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QUESTION: Please Help I have heard mixed answers on this and your answers on some other question I've read have really helped. Wife and I are US citizens living in Canada both have US source Income, and wife has a little Canadian Income. We file US joint 1040 every year. We have a very high tax bill in Canada every year because of filing a Joint 1040. Can we start filing Married Filing Separte instead of Married Filing Joint. Is there anything in the treaty or CCRA rules that say we cannot do this?. Some advice I have heard say that CCRA will not allow or may give one a hard time with selecting this US filing Option. Please help clear up this confussion. Thank you.
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david ingram replies:
Married filing separate is the easiest way to file and calculate your tax for the purposes of foreign tax credits in Canada. However, if either of you have income over about $23,000 US and you can't exempt it by form 2555, you have to worry about Alternative Minimum tax. Take a look at form 6251.
In 29 years, I have never had either government question the way the US return was filed when it comes to MFJ or Joint filing. I did have an H & R Block lady at a Bellingham office go apoplectic when I told her that the returns should have been filed MFS rather than joint. The US tax was about $150.00 more but the Candian Tax was about $3,000 less.
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