Advice Needed: USA/Canada Cross-Border Taxes
Hello everyone! I’m navigating a complex tax situation and could really use some guidance for my 2024 tax filings.
Here’s a bit about my situation:
- I resided in Canada until mid-2024 before relocating to the U.S. on a TN visa (first to NJ, then NYC, where I currently live).
- Since I’ve worked in both NJ and NY, I believe I need to file part-year state tax returns for each. Are there specific complexities regarding NJ/NY taxes that I should be aware of? How does the process work?
- I interned in the U.S. for four months in 2022 and eight months in 2023, so I think I meet the substantial presence test and will be considered a U.S. tax resident for 2024. Can anyone confirm if my understanding is correct?
- I still hold a Canadian driver’s license and health card, but I haven’t accessed Canadian healthcare since moving. I’ve been approved for a NY license but haven’t made the appointment to switch—could this affect my tax residency?
- I maintain U.S. bank accounts and lease an apartment, but I don’t own a house, have dependents, or hold RRSPs, TFSAs, or other investments in Canada. My only Canadian financial ties are a checking account, credit card, and cross-border banking account. Do I need to worry about Canadian tax filing requirements here?
About My Income & Investments:
- Canadian Income: Minor dividend income (T5) from my Canadian LLC, earned early in 2024 while still a Canadian resident.
- U.S. Income: A W-2 from my full-time U.S. job, with NJ and NY state taxes withheld.
- U.S. Investments & Retirement Accounts:
- Roth 401(k) with a 4% employer match to a traditional 401(k)
- Roth IRA
- Personal brokerage account (earns dividends and holds investments)
- High-yield savings account (HYSA) (earns interest)
Previous Canadian Tax Issues (2023):
- While interning in 2023, I filed taxes in both Canada and the U.S., claiming foreign tax credits with the CRA.
- Unfortunately, I missed CRA requests for proof of these credits, resulting in a significant outstanding tax balance with accruing interest. I have submitted the required documents, but my account shows a balance—I believe it’s still being reviewed.
- I also filed late in Canada due to a personal injury (I had surgery and spent months recuperating). I’ve submitted an RC4288 to request relief from penalties and interest.
Questions I Need Help With:
- Should I hire a cross-border tax professional, or can I manage this alone without making errors? If yes, what services do you recommend?
- What steps should I take for my Canadian tax return in 2024? I understand I should file a departure return to formally sever tax residency—could you clarify this?
- In 2025, I expect to receive more Canadian dividends from my LLC, and I’ve read I should get an NR4 instead of a T5 as a U.S. resident. My accountant (who also does my dad’s business taxes) says I’ll still receive a T5 since he isn’t aware of all the details yet. What’s the correct approach, and how do I ensure everything is done properly for both countries?
- Do I owe U.S. taxes on the dividends from my Canadian LLC (T5 income)?
- How should I manage my two state tax returns for NJ and NY? Am I liable for taxes in both states
One response
Hi there! It sounds like you’re navigating quite a complex tax situation, and I completely understand why you’re seeking guidance. I’ll do my best to address your questions based on the details you’ve provided:
Hiring a Cross-Border Tax Professional: Given the complexities of your situation, especially with potential taxation in both Canada and the U.S. and the need to manage two state tax returns, it would be wise to hire a cross-border tax professional. They can ensure you comply with regulations in both countries and help you avoid costly mistakes. Look for a CPA or tax advisor with expertise in cross-border issues.
Canadian Tax Return for 2024: Yes, you should file a departure return to officially sever your Canadian tax residency. This involves reporting your income earned up until your departure and ensuring that all Canadian taxes owed are settled.
Future Canadian Dividends: As a U.S. resident, you should receive an NR4 for dividends paid to you from the Canadian LLC. The T5 may still be issued in some cases, but the accurate classification typically is based on your residency status. Make sure you communicate your current status clearly to your accountant.
U.S. Taxes on Canadian LLC Dividends: Yes, you’ll generally owe U.S. taxes on your Canadian dividends. However, you may be able to claim a foreign tax credit for any Canadian taxes paid on that income, which helps avoid double taxation.
Handling NJ and NY State Tax Returns: You will likely need to file part-year resident tax returns for both states. New Jersey and New York do allow you to claim a credit for taxes paid to the other state, but you must ensure you follow state-specific filing requirements carefully. Consulting a tax professional familiar with both states will help clarify any nuances.
Reporting U.S. Investments to Canada: As a Canadian resident, you would have to report foreign property over certain thresholds, potentially invoking FBAR (FinCEN 114) and Form 8938 for U.S. accounts. These requirements can be complex, and it’s best to consult a tax advisor to ensure you meet all obligations.
CRA Tax Issues: Yes, unresolved issues with the CRA can have long-term implications. Stay proactive—keep following up on your submission and maintain documentation of all your correspondence and submitted documents, especially your application for relief from penalties and interest.
Canadian Health Card and Tax Residency: Maintaining a Canadian health card, along with other ties (like a bank account), can be viewed as indicators of residency. However, the key factor is your intent and your primary place of residence. If you’ve established a home and job in the U.S., this generally supports your position as a non-resident for tax purposes, but a tax professional can provide more tailored insight.
Dissolving the Canadian LLC: If you have no plans to use the LLC and are closing off your Canadian tax ties, dissolving the LLC may simplify your tax situation moving forward. However, consult a tax professional to discuss the tax implications of dissolving the LLC, especially regarding any past income and obligations.
I hope this advice helps clarify your situation a bit! Tax law, especially cross-border, can be exceptionally nuanced, so having a professional to assist with your filings is a very sound strategy. Best of luck with everything, and feel free to reach out if you have more questions!