CDA Employment income, Pension +Self employment;+Pension=USA

[icmybusiness]

IRS Issues = Dual CDN/US Citizen - & Wife is Cdn (Wife MFJ as US resident for 2555) - 19 yr old dependent son @ University - Setting the stage for discussion on higher income consequences this year - 2555 Vs 1116. Discussion & Self Employment Tax Discussion
Employment gross Income in Canada will be near $200K (maxed CPP), Small Cdn. Company Pension (<$4K yr)
- Self Employed Consulting fees ($40K)
- Interest/dividends very low
Then is ALSO from USA a Small USA Co. - Pension $25K/YR).
Previously using 2555 for IRS (lower Employment income) & paying no USA tax.
[Have 401K in USA + RSP & LIRA in Canada]

A) Do I have to pay USA Self Employment Tax on the CDN Consulting fees given I have paid the max CPP on employment income

B) If I have understood posts/answers - Higher Income - It sound like I should switch to form 1116 for all income to avoid double taxation as my taxable income on Employment Income and pensions will exceed last year income & the from 2555 max limit

C] 401K - should I convert to Roth or traditional IRA (already left USA in 2002)

D] USA Estate Planning : Should I transfer the CDN house to the wife's name ( to minimize death taxes (she is as a CDN will have less tax avoidance privileges Net worth <$1M))

[nelsona]

A) You will not be subject to SE tax in US, because your SE income was subject to CPP in canada. Limit doesn't matter. You are under CPP regime (you may need a letter to prove this).

B) Not necessarily. You would need to do your return both ways (255 and 1116 on the excess OR 1116 on all of it). You always need to use 1116 on non-earned income in any event. Cdn taxation is still higher than US.
Regardless of how you do this you will have to pay some tax on your US source income at this point. No getting around that.

c) you should NOT convert to Roth. Converting to IRA is upto you based on whther you like the investemtn choices you currently have or not.

D) Dunno.

[icmybusiness]

Thank you Nelson for such a quick response. "2555 and 1116 on the EXCESS OR 1116 on all of it.
i.e. ? I would use 2555 and whatever foreign employment (employment salary and SE ) income I have in excess of the 2555 above the Foreign Income allowance would be put the excess on the 1116 from. Right now I am using Both forms so that sounds wrong (i.e I am double dipping?)
When I use the 1116 only my math still shows I owe tax on the Canadian income. (I have withholding in the USA on my USA pension so that is OK)

[nelsona]

If your earned income exceeds your 2555 limit, then you can use 1116 on the excess.

FOr example, you make $200K earned income, and owe $60K Cdn tax. You have no other income in this example.

Say your 2555 limit was $100K, you use 2555, and then use 1116 to claim the $30K towards your US tax.
You will end up owing more tax.
OR
Instead of using 2555 you simply use 1116 on all of it. You report $20oK on 1116 and use all $60K towards your US tax. My bet is that this will result in less uS tax owed.

AS I said, once you exceed the 2555 limit, and you have income from both countries, you are pretty much guaranteed to owe some US tax on both your US and Cdn income, regardless of which method you use. You have to choose which you prefer.

Keep in mind that if you were using 2555 and you elect to instead use 1116 on your below-limit earned income, you can't go back to 2555 for a few years.

[icmybusiness]

you're great...thank you...we will have equal to or greater income in 2011 so I expect changing over to 1116 is better (plus consulting fees will probably be zero..making the returns easier to prepare..Again thank you for your efforts.