U.S. Tax Accounting

Yes. The United States is one of only two countries that taxes based on citizenship rather than residency, so U.S. citizens (and most green-card holders) must file an annual Form 1040 reporting worldwide income regardless of where they live or whether tax is owed after credits and exclusions. Even when no tax is owed, because of the Foreign Earned Income Exclusion, foreign tax credits, or both, the return must still be filed. Failure to file can prevent renewal of a U.S. passport (under FAST Act provisions for tax debts above a threshold), trigger penalties, and complicate any future return to the U.S. Many U.S. citizens in Canada also have to file FBAR (FinCEN 114) and Form 8938 alongside the 1040.

FBAR is the U.S. Foreign Bank Account Report (Form FinCEN 114), filed with the U.S. Treasury (not the IRS), required when the aggregate maximum balance of all your non-U.S. financial accounts exceeded USD 10,000 at any single point during the year. Reportable Canadian accounts include: chequing and savings, RRSPs and RRIFs, TFSAs, RESPs, locked-in retirement accounts (LIRAs), brokerage and investment accounts, business bank accounts where you have signature authority, and most segregated funds. Even joint accounts with a non-U.S. spouse must be reported. The aggregate threshold is total maximum balance across ALL accounts. So two RRSPs each at USD 6,000 trigger filing. FBAR is filed annually by April 15 with an automatic extension to October 15. Penalties for non-willful violations can reach USD 10,000+ per account per year; willful violations are far worse.

FEIE allows a qualifying U.S. citizen abroad to exclude a portion of foreign earned income from U.S. taxable income (approximately USD 126,500 for 2024, indexed annually). To qualify you must meet either the Bona Fide Residence test (resident of a foreign country for an entire tax year) or the Physical Presence test (physically present in foreign countries for at least 330 days of any consecutive 12-month period) and your tax home must be in a foreign country. FEIE only applies to earned income (wages, salaries, professional fees, self-employment), not investment income, capital gains, pensions, or rental income. For most U.S. citizens working in Canada, the foreign tax credit (claiming credit for Canadian tax paid against U.S. tax owed) often produces a better result than FEIE because Canadian rates exceed U.S. rates at most income levels, but FEIE still helps preserve U.S. credits and deductions. The optimal choice between FEIE and FTC requires modelling each year.