Better late than never?

January 31, 2008 11:11 AM

US citizen living in Canada, didn't file a US return in 2006 for my meager graduate student stipend. Should I file a late 2006 US return now, even though I know I don't owe anything?

I saw some other similar questions, but nothing that addressed my major question. If I missed something, apologies. I'm an American living in Canada and have been for the past 2.5 years. I didn't file a US tax return in 2006 and I'm wondering if I should.

I moved to Canada in the fall of 2005 for graduate school. In early 2006, I filed a US return reporting only my US income from before I moved to Canada. I also filed a Canadian return. For 2006, I made a pathetically small amount of money (slightly less than 20k CAD). In early 2007, I filed only a Canadian return. At the time, I didn't realize I needed to file a US return. I'm not worried about leaving off my minute Canadian income from the latter half of '05, but the IRS doesn't have any return at all from me for 2006 and I worry this may raise some red flags when I file this year for 2007.

I graduated this year in August and have been working a Real Job (tm) since then. My grad money combined with my real income is between 40-50k, which should still be below the exemption amount (I think). I know that I quality as a bona fide resident of Canada in the eyes of the IRS.

Next year I'll get an accountant, but I think this year's taxes are still simple enough for me to do by hand. It looks like all I'll need is a 2555-EZ, as I meet all of these requirements. For this year's return, it should be as simple as filling out the 2555-EZ, reporting my income as being less than the exemption amount and not paying anything, right?

My main question is, should I file my late 2006 US return? I know I won't owe anything, but is it simple (and penalty-free) enough to do?

As a quick aside, what exchange rate should I use? The IRS's website says to convert everything to USD, but then only says to get an exchange rate from a bank or US Consulate. As the exchange rate fluctuates pretty frequently, what should I use? The current exchange rate? Some average over all of 2007? Thanks!

posted by Nelsormensch to work & money (6 comments total)

According to the IRS, "For purposes of determining whether you must file a return, you must include in your gross income all of the income you earned or received abroad, including any income you can exclude under the foreign earned income exclusion. For more information on special tax rules that may apply to you, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad."

So, if you go to Publication 54, it basically says that if you are single and earn more than $8,750, you are supposed to file (presumably you can do so from your cardboard box home if you make $8751. Wow).

That being said, you would have received a refund, as you say. Since you are still not making over $75,000 now, which I understand from tax software (I am not an accountant, and I am not your accountant!) is some kind of cutoff income for "Hey, why didn't he file last year?" red flags, the IRS would not want to go and audit you for the year of 2006. Probably. Most likely. And even if they did, they would owe you money, so I can't see the benefit of filing.

But, again, IANAA, IANYA!
posted by misha at 11:40 AM on January 31, 2008

Oh, and I would go to taxactonline. You definitely qualify, and you can do your taxes online there. You don't have to electronically submit them if you don't want to, and I think you can find out about the exchange rate through the site.
posted by misha at 11:49 AM on January 31, 2008

Definitely file your taxes. I don't think they will penalize you if you file late on your own initiative and don't owe them money.

As the exchange rate fluctuates pretty frequently, what should I use? The current exchange rate? Some average over all of 2007?

You're supposed to use the exchange rate from the date you received each quantum of income (Pub 54, page 5).

Remember that if you had more than USD 10,000 in assets in foreign bank accounts at any point within the year, you have to file a TD F 90-22.1 with the Treasury (not the IRS) too.
posted by grouse at 12:27 PM on January 31, 2008

You're supposed to use the exchange rate from the date you received each quantum of income (Pub 54, page 5).

Use this.

You should probably file a 1040X for 2005 as well, because you didn't report your Canadian income (and since you were probably still a resident of the U.S. for tax purposes, you should have).
posted by oaf at 1:28 PM on January 31, 2008

Actually, this one will do all of the math for you.
posted by oaf at 1:30 PM on January 31, 2008

The nice thing about the first link you posted, oaf, is that it makes it easy to import the rates into a spreadsheet. I think I used that very same page when I last had to do a lot of these conversions for taxes a few years ago.
posted by grouse at 1:33 PM on January 31, 2008