Benefits of Getting The Best Financial Consulting And Tax Services

If you are looking out for service to take care of your taxation matters then the best option for you is to hire the services of tax consultants as they are very much experts in the field of tax.

It is their job to take into consideration all the taxation matters. Thus it is a beneficial decision for you to hire professional services so that you can focus on the other business activities.

tax service

Taxation matters and laws vary frequently, especially for the US ex-pats so keeping track of the same is not always possible for the layman.

Hiring a consultant makes your work a lot easier as he knows the tax law very well and thus easily understands it.

Also, they help you deal with all the IRS Streamlined Compliance Procedures very well so that you do not face any issues later.

Hiring the right consultant saves you from being deceived.

A tax consultant can guide you regarding reducing your tax amount. The methods that these experts suggest you are in accordance with the government rules and regulations.

After you decide to hire their services the next thing you have to do is searching out for the right consultant.

It is extremely vital to opt for the right consultant as all your tax-related work will completely depend upon the consultant you choose.

Also, make sure that the person you are planning to hire has the authority to carry out the tax-related work otherwise there are chances of you getting deceived by the fraud people.

The fee charged by the tax consultants varies considerably. Most of them will charge a flat fee chiefly for the preparation purpose.

Some will charge their fee based upon the time they spend on a project. These people are very useful at the time of an audit.

An Income Tax Comparison: Moving from Ontario to Florida

While many people are drawn to Florida for its endless sunshine and warm nights, when examining the tax environment between Canada and Florida, the argument in favor of moving south becomes even more compelling.

In this blog, we will examine the tax rates for a Canadian province (Ontario) and a sunshine state (Florida) from the perspective of someone resident for tax purposes in those places.

We will compare the tax rates and the income levels at which they kick in. Note that Ontarians who snowbird in Florida but maintain a closer connection to Canada would not get the lower U.S. rates and would continue to be subject to Ontario’s higher rates.

Also, as Florida has no state income tax, the numbers below for Florida are for Federal tax rates only while the numbers for Ontario combines Federal and Provincial tax rates and brackets.

Interest Income (Ordinary Income)

Canada and the United States both tax interest income at ordinary income rates. Canadian rates are generally much higher and kick in at lower income levels than do U.S. rates.

The United States also has different income thresholds dependant upon Filing Status, whereas Canada does not.

In addition, in the United States, it is possible to purchase municipal bonds that pay tax-free interest, however, Canada does not have a comparable opportunity.

Canadian and Ontario integrated tax rates for 2018 are as follows:

2018 Taxable Income (CAD) Tax Rate
first $42,960 20.05%
over $42,960 up to $46,605 24.15%
over $46,605 up to $75,657 29.65%
over $75,657 up to $85,923 31.48%
over $85,923 up to $89,131 33.89%
over $89,131 up to $93,208 37.91%
over $93,208 up to $144,489 43.41%
over $144,489 up to $150,000 46.41%
over $150,000 up to $205,842 47.97%
over $205,842 up to $220,000 51.97%
over $220,000 53.53%

As there is no state income tax in Florida, the tax rates are the same as U.S. Federal tax rates as follows:

2018 Taxable Income (USD)
Single filers Married Filing Joint Married Filing Separate Head of Household Tax Rate
$0 – $9,525 $0 – $19,050 $0 – $9,525 $0 – $13,600 10%
$9,526 – $38,700 $19,051 – $77,400 $9,526 – $38,700 $13,601 – $51,800 12%
$38,701 – $82,500 $77,401 – $165,000 $38,701 – $82,500 $51,801 – $82,500 22%
$82,501 – $157,500 $165,001 – $315,000 $82,501 – $157,500 $82,501 – $157,500 24%
$157,501 – $200,000 $315,001 – $400,000 $157,501 – $200,000 $157,501 – $200,000 32%
$200,001 – $500,000 $400,001 – $600,000 $200,001 – $300,000 $200,001 – $500,000 35%
Above $500,000 Above $600,000 Above $300,000 Above $500,000 37%

With the passing of the American Taxpayer Relief Act in 2013, an additional 3.8 % surtax has been imposed on most forms of investment income, including interest, dividends, and most capital gains.

This additional surtax is added when adjusted gross income exceeds a certain threshold. The threshold is $250,000 for married filing jointly, $125,000 for married filing separate, $200,000 for single, and $200,000 for head of household.

As shown above, in Ontario, the maximum rate of 53.53% kicks in at an income of $220,000 Canadian dollars.

In Florida, the top rate is only 40.8% (including the surtax) and does not kick in until income exceeds between $300,000 and $600,000 USD, depending on filing status.

Capital Gains

Canada includes 50% of the realized capital gain in taxable income. A resident of Ontario would therefore pay a maximum rate of 26.765%, equal to half of the maximum rate for Ordinary Income.

The U.S. capital gains rate depends on the type of asset being sold, the length of time that the asset has been held, and how much income you have earned. For investments held one year or less, capital gains are taxed as ordinary income, just like interest.

For the sale of most types of investments held greater than one year, refer to the chart below. The 3.8% surtax may also be applicable, as discussed above. As such, the maximum rate would be 23.8%

Single Filers Joint Filers Tax Rate
Up to $51,699 Up to $77,199 0%
Up to $425,799 Up to $478,999 15%
Above $425,800 Above $479,000 20%

Capital Losses 

Canada allows capital losses to be utilized against capital gains in the current year.

To the extent that there are no capital gains in the current year or the gains are not sufficient to offset the amount of capital losses, you can apply capital losses against any capital gains in the three prior years.

Any unutilized losses can be carried forward and applied against future gains.

In the U.S., capital losses can also be used to offset capital gains in the current tax year.

To the extent that capital losses exceed capital gains, up to $3,000 USD (Married Joint), or $1,500 (Single or Married Filing Separate) can be used to reduce other taxable income. Any excess can be carried forward.

Dividends

Canada provides a gross-up of certain Canadian dividends. In Ontario, the net tax rate on a Canadian eligible dividend would be as high as 39.34%, and the rate on a Canadian non-eligible dividend would be 46.85% (in 2018). Foreign dividends are taxed at ordinary rates.

In the United States, non-qualified dividends would be taxed at ordinary marginal income tax rates (as high as 40.8% including the surtax).

Qualified dividends are taxed in a similar manner to long-term capital gains, as per the table above. As such, the maximum U.S. rate would be 23.8%. It is possible for foreign dividends to be treated as qualified dividends.

While a move from Ontario to Florida can be beneficial from an income tax standpoint, there are many other items that must be considered ahead of time including immigration, estate planning, health care and Canadian “departure tax.”

If you are considering making the move to the U.S. from Canada, make sure you reach out to a qualified cross-border financial advisor that can assist you in making a smooth financial transition.

California Tax Filing with a Canadian Spouse

Our previous article discussed the concept of California domicile and the application of California community-property rules to Canadians domiciled in the state. This article is the second installment in our series explaining how California community property laws can impact Canadians.

At Cardinal Point, we regularly deal with cross-border couples who maintain cross-border lifestyles due to career commitments or other obligations. It’s important to understand how California’s community property laws apply when one spouse is domiciled in California and the other in Canada.

Imagine a married couple in which the wife lives in Toronto (and is domiciled in Ontario) and the husband lives in Los Angeles (and is domiciled in California). Both spouses are dual American and Canadian citizens and they file a joint U.S. Form 1040 tax return. The husband, Drew, is a professional hockey player who plays for a California-based NHL team. Drew’s wife, Amber, is a top fashion model based out of Toronto. The couple owns homes in both Toronto and Los Angeles. Since Amber is mainly working in Toronto, New York, London and Paris, she only spends two weeks a year in Los Angeles with her husband. Moreover, Amber does not earn any California-sourced income.

One might assume that Amber does not need to file a California tax return and pay California tax, given that she doesn’t earn any California income and isn’t domiciled in California.

But as we stated in our previous article, California follows its own rules for determining tax residency. Unlike federal tax treatment, an immigrant to California is normally a California resident from the date of arrival. No 183 physical presence test or green card is required to determine California residency status. Moreover, since California is not a party to the Canada-U.S. tax treaty, the treaty is not applicable for purposes of determining California residency (similarly, California does not allow a foreign tax credit or the federal foreign earned income exclusion).

Going back to Drew and Amber, because they are filing jointly on their federal return, California requires the same joint filing status on their California return, and they would pay California tax on their worldwide income.

There is, however, a little-known legal exception that will allow our imaginary couple to file separately instead of jointly for California tax purposes. To file separately in California, two criteria must be met: (1) Amber must not be a resident of California and (2) she must not have any California-sourced income, including California wages and income from California real-estate property.

With Amber filing separately under the exception, she would still need to file a California 540NR non-resident return to pay tax on 50% of her husband’s California income. That’s because Drew is domiciled in California. Moreover, she would need to disclose her non-California-sourced income on the California return to determine her California tax rate.

Because of the complexities facing cross-border couples, they are well-advised to seek out tax advisers who specialize in navigating the cross-border tax landscape.

Marc Gedeon is a CPA (U.S), CPA (Canada) and Tax Attorney at Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada.  Marc specializes in providing Canada-U.S. cross-border financial, tax, transition, and estate planning services. www.cardinalpointwealth.com This piece is for informational purposes only and should not be considered legal or tax advice. Online readers should not act upon this information without seeking professional counsel.

How to Estimate My Tax Refund?

Every year more than millions of people filing their taxes in each and every nation. Among these tax filers, so many were receiving refund slated status regularly.

tax refund

Due to this most of the people are in need and even interested to estimate the amount of tax to be paid and the amount of tax return before they are going to commit their payments.

Presently there are so many answers available readily for the question “How to Estimate Tax Refund”. Some of those answers are as follows:

Turbo Tax:

The turbo tax is a popular online tax calculator that acts as a principal outlet for tax filing. In this, you can enter all your pertinent tax information to get the necessary information.

Once you have entered your necessary tax details then you will get your tax return immediately. The plus point of this turbo tax is that you will receive your tax details on what the government will issue you before committing to pay.

1040 Calculator:

There is one other software available online for the tax verification and Tax Refund details, which is nothing but the 1040 Calculator.

This is available free of cost in online which allows you to submit the present tax status, the income, deductions for the present month, credits for the previous year, etc and thereby help in enabling you to estimate the complete tax amount and the Tax Refund status for the particular year.

Visiting Certified Accountant:

If you are not interested or not satisfied with the online calculators and software then you can go to a certified accountant who will help you assist in paying your taxes and checking the Tax Refund.

The accountants today use advanced tools and platforms such as receipt management that can help in getting things done very easily.

Receipt Bank Practice Platform actually helps in automatically extracting the key data from the clients’ bills, receipts and invoices as and when the client sends these items.

Your account can then provide you the total details along with the documents regarding your tax and even if any confusion exists within your mind, then the accountant will clear all those doubts too.

Residents of Canada: What are the Canadian and U.S. Tax Ramifications of being forced to liquidate a U.S. retirement account.

As mentioned in a previous article, many banks and brokerage firms are informing U.S. non-resident clients that they are no longer able to service their accounts and that their accounts have been restricted or even closed.

In that same article, we outlined the following:

  • S. citizens and Green Card holders who reside in Canada or anywhere else abroad would be considered to be non-residents for the purposes of these regulations.
  • These regulations are not new, but were not generally monitored or enforced.
  • Financial institutions have started to enforce these regulations much more diligently.

The options available to an individual for their taxable brokerage accounts once they have received notification that they are required to find another service provider were addressed in the above mentioned article. Individuals with tax-deferred accounts, such as an IRA or 401K, are being told much the same thing. The account holder will generally be told that if they are not able to transfer the account to another service provider within a set period of time, the assets within the account will be liquidated and a distribution will be sent.  If a distribution from an IRA/SEP IRA/Roth IRA is received, you have 60 days to deposit the funds into another retirement account with a U.S. custodian or the distribution will become fully taxable.  Distributions from an inherited IRA/Roth/SEP IRA do not have a 60 day window.

For many, it is difficult to find an alternate service provider that allows a non-resident to maintain a retirement account in the U.S. Even if a new service provider can be found, it is possible that the new provider will restrict activity within the account, effectively freezing the account.  Because of these complications, Canadian residents may feel compelled to liquidate their U.S. retirement accounts.

For the majority of U.S. retirement accounts, a liquidation would have U.S. and Canadian tax implications for both U.S. citizens residing in Canada and Canadian citizens living in Canada.  A couple of common scenarios include the following:

  • A U.S. citizen owning a U.S. retirement account moved to Canada and became a tax resident of Canada.
  • A Canadian citizen who lived in the U.S. for a period of time on a work permit, and who contributed to a U.S. retirement account while living in the U.S., moved back to Canada and once again became a Canadian tax resident.

We will discuss each scenario separately, since the tax implications of the liquidation of the retirement account will be different for each scenario.

U.S. Citizen Becomes a Tax Resident of Canada

As mentioned in our previous article, when you establish income tax residency in Canada, for Canadian income tax purposes, you are deemed to have disposed of all of your property immediately beforehand, with some exceptions, for proceeds equal to the fair market value of that property at that time. You are then deemed to have acquired such property at a cost equal to such fair market value.  U.S. retirement accounts are one of the exceptions to this rule. As such, the retirement assets would retain their historical cost basis for both U.S. and Canadian tax purposes.

As a U.S. tax resident, a distribution from most types of U.S. retirement accounts would be taxed as ordinary income subject to taxation at marginal tax rates.  Distributions from Roth IRAs are not  taxable.  The maximum marginal tax rate is currently 37% (2018).  Depending upon circumstances such as the age of the recipient, there could potentially be early withdrawal penalties as well.

Canada will also tax the entire distribution from most U.S. retirement accounts.  The entire distribution is taxable even though an individual in this scenario did not previously receive a deduction on a Canadian tax return related to the contributions.  Distributions from Roth IRAs are not taxable in Canada.  The marginal tax rate would depend upon the province of residency. For example, a resident of Ontario would currently have a maximum rate of 53.53% (2018).  A foreign tax credit can be claimed in Canada in relation to the U.S. tax payable on the distribution. Early withdrawal penalties are not eligible for a foreign tax credit.

Individuals in this scenario are generally subject to an overall tax rate upon liquidation equal to the Canadian tax rate. The tax payable to the U.S., which is subsequently claimed as a foreign tax credit in Canada, is usually not sufficient to completely eliminate the Canadian tax liability.

Canadian Citizen Resumes Canadian Tax Residency

The second scenario is of a Canadian citizen previously living in the U.S. who moves back to Canada and resumes Canadian tax residency.

In this scenario, the U.S. requires a 30% non-resident withholding tax. Due to the tax treaty between the U.S. and Canada, that rate can be dropped to 15% for periodic payments, but there is some debate about whether or not that applies to a liquidation event, and recently, service providers have been less inclinded to agree to the lower rate.  Because of this, we advise our clients to expect a 30% withholding rate from most providers.  In order to recuperate the other 15%, the filing of a U.S. non-resident income tax return would be required.  Note that recuperating the other 15% would not be required if the entire 30% withholding tax is claimed as a foreign tax credit on the Canadian tax return.  In the case of an early withdrawal, the penalty normally imposed would be included in the 15% or 30% tax, which is considered a final tax for U.S. tax purposes.

Canada will also tax the entire distribution from taxable U.S. retirement accounts in the same manner as was discussed in the earlier scenario.  A foreign tax credit can be claimed in Canada in relation to the U.S. withholding tax.

Individuals in this scenario are also generally subject to an overall tax rate upon liquidation equal to the Canadian tax rate.  The U.S. foreign tax credit is generally not sufficient to completely eliminate the Canadian tax liability.

A relatively common tax planning technique for individuals in this scenario is to roll funds from their IRA into a RRSP in an effort to defer taxation of the IRA income.  This strategy is now less attractive due to the application of the higher 30% U.S. non-resident withholding tax.  We would also point out that this strategy is generally recommended by service providers that do not have the ability to actively manage U.S. retirement accounts.  A more effective solution would be to find a service provider, such as Cardinal Point, that can actively manage the IRA and eliminate the need for a liquidation altogether.

The Cardinal Point Advantage

These examples highlight the complicated and negative tax implications involved with an unexpected liquidation of U.S. retirement accounts.  The main negative tax implication being that the full value of most retirement accounts becomes taxable upon liquidation.  We recommend that you avoid these unnecessary tax consequences by finding a custodian who is able to manage U.S. retirement accounts for non-residents of the U.S.  Cardinal Point has the unique registrations and ability to manage investment portfolios that include accounts in Canada and the United States.  As such, we have the ability to actively manage U.S. retirement accounts for our Canadian resident clients.

Cardinal Point has the cross-border financial planning, investment management, and tax expertise to ensure that our clients are able to maintain retirement assets in their country of origin, and to transition other assets from one country to another in a tax-efficient manner. Our clients receive tax planning as a part of their overall financial plan.

Residents of Canada: What are the Canadian and U.S. Tax Ramifications of being forced to liquidate a U.S. retirement account

As mentioned in a previous article, many banks and brokerage firms are informing U.S. non-resident clients that they are no longer able to service their accounts and that their accounts have been restricted or even closed.

In that same article, we outlined the following:

  • S. citizens and Green Card holders who reside in Canada or anywhere else abroad would be considered to be non-residents for the purposes of these regulations.
  • These regulations are not new, but were not generally monitored or enforced.
  • Financial institutions have started to enforce these regulations much more diligently.

The options available to an individual for their taxable brokerage accounts once they have received notification that they are required to find another service provider were addressed in the above mentioned article. Individuals with tax-deferred accounts, such as an IRA or 401K, are being told much the same thing.

The account holder will generally be told that if they are not able to transfer the account to another service provider within a set period of time, the assets within the account will be liquidated and a distribution will be sent.

If a distribution from an IRA/SEP IRA/Roth IRA is received, you have 60 days to deposit the funds into another retirement account with a U.S. custodian or the distribution will become fully taxable.  Distributions from an inherited IRA/Roth/SEP IRA do not have a 60 day window.

For many, it is difficult to find an alternate service provider that allows a non-resident to maintain a retirement account in the U.S.

Even if a new service provider can be found, it is possible that the new provider will restrict activity within the account, effectively freezing the account.  Because of these complications, Canadian residents may feel compelled to liquidate their U.S. retirement accounts.

For the majority of U.S. retirement accounts, a liquidation would have U.S. and Canadian tax implications for both U.S. citizens residing in Canada and Canadian citizens living in Canada.  A couple of common scenarios include the following:

  • A U.S. citizen owning a U.S. retirement account moved to Canada and became a tax resident of Canada.
  • A Canadian citizen who lived in the U.S. for a period of time on a work permit, and who contributed to a U.S. retirement account while living in the U.S., moved back to Canada and once again became a Canadian tax resident.

We will discuss each scenario separately, since the tax implications of the liquidation of the retirement account will be different for each scenario.

U.S. Citizen Becomes a Tax Resident of Canada

As mentioned in our previous article, when you establish income tax residency in Canada, for Canadian income tax purposes, you are deemed to have disposed of all of your property immediately beforehand, with some exceptions, for proceeds equal to the fair market value of that property at that time.

You are then deemed to have acquired such property at a cost equal to such fair market value.  U.S. retirement accounts are one of the exceptions to this rule. As such, the retirement assets would retain their historical cost basis for both U.S. and Canadian tax purposes.

As a U.S. tax resident, a distribution from most types of U.S. retirement accounts would be taxed as ordinary income subject to taxation at marginal tax rates.  Distributions from Roth IRAs are not  taxable.  The maximum marginal tax rate is currently 37% (2018).  Depending upon circumstances such as the age of the recipient, there could potentially be early withdrawal penalties as well.

Canada will also tax the entire distribution from most U.S. retirement accounts.  The entire distribution is taxable even though an individual in this scenario did not previously receive a deduction on a Canadian tax return related to the contributions.

Distributions from Roth IRAs are not taxable in Canada.  The marginal tax rate would depend upon the province of residency. For example, a resident of Ontario would currently have a maximum rate of 53.53% (2018).  A foreign tax credit can be claimed in Canada in relation to the U.S. tax payable on the distribution. Early withdrawal penalties are not eligible for a foreign tax credit.

Individuals in this scenario are generally subject to an overall tax rate upon liquidation equal to the Canadian tax rate. The tax payable to the U.S., which is subsequently claimed as a foreign tax credit in Canada, is usually not sufficient to completely eliminate the Canadian tax liability.

Canadian Citizen Resumes Canadian Tax Residency

The second scenario is of a Canadian citizen previously living in the U.S. who moves back to Canada and resumes Canadian tax residency.

In this scenario, the U.S. requires a 30% non-resident withholding tax. Due to the tax treaty between the U.S. and Canada, that rate can be dropped to 15% for periodic payments, but there is some debate about whether or not that applies to a liquidation event, and recently, service providers have been less inclinded to agree to the lower rate.

Because of this, we advise our clients to expect a 30% withholding rate from most providers.  In order to recuperate the other 15%, the filing of a U.S. non-resident income tax return would be required.  Note that recuperating the other 15% would not be required if the entire 30% withholding tax is claimed as a foreign tax credit on the Canadian tax return.

In the case of an early withdrawal, the penalty normally imposed would be included in the 15% or 30% tax, which is considered a final tax for U.S. tax purposes.

Canada will also tax the entire distribution from taxable U.S. retirement accounts in the same manner as was discussed in the earlier scenario.  A foreign tax credit can be claimed in Canada in relation to the U.S. withholding tax.

Individuals in this scenario are also generally subject to an overall tax rate upon liquidation equal to the Canadian tax rate.  The U.S. foreign tax credit is generally not sufficient to completely eliminate the Canadian tax liability.

A relatively common tax planning technique for individuals in this scenario is to roll funds from their IRA into a RRSP in an effort to defer taxation of the IRA income.  This strategy is now less attractive due to the application of the higher 30% U.S. non-resident withholding tax.

We would also point out that this strategy is generally recommended by service providers that do not have the ability to actively manage U.S. retirement accounts.  A more effective solution would be to find a service provider, such as Cardinal Point, that can actively manage the IRA and eliminate the need for a liquidation altogether.

The Cardinal Point Advantage

These examples highlight the complicated and negative tax implications involved with an unexpected liquidation of U.S. retirement accounts.  The main negative tax implication being that the full value of most retirement accounts becomes taxable upon liquidation.

We recommend that you avoid these unnecessary tax consequences by finding a custodian who is able to manage U.S. retirement accounts for non-residents of the U.S.  Cardinal Point has the unique registrations and ability to manage investment portfolios that include accounts in Canada and the United States.  As such, we have the ability to actively manage U.S. retirement accounts for our Canadian resident clients.

Cardinal Point has the cross-border financial planning, investment management, and tax expertise to ensure that our clients are able to maintain retirement assets in their country of origin, and to transition other assets from one country to another in a tax-efficient manner. Our clients receive tax planning as a part of their overall financial plan.

How California Taxes a Canadian Trust?

As we discussed in a previous article, many Canadians are shocked to learn that California taxes their RRSPs. Canadians are often also surprised and dismayed to learn that their Canadian trust could be subject, inadvertently, to the long arm of California’s tax system.

Even just having a beneficiary – think trust fund baby – of a Canadian trust who lives in California is enough to subject the trust to California tax.

California taxes a trust if the trust has (a) California source income; (b) a California trustee or co-Trustee; or (c) a California beneficiary.

California’s taxation of a trust’s income that is attributable to California sources, for example rental income from property located in California, is not a strange concept.

It’s California’s taxation of non-California trusts with California beneficiaries that – to borrow a line from Gowan’s song of the same name – is a “Strange Animal” and which will be the focus of this post.

In California, having just one beneficiary who resides in the state can subject the trust income to California tax in a proportion equal to the number of beneficiaries who are California residents.

With California aggressively chasing trusts with a nexus to the state for failure to file income tax returns, Canadians who are beneficiaries of Canadian trusts should be aware of the tax implications that moving to California entails.

The law in California subjects some or all of the income of a non-grantor trust to California income tax if any non-contingent beneficiary is a California resident.

As you can see, the key distinction in the law is that a California beneficiary’s interest in the trust must be non-contingent for California to tax the trust.

Hence, a non-California trust with contingent beneficiaries residing in California will not be subject to tax in California so long as there are no distributions to the beneficiary.

So, how do we determine between a contingent and non-contingent beneficiary?

Simply put, a contingent beneficiary is one whose interest is subject to a condition that must be satisfied for the beneficiary’s interest in the trust to vest.

For example, most trusts are drafted whereby a trustee may make distributions for a beneficiary’s health, education, maintenance, support, care, comfort, etc.

This constitutes a contingent interest in the trust property because the beneficiary’s beneficial interest is subject to the trustee’s sole and absolute discretion.

On the other hand, a beneficiary’s interest will become non-contingent if the terms of the trust agreement subsequently remove a condition to the beneficiary’s enjoyment of trust income or principal.

For example, the beneficiaries of a trust that provides for the distribution of all trust income after a certain age, or provides a stipend to the beneficiary, or allows the beneficiary a withdrawal right, would be considered non-contingent.

The determination of whether a beneficiary is contingent or non-contingent comes down to the distribution standards and rights of the beneficiary under the trust agreement and the trustee’s exercise of discretion in administering the trust.

Now that we’ve covered some of the basic laws applicable to California’s taxation of a trust, let’s look at this simple example.

Joe had a long and successful career playing in the NHL. To the diehard fans of one of the teams he played for, Joe is considered a legend and the second best player, after the team’s current young phenom, to ever play for the team. Over his career, Joe managed to amass a vast fortune from both playing hockey and endorsing many products.

Through some good advice from his tax professionals, Joe set up a trust in Ontario to minimize his tax bill and to provide for his only child’s future. After graduating college, Madison, Joe’s only child and the sole beneficiary of Joe’s trust, decided to move to Hollywood to pursue an acting career.

Madison, for lack of a better term, is a trust fund baby. The terms of Joe’s non-grantor trust provide that the Ontario based trustee shall distribute to Madison one-third of the trust income annually for her lifetime.

Because the trustee is required under the terms of the trust to distribute trust income, Madison is entitled to such amounts and her interest is not subject to a condition.

As a result, Madison is a non-contingent beneficiary regardless of the fact that she is entitled to just one-third of the trust income.

Because Madison is the sole non-contingent beneficiary of the trust and a resident of California, the trust will be subject to California taxation. The trust would have to report all of its income for California income tax purposes.

Specifically, Madison will be taxed on the income distributed to her, while the trust will be taxed on the remaining income.

At Cardinal Point, we specialize in working with Canadians in California and we diligently work with our clients to ensure compliance with their federal, California and Canadian income tax and reporting requirements.

Appreciable Tax Advantages of Thrift Savings Plan

Usually people don’t understand the benefits of the plans before investing their money in it so first it is important for you to first understand how it works and what are the pros and cons of this investment. There are many kinds of Thrift Savings Plans available which can be diversely useful for various reasons but if you will choose wrong plan then you might invest your money in something that will eventually give you a disappointment.

So, first it is important for you to research about it. TSP or Thrift Savings Plan is considered really very unique and yet profitable source of investing. It is not like any other general investment, when you invest in the TSP correctly with the right strategy then it could be highly advantageous for you that you cannot even imagine.

And of course, when we talk about tax benefits then the TSP stays ahead in it. You can avail greater tax benefits from it. Investment in the Thrift Savings Plan retirement account lets you save lots of tax in your investment.

The TSP retirement account is actually called Tax deferred contributions due to its tax advantageous nature. This is a kind of convenient saving plan because it allows account holder to automatically deduct a certain amount of investment money directly from your paycheck which will make the investment so convenient and easy for you.

There are various kinds of investment options and alternatives in the Thrift Savings Plan so you can always choose one of the most suitable options for you and start saving your money with the higher benefits!

And most important thing that makes this plan advantageous for tax saving is that the amount that you will save in this investment will not be counted in your taxable earnings. It will be saving and will be totally and completely tax free for you! So, what are you waiting for? Go for it and make your future bright and pleasant with some TSP Savings.