Foreign Tax Credit on Self-Employment Income.

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hodini
Posts: 16
Joined: Thu May 17, 2007 11:27 am

Foreign Tax Credit on Self-Employment Income.

Post by hodini »

I am a citizen of the US and Canada, residing full-time in Quebec Canada. I used to have a Quebec corporation where I earned income from general management services. I paid myself through the corporation and I was able to avoid double taxation by taking the foreign tax credit on my US return. I closed the company several years ago. In 2017 I started earning income from general management services again. But this time I was paid directly, not through a corporation. I am preparing my 2017 US Tax returns and am surprised to see that the foreign tax credit “generally does notâ€￾ reduce my US taxable liability from the self-employment income I receive. "Generally does not??" Rats!

Is there anything I can do? It’s about $35K in income, resulting in a tax bill in Canada for about $4,500 and another tax bill in the US for $4,500. I hate to have to double pay! I anticipate my fee income will also increase this year, to $60K, and perhaps more in the future. So, I might be best to open a corporation again. I also think I might, again, need your assistance in future tax prep as this is becoming complicated again.


Thanks for your reply!

Jeff
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

You could instead use the foreign earned income exclusion (form 2555).

However, I disagree that FTCs could not be applied against the US tax by using 1116.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hodini
Posts: 16
Joined: Thu May 17, 2007 11:27 am

Post by hodini »

Nelsona,

Thank you so much for your reply! I thought FTC could not be applied against my self-employment income tax because Turbo-Tax was not allowing it. AND when I researched I found this article:

https://www.goldinglawyers.com/will-the ... yment-tax/

I will explore the 1116 and 2555 further.

If you have any other feedback, it will be appreciated.

Regards
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Note the difference between Self-employment income tax, and self-employment (SE) tax, which is in essence social security..

Since you live in Canada, and US and Canada have a social security agreement, you are NOT SUBJECT TO SE tax, by the agreement, because you live in Canada.

may here have been able to remove this SE tax from their returns in software, perhaps someone will. CRA has a form you are supposed to provide IRS if needed.

Look for CPT in search here.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

You are still subject to INCOME tax in US on your Self-employment income, but can most definitely use 1116 to reduce the INCOME TAX or 2555 to reduce the INCOME.
The result should be that you pay no tax or SE tax in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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