2 Mistakes Often Witnessed on Cross Border US and Canadian Tax Returns

Trade between the US and Canada has been encouraged by both governments. That has made it easier for the citizens in both countries to exploit available opportunities across the border. This beneficial partnership between the two great countries also imposes a responsibility on their citizens to pay taxes.

Since most people make errors when filing United States Tax Return, it is good to seek professional help. That will minimize the risk of mistakes likely to attract fines or prosecution. Here are some mistakes often witnessed on cross border US and Canadian tax returns.

Incorrect Calculation of Foreign Tax Credit

Some Americans in Canada have a source of income both in Canada and USA. Incorrect calculation of their foreign tax credits (FTC) in each respective return could lead to double taxation. Also, if they over-calculate their FTC, they will face a review from the CRA or the IRS.

Foreign tax credits in US are calculated using form 1116 and in Canada, taxpayers use form T2209. A good understanding and use of these forms will ensure your FTC is filed accurately.

Taxing US Social Security on US Returns

This is the most common error encountered by many tax accountants. According to Article XVIII (18) of the Canada-US income tax treaty social security payments made to Canadian residents will only be taxed in Canada.

So, if you stay in Canada and receive social security payment, they will be reported on your Canadian T1 income tax return, after a 15% deduction and excluded from your US 1040 income tax return. To get treaty exclusion, file form 8833.  That will enable you to pay the right amount for cross border tax.

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