Done (well, at least until the Canadians get uppity again)! Even with good tax preparation software, my US taxes are always a pain. It’s mostly simple, but capital gains are the bane of my existence, and of course, nobody knows where Canada is.
Some tips for Microsoft folks:
- TurboTax is 25% off if you visit through a Fidelity referral link.
- Despite Fidelity managing our ESPP, they get the cost basis wrong for short-term capital gains, calculating it on the discount price instead instead of Fair Market Value. If you had short-term gain/loss from ESPP, be sure to calculate your cost basis yourself.
- If you sell ESPP short-term, Microsoft does report it in your W-2 income. It’s itemized out as DQDIS on W-2 box 14. For some reason, I’ve never been able to get it to add up exactly (always off by a few dollars); would love it if somebody knows the secret to how it’s calculated.
- At least in TurboTax, if you do the worksheet, they want to know a bunch of completely irrelevant information (period-start FMV, etc); none of it will impact the final cost basis (which is what matters) but it whines if you don’t have it. The best place to find this all is in the ESPP program “transaction history” which summarizes all the info you need on one webpage (except sale price and commission, which you can get from your monthly statements).
- Any stock grants or awards are pre-taxed. You only have to worry about paying capital gains, and only when you sell.
- If you ever sold MSFT at a loss, watch out for wash sales – since ESPP kicks in every three months, there’s only 4 months out of the year where you’re safe from them. Fidelity is usually good about warning you that a sale might have been a wash sale, but you’ll have to jump though several more hoops when calculating your capital gains.
For the Canadians here in the US:
- First off, if you’re living and working here, you’re NOT a resident of Canada for tax purposes, and no amount of worrying will make you one. Over and over, I hear people discuss and debate the ‘residential ties’ issue; a rampant paranoia that a single bank account or club membership will make them liable to pay taxes. First, they completely ignore the fact that the only primary residential ties are residences and family, thus making it almost impossible to be resident without these factors involved. But more to the point, even if you were found to be factually resident, you would then apply tie-breaker rules under the US-Canada tax treaty to become a deemed non-resident. So you’re non-resident. Game over.
- This means, barring special circumstances, you don’t need to file a Canadian return at all.
- Yes, Canada might ask you to file one anyways. Don’t be alarmed. You file the “Non-Resident” package, declare your worldwide income (you’re not paying taxes on it, just declaring it), fill in a bunch of zeroes and call it a day.
- DON’T file an NR73 to request a residency determination, unless you are specifically asked to. YOUR declaration of non-residency came from the last tax return you filed the year you left (where you checked “I ceased to be a resident”).
- Your RRSP is tax-deferred in the US (unless you’re contributing or withdrawing, but both are VERY bad ideas), however you must declare it EVERY YEAR using form 8891, which is specific to Canadian RRSPs. This allows you to invoke the tax treaty to avoid US dividend taxes on your Canadian account. TurboTax has this form
- Though not part of your taxes, if you have over $10k aggregate in your Canadian accounts, you must file TD-F 90.22-1. This gets mailed separately from your taxes. It doesn’t cost you anything except a stamp, but they threaten dire consequences if you skip it.