Moved from US to Canada mid year

[fileyouself]

 I and my wife were working in the USA from Jan-01 to July-01 on H1B and H4 respectively. 

We both moved to Ontario, Canada on July 1st and began working from July 8th for our Canadian employer.  My wife could only work for 3 months here in Canada. 

We have two kids, ages 9 and 6 as our dependents.  We do not and did not own a house in Canada or back in the USA. 

I have some interest related income back in the USA (1099-INT) . 

We did a significant charity in Canada as well back in the USA and would like to maximize our credit for it as well. We also paid $5000 USD in cash when moving to Ontario. 

Can anyone provide some guidance on how to properly file taxes in both countries and maximize our tax refund based on conditions and charity we did in Canada (~$27,000 CAD)

[pk]

@fileyouself  for US tax purposes , please can you answer the following:

(a)  when did you enter the US with H-1 and your spouse with H-4 ? What we are trying to understand is  if you  are a US person ( Resident for tax purposes ) for the current tax year ?

(b)   which country are you citizen(s) of --- both of the same country or different ?   How about the children ?

(c) your US charitable contributions are for  501 c(3)   ( i.e. US  registered )charities or what  ?

Based on your post,  your US federal  filing would have to use itemized deduction  ( generally not very good unless you have  lots of state taxes , medical and/or  charitable contributions.

I will circle back once I hear from you --yes ?

[fileyouself]

Thank you PK for your interest in helping me. Below are my answers to your question 

(a)  We have been living in US on H1B and H4 visa since 2017 until July-01'2024

(b) Me and my wife both are Indian Citizens while both of our kids are U.S. Citizens

(c) We did $27000 CAD of charity for a non-profit organization registered in Canada and around ~$4000 USD worth of charity for US based non-profit organization. 

Should I file as US resident, US non-resident or as Dual filing? 

[pk]

@fileyouself  since you ( H-1 ) have lived in the USA  for quite some time:

(a)  your tax filing status would be resident  ( Substantial Presence  Test  -- 183 days -- for 2024 counting all the days present in 2024, plus 1/3rd the days present in 2023 and 1/6th the days present in 2022)

(b) Your wife's status would be same as your because her visa is a dependent visa.

(c) Since you left the USA  ( and have or should have informed the  Immigration that your visa has expired an d you are leaving the country ) , for  IRS you will have  dual status .

(c) Dual status  means that       

                   (1) you are taxed on world income for the resident period ( 01/01/2024  through  07/01/2024 )  -- filed on form 1040.  and 

                   (2)  you are taxed  ONLY  on US sourced income from  07/02/2024 through 12/31/2024 and reported on form 1040-NR  ( Not supported by TurboTax , so use   tax professional, SprinTax or  downloaded from www.irs.gov  and filled out by hand -- these are .pdf fillable ).

(d)  This also means that you cannot  e-file.  Print the TurboTax prepared 1040, sign date,  Write   " DUAL  STATUS FILER " on  page 1 of 1040; attach the form 1040-NR  ( even  if the actual income from US sources  is nil ).  Mail the whole package in.

(e)    Note that because  your "resident period"  is  a short year, you have to use  itemized deduction and thus your  charitable  contributions would come in handy  ( if my memory serves me right, only US 501 (c) 3  in your case )

(f)  Note that  it is best to keep your US bank account open till the end of Calendar year 2025 to be able to deposit any refunds and/or pay  to the IRS.

(g)   Generally  you have to make sure that all your tax dues are paid    or withheld before you leave the country for good.

(h) For your state return, you only use  world income while a resident of the state  i.e.  you file a part-year return  ( but check your state's rules for residency ).

Hope this answers your query.   Is there more I can do for you ?

Namaste ji

pk

[fileyouself]

Thank you PK for answering my questions. 

One more question, could help me provide more guidance on (e). 

(e) https://www.irs.gov/pub/irs-tege/eotopicc01.pdf   , Can you help me interpret this document, Can I use Canadian charitable organization for tax purpose as per this document by IRS? 

I had also spent $5000 USD for moving to Canada, can I use that anyhow for tax deduction? If so, can you provide some guidance. 

[pk]

@fileyouself  

(a) On the subject of  charitable donations  -- > whereas  I was amiss in not mentioning that  under certain circumstances, a US person ( citizen/ GreenCard/ Resident for Tax purposes )  can indeed  deduct  contributions to a Canadian  organization,  --- because I assumed that your  Canadian contributions  would be dealt with your Canadian filing,   here is a paragraph from IRS pub 526:

"Canadian charities.

You may be able to deduct contributions to certain Canadian charitable organizations covered under an income tax treaty with Canada. To deduct your contribution to a Canadian charity, you must generally have
income from sources in Canada.    See Pub. 597,  Information on the United States–Canada   Income Tax Treaty, for information on how to figure your deduction. "

Note  the requirement  for Canadian source income for  recognition / deduction of  contribution to Canadian  charitable orgs.

(b)  On deductibility of  expenses related to your move from US to a new job in Canada.  Under normal circumstances  i.e. a US person moving abroad  for reason of reassignment  / job change etc.  all un-reimbursed  "move" expenses  are  deductible  using the form  3903 ---- see this page -->>>

Moving expenses to and from the United States | Internal Revenue Service

  However,  I am not sure  about the applicability of this  when a  "resident for tax purposes" / "GreenCard "  holder is leaving US  for good  ( visa  cancelled  and/or abandoning  PR  ).    

 I need to research this aspect a bit and come back to you.    My general feeling is that this is probably not deductible, but I do recognize that  this is a legitimate  expense  to comply  with  a change / termination of  visa status ( and   beyond the control of the tax payer ).

While I am chasing this , is there more I can do for you ?   

[fileyouself]

Thank you Pk for quick response. 

Looks like I will not be able deduct charity I did in Canada and If I do dual-status filing I can not use standard deduction either. 

I am better of filing as a resident and pay tax on my world wide income instead. At least, I can take standard deduction and Foreign tax credit for it. 

Let me know if I will be able deduct anything for moving cost.