Great forum. I have read through alot of the threads and I may have missed the answers to some of my questions.
I and my wife are both USCs residing in Canada. I am a consultant and my client base is primarily US based. I am there quite often - but less than 183. I have not incorporated anywhere. I would like to incorporate for .
Objective: Incorporate for liability purposes and to keep our household income low so as not to impact our child allowance benefits. We would incorporate with a fiscal year end as Aug 31 and my wife and I as 50% shareholders.
I would be the primary employee working for the corp and my wife would working as office manager (currently there are no other employees) which would allow us to split income.
I am wondering how to file the US return. If for instance, the corp will be earning 100k, I would take out 30k - partial salary and/or partial dividends and my wife would be paid a salary and/or dividend of 10k. How would our 1040 look? Would I be showing the full 100k as schedule c on our 1040 or only the actual salary earned and distributed dividends.
Additionally, if it has to be filled out as schedule c, then how would I account for the timing differences between corp fiscal year end of aug 31 and 1040 calendar year end of Dec 31?
Haven't yet decided whether to incorporate federal or provincial and it seems that being a USC does not make a difference.
thank you
USC living in Canada seeking to incorporate
Moderator: Mark T Serbinski CA CPA
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younevercall
- Posts: 8
- Joined: Fri Dec 28, 2012 2:42 am
Your incorporated company will file its own copr tax return in Canada a T2. You will either receive salary on a T4 or dividend on a T3. You then include this in your Canadian tax return T1.
As a USC you are required to file a 1040 with your world income however this only applies to your personal income not the corp, but disclosure of your foreign corp is required but no tax if the income is from Canada.
Your 104o can exclude the salary under the foreign earned income exclusion max so no tax is payable in the US on this, but it is repoerted and then excluded or you could elect to tax it in the US then claim credits for tax paid in Canada on the wages for both of you.
If you take out dividends this is taxed in teh US as dividends but credit for tax paid to Canada is allowed.
You do not file any schedule c on the 1040 for an incorporated business of which you are a shareholder.
As a USC you are required to file a 1040 with your world income however this only applies to your personal income not the corp, but disclosure of your foreign corp is required but no tax if the income is from Canada.
Your 104o can exclude the salary under the foreign earned income exclusion max so no tax is payable in the US on this, but it is repoerted and then excluded or you could elect to tax it in the US then claim credits for tax paid in Canada on the wages for both of you.
If you take out dividends this is taxed in teh US as dividends but credit for tax paid to Canada is allowed.
You do not file any schedule c on the 1040 for an incorporated business of which you are a shareholder.
JG
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younevercall
- Posts: 8
- Joined: Fri Dec 28, 2012 2:42 am
Thank you for the comprehensive response.
You mentioned that '[i]but disclosure of your foreign corp is required but no tax if the income is from Canada[/i].',
I have 3 questions.
1. Is the disclosure triggered simply because a USC is an owner/shareholder or is the required disclosure triggered by a certain threshold amount of income/assets (by a corp in which a usc is a shareholder)?
2. Can you direct me to the specific form that has to be filled out regarding the disclosure?
[i]but no tax if the income is from Canada[/i]
3. The corp will also have income from the US as most of my clients are US based. Would reporting and paying tax on the income from us clients to Canada be sufficient or would there have to be tax or more reporting to the US?
thanks
You mentioned that '[i]but disclosure of your foreign corp is required but no tax if the income is from Canada[/i].',
I have 3 questions.
1. Is the disclosure triggered simply because a USC is an owner/shareholder or is the required disclosure triggered by a certain threshold amount of income/assets (by a corp in which a usc is a shareholder)?
2. Can you direct me to the specific form that has to be filled out regarding the disclosure?
[i]but no tax if the income is from Canada[/i]
3. The corp will also have income from the US as most of my clients are US based. Would reporting and paying tax on the income from us clients to Canada be sufficient or would there have to be tax or more reporting to the US?
thanks
1) Yes
2) The main forms you should be aware of are
Form 5471 ( Since you will own more than 10% of the corp)
Form 926 to report your capital contributions to teh corp
Form 8938 to report your foreign shareholdings in Canada to the IRS
Form TD F 9-.22.1 ( FBAR) report your signing authority over teh bank accounts of the company which you may have.
3) Eventhough your clients are in the US you are performing the work from your Canadian place of business so this is considered income earned in Canada not reportable to US
2) The main forms you should be aware of are
Form 5471 ( Since you will own more than 10% of the corp)
Form 926 to report your capital contributions to teh corp
Form 8938 to report your foreign shareholdings in Canada to the IRS
Form TD F 9-.22.1 ( FBAR) report your signing authority over teh bank accounts of the company which you may have.
3) Eventhough your clients are in the US you are performing the work from your Canadian place of business so this is considered income earned in Canada not reportable to US
JG
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younevercall
- Posts: 8
- Joined: Fri Dec 28, 2012 2:42 am
Wow, you are great. Thank you.
1. At times, I work in the US on clients premises but its all work that generally can also be done from Canada. Is that work considered at my Canadian place of business?
1st time situation this morning and now have a related question to ask others.
Another consultant in the US is in the process of hiring me as a third party provider for a one time job. Other consultant will be paying me but would like to issue a 1099 to me (with my social security number).
2. Is a 1099 (with my ss) appropriate and would I account for the payment on my 1040 or in the canadian corp where it rightfully belongs.
thanks
1. At times, I work in the US on clients premises but its all work that generally can also be done from Canada. Is that work considered at my Canadian place of business?
1st time situation this morning and now have a related question to ask others.
Another consultant in the US is in the process of hiring me as a third party provider for a one time job. Other consultant will be paying me but would like to issue a 1099 to me (with my social security number).
2. Is a 1099 (with my ss) appropriate and would I account for the payment on my 1040 or in the canadian corp where it rightfully belongs.
thanks
As long as the CND corp has no permanent establishment in the US, that is usually not being there more than 183 days in any 365 day period, the business income is still Canadian sourced.
As for the 1099 issued to your name with your SSN you have to report this as your income on your 1040. If you want this to be taxed in the corp then you inturn will issue your own 1099 to your Corp report the income in then show the expense out to your corp, but this will be more complex than it was meant to be if its a one time amount just report it on your 1040 and T1 and this will merely reduce any income you were going to take out of the corp anyhow.
As for the 1099 issued to your name with your SSN you have to report this as your income on your 1040. If you want this to be taxed in the corp then you inturn will issue your own 1099 to your Corp report the income in then show the expense out to your corp, but this will be more complex than it was meant to be if its a one time amount just report it on your 1040 and T1 and this will merely reduce any income you were going to take out of the corp anyhow.
JG