Filing a US return from Canada follows a set sequence. Here is what each step involves and which forms apply.
Lou is a tax-preparation tool, not a tax advisor. This article explains how a US federal tax return works for Americans living in Canada. For advice on your specific situation, work with a qualified tax professional.
US citizens living in Canada must file a federal tax return with the IRS each year. This is true even if you already filed a Canadian return, even if all your income is from Canada, and even if no US tax is owed.
Here is the sequence, from gathering documents to submitting.
Step 1: Collect your Canadian tax slips#
The starting point is your Canadian income documentation. Employment income is on a T4. Investment income is on a T5. Income from mutual funds and trusts is on a T3. Capital gains from investments are on a T5008.
If you hold a registered account (RRSP, TFSA, FHSA), note the year-end balance. You will need it for reporting purposes.
Step 2: Convert to US dollars#
The IRS requires all foreign income to be reported in US dollars. The rate to use is the IRS annual average exchange rate for the tax year, not the current rate and not your bank rate.
The IRS publishes this rate for each calendar year. Lou applies it automatically when your slips are uploaded.
Step 3: Complete Form 1040#
Form 1040 is the standard US individual income tax return. Employment income from a T4 goes on line 1 of Form 1040, the same line used for W-2 wages.
Investment income and capital gains go on the relevant schedules. Lou maps each slip to the correct lines.
Step 4: Claim the Foreign Tax Credit on Form 1116#
Canadians in Canada typically pay more income tax than they would owe in the US. The Foreign Tax Credit offsets Canadian taxes paid against any US tax owed on the same income.
Form 1116 calculates this credit by category of income: general limitation income (like employment), passive income (like dividends), and others.
For many Americans in Canada, the Foreign Tax Credit reduces any US tax owed to zero. A zero balance still requires a return.
Step 5: Report registered accounts if applicable#
RRSP holders can defer US tax on RRSP growth under the US-Canada Tax Treaty. A treaty election is filed each year on Form 8833. The election keeps RRSP growth out of US taxable income until the account is drawn down.
A TFSA or FHSA is treated differently. Under US rules, both are foreign grantor trusts. Income earned inside a TFSA or FHSA is taxable on a US return in the year it is earned, and Form 3520 and Form 3520-A apply each year.
Step 6: File the FBAR if your foreign accounts crossed the threshold#
If the combined value of all foreign financial accounts exceeded USD 10,000 at any point during the year, an FBAR (FinCEN 114) is filed separately from the tax return. It goes to the Financial Crimes Enforcement Network.
The FBAR deadline is April 15, with an automatic extension to October 15. It is a disclosure form, not a payment.
Step 7: Check whether Form 8938 applies#
Form 8938 (FATCA) is attached to the 1040 if foreign financial assets exceed certain thresholds: USD 50,000 at year-end or USD 75,000 at any point in the year, for single filers. The thresholds are higher for married filers.
The FBAR and Form 8938 overlap but are not identical. Both may apply.
Deadlines for Americans abroad#
The standard filing deadline is April 15. Americans living outside the US receive an automatic two-month extension to June 15. An additional extension to October 15 is available on request.
If tax is owed, interest runs from April 15 regardless of any extension.
If you have not filed before#
The IRS has a process for non-filers: the Streamlined Foreign Offshore Procedures. Americans who missed US filings due to non-willful non-compliance can catch up by submitting three years of returns and six years of FBARs, with penalties waived.
Lou is built for this scenario as well.
Where Lou fits#
Lou takes your Canadian slips, extracts the data locally in your browser, converts CAD to USD at the correct IRS rate, and populates each form. Form 1040, Form 1116, Form 8833, Form 3520, Form 3520-A, FBAR worksheets, and Form 8938.
No manual entry. No server uploads. You review every line before you file.
Free to use. You pay to download the completed forms. 15-day refund if Lou does not work for your situation.
Lou is a tax-preparation tool, not a tax advisor.
https://lou.bigtimedesign.ca