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CheapScotsman · Apr 15, 2005, 11:06 AM

I lived in the states from 2001 to Feb 2004 as a alien resident. Moved back to Canada at end of Feb 2004. Doing a dual status tax return with a 1040 (resident alien) to cover jan/feb and a 1040NR (non-resident alien) to cover the rest...

I've read Pub 519 and the 1040NR instruction manual and I just don't get it

First, the theory. In Pub 519, Pg 29 it says "for the part of the year that you were a resident alien, you are taxed on income from all sources" and "For the part of the year that you are a nonresident alien, you are taxed on income from US sources"

Second, the practice. Pub 519 gives a dual status example (first year) and shows copying income from 1040NR to 1040. Given I am final year, I assume I have to do the same in the other direction (copy from 1040 to 1040NR)... but this ballons my NR income!! I don't copy deductions or exemptions so this leaves me with tax that is a hundreds MORE than on my 1040 return... Note that my NR wages/salaries is ZERO (dividends and capital gains only)...

The theory says my NR tax should have been zero (before accounting for dividends and capital gains) but that is not what is happening

What am I doing wrong?

Thanks in advance...

AtlantaTaxExpert · Apr 15, 2005, 11:58 AM

CheapScotsman:

When you transfer the figures from 1040 to 1040NR, I assume you transfer the tax withholdings as well?

Do you take into account the fact that you should get a credit of some type if Canada is also taxing part of this income?

The NR tax rates are theoretically higher than the resident tax rates, so your initial tax projections may not be too far off-base. However, why would you not transfer the deductions and exemptions? The only significant prohibition on a dual-status tax return is the loss of the standard deduction. Valid itemized deductions and the personal exemptions for yourself, your wife and other dependents are still good and should be transferred over to the Form 1040NR.

BTW, I hope you have filed the appropriate extensions, because I sincerely doubt that we will have complete resolution in the next few hours.

CheapScotsman · Apr 15, 2005, 12:17 PM

Yes, I am transferring tax withholding as well.

There is no tax in Canada cause the income was earned before I became a resident in Canada so I am okay there

I didn't transfer the deductions or exemptions cause Pub 519 doesn't say that I should. I just calculated them new on the 1040NR return... but based on your comments, it appears you are suggesting that I transfer most of everything (income, itemized deductions (no standard), exemptions, child tax credits etc) from 1040 to 1040NR... yes???

My mental math is telling me that taxable income will match now between 1040 and NR... tax will be different but as you noted but I can live with the hopefully less than hundreds difference.

I am trying to file for an extension now... but having some troubles doing this from Canada.

Thanks for all your great help. Very much appreciated.

AtlantaTaxExpert · Apr 15, 2005, 01:23 PM

Cheap Scotsman:

Yes, transfer EVERYTHING as you specified below!

If you cannot efile an extension (and do not pay any website to do it for you), access www.irs.gov and download Form 4868. Print it out, fill it in, and mail it with a check for what you think you will owe.

As long as it is postmarked today (get proof that it was postmarked 15 April 2005), you will pay no late payment fees.

CheapScotsman · Apr 15, 2005, 01:34 PM

Wow... great... thanks,

I am lucky in that I will be getting a refund. Just trying to ensure that I get the right amount back AND don't raise any flags with the IRS by mucking it all up.

I already have 4868 filled out and ready to go... just now trying to get it submitted. Preferably by phone to save myself a courier charge.

Thanks very much.

AtlantaTaxExpert · Apr 15, 2005, 01:37 PM

CheapScotsman:

Go to the post office and mail it at the lowest rate available.

It's the postmark that counts, not how fast the IRS gets it.

CheapScotsman · Apr 15, 2005, 03:27 PM

Thanks for all you help. Can't find exactly where I read it last night (or the night before) but I can't mail it from outside Canada as the IRS deems that only if the service can deliver as fast as USPS then the postmark isn't good enough.

I can only use an approved courier service (http://www.irs.gov/irb/2004-52_IRB/ar10.html#d0e1088)

But its okay. I managed to get through by Telefile. I now have an extension but my plan is to do the paperwork by next week and get this out of my hair... cause I still have my CDN taxes to do

Thanks for all your help.