rate. They may change their view when they see the large losses expected in 2013 returns.

Each of these retirement savings plans causes problems for people who live in the other country. When distributions are made before the stated maturity date this introduces another level of uncertainty. I can’t give you any general information about these, but can only go into details on particular cases.

US Citizens Beware!

The US requires all citizens and green card holders to file tax returns and reports on non-US financial accounts no matter where in the world they live. The only exceptions are those whose income is below the minimum, and those who have less than $10,000 in all of their non-US financial accounts combined.

If you are a US citizen or green card holder these requirements, expecially those related to financial accounts, can be a big problem.

There are hefty, very hefty, fines for not filing reports on these financial accounts. There is rarely tax owing. For US citizens working in Canada it is possible to take credit for taxes paid to Canada, including Canada Pension Plan and Employment Insurance. Because the tax rates are generally similar the CPP and EI plus Canadian income tax is usually more than the US income tax would be. I have only seen two cases where tax was due on the US return after taking credit for taxes paid to Canada. One was about $50 and was caused by the sale of a condo in Canada. The other was caused by sale of a house in Canada by a retiree. The taxpayer used charitable contributions to wipe out Canadian tax on the sale. On her US return she was only allowed half as much for her charitable contributions so there was a large tax owing.

If you are liable for US taxes, to regularize your situation the IRS wants to see 6 years of returns, including those for financial accounts if the total comes over 10,000 in any one year.

Please remember that the US government has a long memory for taxes owing. There have been a couple of cases in recent years where someone who was living in Canada decided to visit the US in the mistaken belief that the US government had forgotten an old criminal charge. In both cases the visitor was sent to answer a murder charge from more than 25 years before. It would be foolish to believe that they would forget something that would result in taxes being paid.

If you are in this situation I can prepare the forms for you. I will need the Canadian returns and the information on your financial accounts. Often preparing the pages about financial matters is more work than preparing the tax forms.