Hello, James:
On 2020-05-16 14:13, James Cook wrote:
I'm thinking of starting to use GnuCash. I need to file both Canada
and US taxes, which require different accounting.… Are there other
ways people handle this sort of thing?
I immigrated to Canada from the USA fifteen years ago, so I have been
keep multi-currency books and filing both Canadian and US tax returns
this whole time. Welcome to the club.
Trying to write down everything I've learned about personal accounting
and taxes in these two countries is beyond the scope of this email. Let
me quote a few salient snippets of your message, and give you a few
lessons learned.
> I need to file both Canada and US taxes,…
I have used a tax preparer who specialises in cross-border tax returns
my entire time here. I think it is foolhardy to attempt to file one's
own cross-border return unless one is in the cross-border tax prep
business already, or unless one's situation is very simple. If filing
taxes in one jurisdiction is X amount of difficulty, filing taxes in two
jurisdictions is not twice the difficulty, it is X-squared the
difficulty. There are the US regs, the Canadian regs, the various
US-Canada tax treaties, the various court rulings for situations not
covered by the regs, and misguided new tax laws which have unexpected
consequences for people outside the country, and so on. Let someone else
learn all that for you.
Once you have a tax preparer, all you have to do is prepare your
bookkeeping in the form which they can use. Don't ask this list how to
do your accounting, ask your task preparer.
> …if I sell a stock, the realized gains for Canada are based on
adjusted cost
> base, but for the US I can decide which instance of the stock I'm
selling.…
I have done almost all my cost basis tracking outside of GnuCash, in a
spreadsheet. Consider if this might be the easier way for you also. And,
remember that you don't have to take advantage of all the complexity
that the regs permit you. Why pick specific lots (pro tip, the GnuCash
docs call them "lots", not "instances") for your sales, instead of using
a simpler practice like "first-in-first-out" (FIFO)? You are allowed to
choose to make your life easier.
> I plan to use currency trading accounts as described in Peter
Selinger's tutorial…
I recommend turning on GnuCash's currency trading accounts, as described
in /Trading Accounts/ <https://wiki.gnucash.org/wiki/Trading_Accounts>
in the GnuCash wiki. If you find out things which that page does not
explain well, please edit the page to improve it.
> The plan: have three sets of accounts:
>
> 1. a "main" set that records things in a reasonable way (but
> that might not agree with the US's or Canada's point of view)
>
> 2. a set of "Canada adjustment" accounts, and
>
> 3. a set of "US adjustment" accounts
I do not account this way, and it seems more complex than necessary.
Just track US dollar accounts and transactions in GnuCash accounts with
currency set to US dollars, and Canadian dollar accounts and
transactions in GnuCash accounts with currency set to Canadian dollars.
Export from GnuCash to a spreadsheet for delivery to your tax preparer.
Let them deal with converting between currencies.
You are not the first person to file taxes based on finances in multiple
currencies. There are conventions for handling currency differences. I
know that for Canada, I download from the Bank of Canada's website a
reference history of daily USD:CAD exchange rates for the entire year,
and an official composite single USD:CAD exchange rate for the year. I
use these rates to convert between USD and CAD amounts as needed, in my
spreadsheet.
I have solved a lot of problems in multi-jurisdiction accounting through
granularity in my chart of accounts. For instance, in Canada my spouse
and I file separate, individual returns, but in the US we file a joint
return. Both countries let us deduct medical expenses incurred in any
country, with some limits.
So, I have six accounts for medical expenses: Medical:Spouse A:CAD,
Medical:Spouse A:USD, Medical:Spouse B:CAD, Medical:Spouse B:USD,
Medical:Non-deductible:CAD, and Medical:Non-deductible:USD. It is easy
to assign each expense to one of the accounts based on what currency it
is in, who it is for, and whether it is deductible in both countries or
not. For one Canadian individual return, I export totals from
Medical:Spouse A:CAD, Medical:Spouse A:USD. For the other Canadian
individual return, I export totals from both Medical:Spouse B:…
accounts. For the US joint return, I export totals from both all four
Medical:Spouse A:… and Medical:Spouse B:… accounts. If there are
expenses which are deductible in one country but not the other, I
haven't discovered them, or they aren't significant enough to be worth
tracking.
Finally, don't be afraid to start simple and modify as you go. GnuCash
lets you easily rename accounts and change the hierarchical structure of
accounts without losing data. If you decide to merge two accounts, or
split one account into two, then you need to go through every
transaction in those accounts and reassign them, but that might be a
surprisingly tractable task. It certainly doesn't require touching every
transaction.
I hope this helps you figure out how to go forward. Good luck!
—Jim DeLaHunt, software engineer, Vancouver, Canada
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