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I am a US citizen studying and living in Canada and being paid by my Canadian university. This year, I filed taxes in both Canada and the US as I had US income and had lived in the US for half the year. Next year, I will only have Canadian income and will not have lived in the US. Will I still need to file federal taxes in the US? What about state taxes?

If I do need to file in the US, what is the best method of doing so? I used turbotax this year but had difficulties as support for foreign income reporting was limited. I would prefer a free or cheap method of filing and I would prefer to avoid using an accountant or other paid method.

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    The USA requires all of its citizens, no matter where in the world they live, to file a US tax return (and possibly pay taxes) if they have income. – Mike Harris Apr 18 at 16:24
  • You may well also be obligated to file a tax return in the US state in which you spent part of the last year. – David Apr 18 at 23:30
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US federal income tax

Yes, as a US citizen, you have to file a US federal income tax return every year, regardless of residence, unless your gross income is below the filing threshold (page 10, Chart A) (for 2018: US$12,000 for a single person under 65).

You must report all worldwide income. However, there are some ways your US federal tax on foreign earned income may be reduced:

  • If you are a bona fide resident of Canada for the entire tax year (January-December), you can file Form 2555 to avoid US federal tax on foreign earned income up to US$103,900 (for 2018). However, you might not be a bona fide resident of Canada for US tax purposes if your presence in Canada is for the purpose of studying, since it is expected that you will return to the US at the end of your studies.
  • If you're not using Form 2555, and you had to pay Canadian tax on your income, you can file Form 1116 to reduce your US tax liability by the amount of Canadian taxes you paid.
  • The above methods will probably reduce your US federal tax liability to $0. In case they don't, the US-Canada tax treaty might contain provisions to help you further, although I don't have the details.

US state and local taxes

Whether you have to file state and local taxes in the US will vary depending on the rules of your US state and locality of residence. If you are a bona fide resident of Canada, you are no longer a resident of your US state and do not have to pay its taxes; however, as above, you may not be a bona fide resident if your presence in Canada is for the purpose of studying.

Even if you are no longer a resident of your US state, many states and localities require you to file a "final return" indicating the date that your residency in the state or locality ended, so they will know why you stopped paying taxes to them.

Software

This page says that TurboTax and TaxAct should both work. If you like, you can use FreeFile or another efile option. Of course you can always file on paper if you can figure out the instructions (this is practical only if your situation is pretty simple).

  • The US tax system is an absolute nightmare for Americans abroad because it's very hard to get good information, as every country has a completely different set of rules for American citizens there. You can't just walk into an H&R Block as most Americans can. Specialized accountants are very expensive, – CodyBugstein May 6 at 13:27

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