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Here are seven essential forms to be conscious of that in many cases are missed by U.S. tax filers living in Canada:
Form 8858: Information return of U.S. persons with respect to foreign disregarded entities
A U.S. individual that directly, indirectly or constructively owns a foreign disregarded entity (FDE) must file this form. A FDE is an entity that is not created or organized in America and that is disregarded as an entity separate from its owner for U.S. tax purposes. By way of example, a single member Unlimited Liability Business in Canada possessed by a U.S. man would trigger filing this type.
Form 8865: Return of U.S. men with respect to certain foreign partnerships
This form should be submitted by a U.S. person who possessed more than a-50% interest in a foreign venture during the year or owned at least a-10% interest if the partnership was commanded by U.S. men owning a 10% or greater interest. A U.S. man also has a filing requirement if he or she given property in exchange for a partnership interest if that individual directly, indirectly or constructively possesses at least a 10% curiosity, or the worth of the property contributed exceeds $100,000.
Form 5471: Information return of U.S. individuals with respect to certain foreign corporations
This form is submitted by any U.S. individual who is more than a 10% direct or indirect investor in a foreign corporation or any U.S. shareholder in a controlled foreign corporation (CFC), which broadly is an international company, more than 50% that is owned by U.S. individuals. A U.S. citizen or resident who is an officer or manager of a foreign company may also have a filing requirement if a U.S. individual got stock in a foreign company. So, for example, if you or your business owns a business organization in Canada, then you'll wish to file this form otherwise the fee for not filing can not be as low as $50, 000.
Form 926: Filing demand for U.S. transferors of property to a foreign corporation
Any U.S. person who transfers property to a foreign corporation and owns more than 10% of the stock, or any amount of stock if cash transferred is more than $100,000, must file this form with his or her U.S. tax return. This form would apply, for instance, if a U.S. man only was to give cash in exchange for inventory to to make a wholly owned international company.
Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner
Form 8621: Information return by a shareholder of qualified electing fund or a passive foreign investment company.
A foreign trust with a U.S. operator, which can sometimes contain foreign pension plans, Registered Education Savings Plans (RESPs) and depending on how you may interpret the IRS Regulations, Tax Free Savings Accounts (TFSAs), must file this form independently with the Internal Revenue Service by March 15 following the year to which it connects. Moreover, in case a distribution or other payment is received in the trust, Form 3520 may be required (and needs to be submitted with all the taxpayer's tax return). Failure to file these types subjects the U.S. owner to an initial fee equivalent to the greater of $10,000 or 5% of the gross value of the trust assets considered owned by the U.S. man at the close of the tax year.
Any interest in a foreign "passive" corporation (50% or more of its assets produce passive income or 75% of its income is inactive) has to be reported with this form. This kind of investing comes with other problems such as whether to make a mark-to-market or qualified electing fund election, and subsequently how revenue and gains are taxed. As we mentioned in an earlier article, even owning shares in a Canadian mutual-fund or Exchange Traded Fund (ETF) could activate filing this type.
Form 8938: Statement of foreign financial assets
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As a U.S. tax filer, it's really important that you completely disclose all of your global fiscal interests to your U.S. tax preparer, so that they have a complete understanding of your financial affairs and can correctly address all of your U.S. tax-filing duties. Failure to file the above mentioned U.S. tax types can lead to considerable non-compliance fees. Further, be sure to always work using an experienced preparer including a U.S. Certified Public Accountant (CPA) or an Enrolled Agent with the IRS who has a complete comprehension of Canadian and U.S. tax regulations and has expertise servicing U.S. citizens residing in Canada. At Cardinal Level, we focus on helping U.S. citizens residing in Canada with their complicated cross-border tax filings and financial planning challenges.
A U.S. person must file Form 8938 if he or she is a given individual who has an interest in given foreign financial assets and the value of these assets is more than the applicable reporting threshold. Some assets will not be required to be separately listed if they've been reported on one of the forms recorded previously, such as 5471, 3520 or the 8891. Starting with 2013, U.S. things will be required to file this form as well as people.
