Cross Border Tax Services

International tax services, especially cross border tax planning and cross border tax preparation, are critical if you are a Canadian citizen who owns property in the United States. Income tax in the U.S.A. for non-residents is a critical issue, including Canadian retirees and investors and Canadian citizens who own second homes in the U.S.

If you decide to sell your property, some serious withholding and tax filing issues will arise. Specifically, the Foreign Investment in Real Property Tax Act (FIRPTA) requires that either 10% or 15% of the gross proceeds of the sale be withheld and remitted to the IRS. An additional 3.33% of the gross proceeds will also usually be withheld for state tax purposes in California.

These withholding requirements could substantially reduce the amount of money you receive at closing when you sell your U.S. property. And this could significantly affect your cash flow.

In addition, you must apply for a U.S. Individual Taxpayer Identification Number (or ITIN) in order to sell your property. And you must file a U.S. Individual Non-Resident Income Tax Return (Form 1040-NR) as well as a state tax return to report the amount of your gain or loss on the property sale.

The good news is that by working with cross border tax accountant, your withholding can be reduced to the actual amount of tax that will likely be due on your gain. Or if you sell your property at a loss, your withholding can be reduced all the way to zero.

O’Brien & Panchuk, LLP is a cross border tax accountant that specializes in cross border tax preparation and preparing U.S. tax returns for Canadian residents. We will work directly with you and the escrow company to significantly reduce or eliminate tax withholding on the sale of your property within the Unites States.

First, we will handle all processes necessary to obtain your ITIN, including filing Form W-7, thus saving you the time and effort involved in this. We are an authorized acceptance agent and can notarize your identity, which simplifies the process of obtaining an ITIN by eliminating the requirement that you mail original copies to the IRS.

Next, we will apply for a withholding certificate from the IRS on your behalf by filing Form 8288-B. This certificate will be used to indicate how much tax should be withheld, based on the expected tax liability from the sale due to your anticipated net gain. Once the withholding certificate has been filed with the IRS, the withholding tax will be calculated based on your expected tax liability rather than on the gross proceeds of the sale.

In addition, we will prepare state Forms 593 (including Forms 593-C and 593-E) to calculate your state withholding on the actual gain, as opposed to the gross sales price. Moreover, the state allows you to choose between two withholding options in the event of a gain: either 3.33% of the gross sales price or 12.3% of the gain on the sale. We will typically calculate the most beneficial scenario. In the event of a loss on the sale, no withholding will be due if Forms 593-series are properly filled out. We will communicate directly with your escrow agent regarding the above forms.

We will also help you determine whether or not your property sale qualifies for one of the exceptions to the withholding requirement. For example, if the gross sale price of your property is less than $300,000 and the buyer intends to occupy the property as his or her principle residence, the withholding requirement is waived. Keep in mind that the gain on the sale will still be taxable and you still must file IRS Form 1040-NR.

Failing to perform adequate cross border tax preparation can be extremely costly for Canadian citizens who own property anywhere in the United States. You need to work with a U.S. Canada tax accountant that can provide expert assistance in cross border tax preparation.