Service Contract with American Company as an LLC

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ewax
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Joined: Wed Mar 16, 2016 1:25 pm

Service Contract with American Company as an LLC

Post by ewax » Wed Mar 16, 2016 2:21 pm

I am a dual citizen of the U.S. and Canada. I moved to Montreal a year ago and am fully a resident of Canada now.

Starting this year, since living in Canada, I have gotten two website development gigs through a company based in New York. Based on advice from a New York tax attorney without too much knowledge of cross border situations, I just gave the company my social security number and my parent's address in New York was told I would be issued a 1099 at the end of the year for services I performed and that I could deposit this first in my U.S. bank account, pay U.S. taxes on it and claim credit for it on my Canadian return. It was only a few thousand so I didn't worry too much about it.

But now that same company wants to hire me for a more regular job for which I would get a regular monthly income but it would be a structured like an annual service contract, where I would still be issued a 1099 (not a W2). I would continue living in Montreal and work this job entirely remotely on my computer here in Canada. They indicated that for a more extended service contract, they felt uncomfortable having the contract be with an individual and would prefer it to be a business because of bad experiences in the past dealing only with individuals. I think they know this is just a one person operation but on paper they would like me to be a business. I was initially planning on keeping this income and its taxes in the U.S., and then writing myself checks from a business account in New York to deposit in Montreal as income coming from an LLC I would form in New York. This LLC would have been just me, making it a "single member LLC" and thus as far as U.S. taxes a "disregarded entity" meaning I would file it on my personal return and it is seen as another name I am using for myself as an individual to do business with others. I was about to file online to form an LLC in New York with my parent's address there when I came upon a number of articles warning about the dangers of how LLCs are treated residency-wise from Canada's perspective, such as this one:

http://tax.moodysgartner.com/canadians- ... ax-health/

What I want to do (ideally):

I want to make things easy for this company that wants to hire me for this service contract and not have to ask them to hire me as a foreign Canadian worker, but find a way that I can accept this income as an American and deal with all taxes on the American side, getting credit for it on my Canadian return. Additionally, I play on applying for jobs in Canada and want to be able to do this in a logical way where I can pay taxes on my Canadian income and pay taxes on my American income and have each country give me credit where credit is due and obviously avoid double taxation.

Any advice on accomplishing this goal is greatly appreciated. Additionally, if this is totally impossible as I've described it and I've been misinformed about how complicated it would be for this New York company to hire me as an individual or Canadian registered business, please let me know.

nelsona
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Post by nelsona » Wed Mar 16, 2016 3:33 pm

Your situation is not that complex, but is made a little more so by your citizenship All you have to remember is that he work done in canada is Cdn sourced, and the work performed in US is US-sourced. Since none is being done in US, this is simple.

Even if you had, ultimately, you will pay Cdn tax on all this income.

if you were not a US citizen, none of this income would be taxable in US. But since it is, there is a remedy that applied for you.

You will report all income on your 1040 (you have to do this anyways) and can exclude the income using form 2555. The result should be no tax in US.

The fake address you gave was unnecessarily complicating things, so stop that.
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nelsona
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Post by nelsona » Wed Mar 16, 2016 3:34 pm

The LLC is not an issue. That article deals with investment LLCs.
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ewax
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Post by ewax » Wed Mar 16, 2016 3:44 pm

Thanks for the information. Are you saying that it does not make sense for me to form a business in the U.S. that can be paid for the service contract?

nelsona
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Post by nelsona » Wed Mar 16, 2016 4:08 pm

You can if you wish, but why not a Cdn one, since you live there.
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ewax
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Post by ewax » Wed Mar 16, 2016 4:13 pm

[quote="nelsona"]You can if you wish, but why not a Cdn one, since you live there.[/quote]

What extra complications are there for the New York company having a service contract with a Canadian company?

nelsona
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Post by nelsona » Wed Mar 16, 2016 4:33 pm

None.
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nelsona
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Post by nelsona » Wed Mar 16, 2016 4:35 pm

You are unnecessarily exposing yourself to US and state corporate tax, with no tax benefit.
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