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Lev
Lev, Tax Advisor
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My husband now works in Alberta, Canada 10 out of every 14

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My husband now works in Alberta, Canada 10 out of every 14 days for a Canadian company. He is under a "work permit". He received a T4 Statement of Remuneration Paid from Canada for his taxes paid there. He worked for half the year in the U.S. We have someone completing the tax returns after I file the extension for the U.S. today. I am wondering which forms on the U.S. tax return do I use and where do I put the Employment Income and Taxes Deducted from the Canadian T4 on the U.S. return and how to handle it. I know that sometimes the taxes paid is a credit and sometimes a deduction, but I'm not sure how to handle our situation. Because he only worked less than half the year there, I don't know if that affects your answer, although going forward, this is his permanent job. Thanks for your help.

LEV :

Hi and welcome to Just Answer!
Several issues...
1.
He will report foreign wages on the US tax return similar to wages received in the US - on form 1040 line 7.
2.
If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 -http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.
As an alternative - foreign taxes may be deducted on schedule A. But in most situations - a foreign tax credit is more beneficial.
3.
In additional - because his assignment is less than a year - your husband is eligible to deduct unreimbursed travel expenses.
Generally - you must use Form 2106 to figure your deduction for employee business expenses and attach it to your Form 1040. Your deductible expenses are then taken on Form 1040, Schedule A , as a miscellaneous itemized deduction subject to the 2% of adjusted gross income floor.
If that is his permanent work assignment - travel expenses are not deductible.

Customer:

Hello. Thanks for your quick response. I am sorry that I have been unable to connect to live chat. I tried it on 2 different computer and it wouldn't work. Based on your response, I should enter the income in the section requesting w-2 info, then show as a credit on the form 1116, correct? I am just filing an extension and estimating the tax due today because the accountants cannot complete the return by today.

Lev and other Tax Specialists are ready to help you
I switched to Q&A mode - so you may see this page from any computer.
Sorry for confusion.
You may continue asking questions - but in different mode.

Q.Based on your response, I should enter the income in the section requesting w-2 info, then show as a credit on the form 1116, correct? A. - yes that is correct
Q. I am just filing an extension and estimating the tax due today because the accountants cannot complete the return by today.
A - Filing for the extension is the best approach in this situation. Be sure to pay your estimated tax liability - that will help to avoid possible penalties. If overpaid - you will get a refund when your tax return will be submitted.
Please be aware that you need to request a separate extension from North Carolina - see details here - http://www.dor.state.nc.us/electronic/d410.html
Be sure to ask if you need any help.
Lev and other Tax Specialists are ready to help you
Customer: replied 3 years ago.
Hello again. I have an additional question regarding my NC state tax return. Where will the Canadian income and tax payments go on that return? Are there any special forms or other boxes I will need to fill out?

Welcome back!

 

If you are a resident of North Carolina and have income reportable to North Carolina that is also being taxed by another state or country, you may be entitled to claim a tax credit on your North Carolina return. This tax credit gives you relief from being taxed twice on the same income. It will either increase your refund or decrease the tax you owe.

The credit is available to North Carolina residents who receive income from sources in another state or country that is taxed by North Carolina and the other state or country.

 

After completing the return of the other state, complete your North Carolina return and include all income from inside and outside the State. Compute your tax as though no credit is being claimed. Complete Part 1 of Form D-400TC to determine the allowable tax credit. A common mistake is to enter on line 6 of Part 1, the total tax withheld by the other state or country. The amount entered on line 6 of Form D-400TC, must be the tax paid to the other state or country less any refund received, or expected to be received, from the other state or country. The credit cannot be more than your North Carolina tax liability; therefore, you must complete Part 4 of Form D-400TC to limit the credit to the tax liability.

 

Attach the Form D-400TC to your North Carolina return with a copy of the tax return filed with the other state or country. You should also include proof of payment such as a wage and tax statement or a copy of the check or receipt if you paid tax to the other state or country.

http://www.dor.state.nc.us/downloads/fillin/D400_D400TC_webfill.pdf

Customer: replied 3 years ago.
Would I need to use the foreign exchange rate on each date my husband was paid in 2012 and document that in an attachment? Is it different for federal vs state? Or is it the foreign exchange rate as of 12-31-12? And is that the date to notate on form 1116, part II letter j?
You need to use the same exchange rate for federal and state tax purposes.
In general - we need to use the exchange rate prevailing when you receive, pay, or accrue the item.

However, if you receive income evenly throughout the tax year, you may translate the foreign currency to U.S. dollars using the yearly average currency exchange rate for the tax year.
http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates


<table border="1" cellspacing="0" cellpadding="5" summary="Yearly Average Currency Exchange Rates">child last-child">id="tbl11id0_0" class="first-child" scope="col">

Country

Currency

2012

2011

2010

2009

2008

2007


Canada

Dollar

1.040

1.029

1.072

1.187

1.109

1.117

Lev and other Tax Specialists are ready to help you
Customer: replied 3 years ago.


Hello again. I am just unsure how I need to enter the income from the Canadian T4 on the 1040. I know you said to enter it on line 7, but the H&R Block tax software seems to want to take me to foreign earned income. And I don't see how to enter it on line 7 without "faking" a w-2. Thanks for your help today.

Sorry - I am not familiar with any specific software - but there should be an option to report a foreign wages without "faking" a W2.
You may use substitute W2 form - www.irs.gov/pub/irs-pdf/f4852.pdf‎
however - in this case you would not be able to e-file.

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