Which return is prepared first, the Canadian one or the US one?
The Canadian one, for anyone whose income is earned in Canada. Canada taxes you as a resident, so it is the Canadian return that produces the figure of Canadian tax paid on which the US foreign tax credit is computed; build the US return first and the credit is claimed against a number nobody has worked out yet. US-source income runs the other way, because dividends, interest, rents and royalties from the United States are taxed at source there — so a filer with income on both sides has two computations that feed each other, and they are settled together rather than one after the other. That is why the two returns are worked on side by side instead of being sent to two preparers who never see each other's figures.
Which US forms does a US citizen in Canada file every year?
Form 1040, every year, because the obligation attaches to citizenship rather than to where you live. Around it sit Form 2555 for the foreign earned income exclusion or Form 1116 for the foreign tax credit, frequently both in the same return; Form 8938 with the return once your Canadian financial assets pass its threshold, which moves with filing status and with living abroad; and the FBAR, which goes to FinCEN instead of being attached to anything. Canadian pooled funds, a TFSA or an RESP, and a Canadian company each add a return of their own on top of that. The Canadian side has its own foreign-property statement, the T1135, measured on cost rather than market value — so each country ends up asking about the assets you hold in the other.
Do I have to report my Canadian bank accounts to the IRS?
Two reports reach across, and one of them does not go to the IRS at all: the FBAR is filed with FinCEN. Its test is the aggregate of every foreign account you hold or can sign on, at any point in the calendar year, so several small accounts that together cross the line are reportable — and signature authority over an employer's account or a parent's account counts even though none of the money is yours. Form 8938 is a separate obligation with a different agency, a different threshold and a different asset list, which is why satisfying one does nothing for the other. See filing both.
Should I claim the foreign earned income exclusion or the foreign tax credit?
Model both before electing either. The exclusion reaches earned income only — wages and self-employment profit — so it does nothing for someone living on dividends, a pension or rent, and the income it removes from the US base can no longer generate usable credit. Because Canadian rates on employment income are usually the higher of the two, the credit on its own often takes the US liability to nil, and credit you cannot use in the year carries rather than disappearing. The cap on the exclusion is indexed annually, on IRS figures: US$130,000 for the 2025 tax year and US$132,900 for 2026. See the foreign tax credit.
Do a TFSA, an RESP or Canadian mutual funds add to my US filing?
They are the usual reason the set grows. An RRSP has treaty relief that defers the growth inside it until it is drawn; a TFSA and an RESP have none, so income arising in them is taxable to you as it arises, and either can be reportable as a foreign trust as well. Ordinary Canadian mutual funds and index funds held outside a registered plan fall into the US passive foreign investment company regime, whose default treatment is built to be worse than the elections available — and an election has to be made in time to help, which makes it a decision about the holdings rather than about the return. See a TFSA or RESP held by a US person.
I have lived in Canada for years and never filed a US return — what do I file now?
Not simply this year's return, and not a quiet stack of late ones. Filing them in the ordinary way can close off relief a catch-up programme would otherwise have allowed, so the sequence is settled first: which years are genuinely open, whether the failure was non-willful, and which route the facts actually support. The back returns and the missing account reports then go in as one package, and the exclusions and credits that were never taken are taken on them — which is often why a completed catch-up ends with little or no US tax to pay. See the streamlined foreign offshore route.
How much foreign income is tax-free in the United States?
Nothing is exempt in the USA merely for arising abroad — a US person is taxed on worldwide income. What exists is an election: the foreign earned income exclusion removes foreign *earned* income up to an annual cap if you meet one of two qualifying tests, $132,900 for 2026 and $130,000 for 2025, with a separate housing amount alongside it. It does not touch investment income, pensions or gains, and it is claimed on a form rather than assumed. See the foreign earned income exclusion.
Do US citizens abroad have to report foreign bank accounts?
Yes, and under two separate regimes with different thresholds and different filing homes — one report to FinCEN covering foreign financial accounts, and one to the IRS with the return covering a broader class of foreign assets. Both are keyed to balances rather than income, so an account earning nothing can still require reporting, and each carries penalties of its own. See filing both.
