We all recognize significant differences exist betweenCanadian and U.S. tax laws but the differences don’t just stop in the law books. The differences also extend to the professionals preparing tax returns for people dealing with both countries tax systems.
In this world of online content saturation and information overload, how does one determine who is a competent cross-border tax preparer? Does a sign on the door or a fancy webpage indicate the requisite expertise? Can you assume your existing Canadian tax preparer has the knowledge and competence when it comes to U.S. taxes? Does anyone with a U.S. CPA or EA license indicate they are competent to prepare U.S. tax returns? The answers to these questions may surprise you.
Unbeknownst to many clients, they end up trusting their U.S. and Canadian tax returns to a preparer who thinks cross-border taxes is simply an exercise in transposing a Canadian return to a U.S. return and vice versa. Unfortunately, cross-border tax filings are a lot more complicated than simply mirroring one return into the other and the costs and penalties of making mistakes can be high.
A cross-border tax catastrophe can be avoided by doing due diligence when it comes to engaging a competent tax professional. To assist in your due diligence, we’ve assembled a list of qualifications and topics that you should bear in mind when choosing a firm to handle your cross border taxes.
What are the pitfalls of using a separate U.S. and Canadian tax advisor?
Many clients think it’s best to retain a separate tax preparer for each country. Our experience has shown there are pitfalls to hiring a single country tax advisor. Preparing cross-border returns is not done in a silo.
Below are some common pitfalls when engaging non-affiliated, single country tax advisors:
- Miscommunication – You’ve heard the old saying the left hand doesn’t know what the right hand is doing. Sure enough, our experience has shown this is a common occurrence when multiple firms are engaged to prepare returns for the same client.
- Higher Costs – Tax preparation fees are higher when separate firms are engaged because you end up paying the overhead of two firms as opposed to one and there are always additional fees from having two firms communicating with one another.
- Higher Risk of Errors – Without a comprehensive analysis of your tax situation, there is a greater chance of deductions being missed, income being sourced incorrectly and major inconsistencies in the tax filings.
- Missed Deadlines – Canada and the US have different filing deadlines. You face a greater risk of deadlines being missed when filings are not properly co-ordinated. Therefore, it’s imperative that these deadlines be co-ordinated in the process of preparing your tax returns. With multiple parties involved in the filing process, it’s much harder to ensure one firms filing schedule is in sync with the deadlines of the other firm.
- Inconsistent Tax Strategies – Having two separate prepares generally results in neither tax preparer fully coordinating a tax strategy that optimizes your overall cross-border tax filings. The tax strategy employed by one tax advisor may be fatal to the tax strategy employed by the other advisor. This leads to a disjointed and incomplete tax plan that can result in higher taxes and fees.
- Burdensome Communication – No one likes repeating themselves. When you engage two separate firms, it’s not uncommon to spend considerable time communicating with both firms to ensure they are on the same page, leading to more stress and higher fees. Using one firm that does everything in house eliminates the costly and burdensome cross-communication.
- Inefficiencies – We’ve all know the inefficiencies that arise when there are too many cooks in the kitchen. The saying couldn’t be more relevant to the process of engaging multiple tax professionals. Between bankers, investment advisors, lawyers and tax professionals, your tax filing engagement can become a crowded kitchen.
What to Look for in a Qualified Cross-Border Tax Firm
With 20 years’ experience dealing with US and Canadian taxes, we understand the qualifications a cross-border tax client should look for in a cross border tax preparer.
A truly qualified cross border tax professional should be able to competently provide both Canadian and U.S. tax services. Moreover, providing tax services in both countries should be their primary line of business; not just an add on service or a new line of service that they recently introduced.
In addition, as part of your due diligence in retaining a cross-border tax professional, the following qualifications should be considered:
Canadian and U.S. Credentials – Our staff consists of dually U.S. and Canadian trained and licensed CPA/CPA, CA and U.S. tax attorneys. This ensures all client U.S. and Canadian tax returns are reviewed and signed by a dually licensed U.S. CPA and Canadian CPA, CA with experience in cross-border tax returns. While there are very few U.S. based tax professionals who are licensed to prepare Canadian tax returns, it’s not uncommon to locate a Canadian based tax preparer also licensed in the U.S. Don’t be fooled into thinking someone with a U.S. CPA or EA license is necessarily experienced in cross-border taxes. Unfortunately, the overwhelming majority of Canadian tax professionals holding a U.S. CPA license are licensed in either Delaware or Illinois because these states permit granting a CPA license for simply passing a general exam and do not require any actual U.S. tax experience.
Canadian and U.S. Office Locations – A truly qualified crossborder tax advisor best serves clients when they arephysically located on both sides of the border. With offices in both Los Angeles and Toronto, our firm is able to simultaneously service clients throughout the U.S. and Canada. Our Canadian and U.S. office locations give us the advantage of being able to foster an interactive relationship with our clients on both sides of the border while also staying abreast of the tax laws in both countries.
Canadian and U.S. E-filing Capabilities – We are one of a few firms that provide free e-filing of U.S. and Canadian tax returns. In today’s day and age, filing a return by mail is the equivalent of writing a check at the grocery store checkout. Paper filing a return is cumbersome and time consuming while e-filing provides fast and accurate processing of your return. Unfortunately, the vast majority of Canadian tax preparers are not allowed by the IRS to e-file U.S. tax returns.
Safe & Secure Cross Border Platform – We make it easy to deal with clients across borders. Our secure online client portal lets clients access their tax records from any computer or mobile device. We created a secure environment for clients to interact with our firm, to provide their tax records and to view and e-sign their tax documents. We also make it easy for clients to remit payment electronically in both countries.
Experience, Experience, Experience – Many Canadian tax professionals who claim to be experienced in cross border taxes have simply taken a one day course to learn about the basics of US taxes. Our practice focuses exclusively on serving U.S. citizens living in Canada and Canadians dealing with U.S. tax matters. With decades of actual tax experience in both countries, we understand the challenges and issues facing cross border taxpayers, such as changes in residency, Canadian holding companies and U.S. taxpayers who own non-registered Canadian mutual funds and ETFs.
Experience with U.S. State Tax Filings –Most Canadian based tax preparers have minimal experience filing state tax returns because their clients living in Canada don’t require a state tax filing. We are the only cross border tax firm licensed in the State of California. From California taxation of RRSPs to California domicile laws to California community property laws, we are uniquely qualified to assist clients with the complex California tax laws that apply to Canadians. We also regularly represent clients based in New York, D.C. and Arizona.
Don’t Be Fooled by Low Prices – A low quoted fee for cross border tax preparation is a sure sign that the tax preparer doesn’t understand the true complexities involved with filing cross border returns and lacks the necessary experience to handle you’re returns. Most cross border tax filings are complex, especially if your work, investments or corporate holdings span across the border. We provide clients with a comprehensive intake program to ascertain the necessary scope of services that will be provided. This allows us to ensure that clients receive a fair and clear quote for the services we are to provide in advance of commencing any work. All fees are communicated to you in advance in order to maintain complete transparency and avoid last minute surprises and add-ons. Moreover, our fees are competitive compared to large international cross border tax firms.
Returns Prepared In House – We do not outsource our tax preparation. Unlike most cross border tax firms, all of our work is done in-house by our dedicated staff. We do not sell youthe “service” and then outsource it to a third party in another country. To ensure returns are prepared correctly and to be as efficient as possible, the same tax professional prepares both your U.S. and Canadian tax returns.
Dedicated Relationship Manager for a Hassle-free Process – Every client at our firm is assigned their own dedicated relationship manager. Throughout the tax return preparation process, your dedicated relationship manager is there to guide you and make the process as simple and straightforward as possible.
What You Should Discuss With Your Cross-Border Tax Advisor
Now that you know what to look for in a cross-border tax professional, what are some of the topics aqualified cross-border tax professional should discuss with you?
Talk about PFIC? Did they discuss the U.S. tax consequences of holding non-registered Canadian mutual funds or ETFs or non-controlling investments in Canadian corporations that qualify as Passive Foreign Investment Corporations (PFIC)?
Foreign Personal Holding Company Income Did they discuss the U.S. tax consequences of being an owner of a Canadian Controlled Private Corporation (CCPC) with only you as its employee?
U.S. Foreign Tax Credit AdjustmentDid they bring to your attention the foreign tax credit adjustment on your US return if your foreign capital gains or dividends are over USD$20,000? Did they consider the need to apply the High Tax Kick Out rules?
Income ResourcingDid they discuss your income in the context of the key US-Canada sourcing rules under the treaty?
Foreign Grantor Trusts Did they evaluate your investment holdings to determine if any qualify as a foreign grantor trust, such as a RESP or segregated fund?
Election to File Jointly If you are a dual status alien in the U.S., did they discuss the option to make a 6013 election?
Benefits of Working with US
Partnering with us brings many direct and immediate benefits, the vast majority of which is discussed above. A partnership with us will streamline your cross-border tax filings and enable you to focus on the bigger issues affecting your life such as your family, your profession and your life goals.
Have questions? We have answers. Contact us today for a complimentary assessment.