dual US/Canadian citizen starting small business in Canada

gizzmogirl · Post by **gizzmogirl** » Sun Mar 17, 2013 4:22 pm

I am a dual US/Canadian citizen who is currently not working. I am looking into starting a home-based small business in Canada (sole proprietorship). I am trying to figure out my basic tax responsibilities to the US. Does any Canadian income count as personal income to the US or do I have to treat it like a US-based small business? I cannot find any specific info on this situation...please help!

JGCA · Post by **JGCA** » Sun Mar 17, 2013 5:25 pm

On your Canadian T1 tax return the business income is reported as Business income and the net amount is added to your total income to determine the tax owed after other credits are taken. Thus is also true on the US side you show it as business income also and then determine tax owed if any. However being a USC your required to report this to the IRS but may be able to exclude all of this income since it is earned income by using form 2555, if you can not exclude it any tax you pay in Canada on this income can be used as a tax credit in the US by using form 1166. Since it is a small business you will probably be able to use form 2555 to exclude it all as long as you have the residency requirements in Canada to do so look at form 2555 for all details as to how to qualify.