Here are seven essential forms to be familiar with that in many cases are missed by U.S. tax filers living in Canada:
Form 8858: Information return of U.S. men with respect to foreign disregarded things
A U.S. individual that directly, indirectly or constructively possesses a foreign disregarded entity (FDE) must file this form. A FDE is an entity that is not created or organized in the United States and that is disregarded as an entity separate from its owner for U.S. tax functions. For example, one member Unlimited Liability Business in Canada owned by a U.S. individual would activate filing this type.
Form 8865: Return of U.S. men with respect to certain foreign ventures
This form should be filed with a U.S. man who owned more than a-50% interest in a foreign venture during the year or possessed at least a 10% interest if the partnership was commanded by U.S. persons possessing a 10% or higher curiosity. A U.S. person also has a filing requirement if if they contributed property in trade for a partnership interest if that individual directly, indirectly or constructively owns at least a-10% curiosity, or the value 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. person who is more than a 10% direct or indirect shareholder in a foreign corporation or any U.S. investor in a controlled foreign corporation (CFC), which broadly is an international company, more than 50% of which is owned by U.S. persons. A U.S. citizen or resident who is an officer or director of a foreign corporation may also have a filing requirement if a U.S. individual acquired stock in a foreign corporation. So, for instance, in the event your business or you possesses a corporation in Canada, then you will want to file this type otherwise the fee for not filing can be as great as $50, 000.
Form 926: Filing demand for U.S. transferors of property to a foreign corporation
Any U.S. man who transfers property to a foreign corporation and owns more than 10% of the stock, or any sum of stock if money transferred is more than $100,000, should file this form with his or her U.S. tax-return. This form would implement, for instance, if a U.S. person just was to give cash in exchange for inventory to to make a fully owned international corporation.
Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner
A foreign trust with a U.S. owner, which can sometimes comprise foreign pension plans, Registered Education Savings Plans (RESPs) and depending on how you might interpret the IRS Regulations, Tax-Free Savings Accounts (TFSAs), should file this type independently with the IRS by March 15 following the year to which it relates. Furthermore, if a distribution or other payment is received in the trust, Form 3520 could be needed (and must be filed with the citizen's tax-return). Failure to file these forms subjects the U.S. operator to an initial penalty equivalent to the higher of $10,000 or 5% of the gross value of the trust assets considered owned by the U.S. person at the close of the tax year.
Form 8621: Information return by a stockholder of a passive foreign investment company or qualified electing fund.
Any interest in an foreign "passive" corporation (50% or more of its assets create passive income or 75% of its income is inactive) has to be reported on this form. This type of investment comes with other issues such as whether to create a mark to market or qualified electing fund election, and subsequently how income and gains are taxed. As we mentioned in an earlier post, even owning shares in a Canadian mutual fund or Exchange-Traded Fund (ETF) could activate filing this form.
Form 8938: Declaration of foreign financial assets
A U.S. man must file Form 8938 if they're a given individual who has an interest in specified foreign monetary assets and the worth of those assets is more than the applicable reporting threshold. Some assets usually are not needed to be separately listed if they have already been reported on among the forms recorded previously, like the 8891, 3520 or 5471. Beginning with 2013, U.S. entities will be required to file this type as well as individuals.
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As a U.S. tax filer, it's very important that you fully disclose all of your worldwide monetary interests to your U.S. tax preparer, so that they've a complete understanding of your financial affairs and can correctly address all of your U.S. tax filing obligations. Failure to file the above mentioned U.S. tax forms can lead to significant noncompliance fees. Additionally, ensure you always work with a professional preparer such as a U.S. Certified Public Accountant (CPA) or an Enrolled Agent with the IRS who has a complete understanding of Canadian and U.S. tax regulations and has experience servicing U.S. citizens residing in Canada. At Cardinal Level, we specialize in helping U.S. citizens residing in Canada with their complicated cross-border tax filings and fiscal planning challenges.
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