Ask HN: I am a US Citizen and I own a Canadian Corp and a US LLC ..Tax advice?
8 comments
1. Your Canadian corporation is a controlled foreign corporation. See Form 5471. It may or may not generate Subpart F income. Penalty for fucking up -- even modestly (like filing a day late) -- is $10,000 with surprisingly little mercy. Likely fees for preparing Form 5471 by someone who has a clue: $7k and up. No easy alternative except kill the corporation. Uncle Sam hates small business operating internationally.
2. If you are the sole member of the LLC the LLC is disregarded and all of the income flows to Schedule C. Haha :-/ you will pay self employment tax on your profit. If you're doing well the combined tax load will exceed 50%. Uncle Sam hates the self employed. If your LLC is owned by the Canadian corporation you are well and truly fucked. You have the Form 5471 problem. You also have to file a corporate tax return in the USA for your Canadian corporation (Form 1120F) and submit its income earned in the USA via the LLC to US corporate income tax plus branch profits tax so the combined corporate tax rate will exceed 50%.
3. Finding competent experienced help in this area is extremely hard. When you find people they are extremely expensive.
4. Sorry for the bad news.
5. There are a shit ton of other forms to file. Eg when you created your Canadian corporation you should have filed Form 926 to report the capital contribution to the corporation. Moving ownership of IP from a domestic to foreign owner can cause taxation. Etc.
6. Again, sorry. My contact info is in my profile. I'm too expensive for you but I will try to point you in the right direction. Maybe HN needs a webinar for cross border startups like yours. :-)
2. If you are the sole member of the LLC the LLC is disregarded and all of the income flows to Schedule C. Haha :-/ you will pay self employment tax on your profit. If you're doing well the combined tax load will exceed 50%. Uncle Sam hates the self employed. If your LLC is owned by the Canadian corporation you are well and truly fucked. You have the Form 5471 problem. You also have to file a corporate tax return in the USA for your Canadian corporation (Form 1120F) and submit its income earned in the USA via the LLC to US corporate income tax plus branch profits tax so the combined corporate tax rate will exceed 50%.
3. Finding competent experienced help in this area is extremely hard. When you find people they are extremely expensive.
4. Sorry for the bad news.
5. There are a shit ton of other forms to file. Eg when you created your Canadian corporation you should have filed Form 926 to report the capital contribution to the corporation. Moving ownership of IP from a domestic to foreign owner can cause taxation. Etc.
6. Again, sorry. My contact info is in my profile. I'm too expensive for you but I will try to point you in the right direction. Maybe HN needs a webinar for cross border startups like yours. :-)
I did stumble across that form 5471 while googling. Ouch. I will PM you, thank you for your advice.
Another fun fact: from the Canadian tax perspective, a U.S. LLC is taxed as a corporation. If you had your LLC while you were living in Canada you'll need to see what Canadian exposure you have for that.
It is time to consult with a Certified Public Accountant with experience in international corporate tax matters. Or perhaps a chartered accountant in Canada, in addition to a CPA in the USA.
The accountant(s) can save you a lot of money by advising you on appropriate record keeping, business entity structure, appropriate characterization of the transactions you describe, as well as knowledge about tax rules that you may trip over (with associated penalties). Plus hiring one would allow you to spend your time and effort better on the business you know.
There are some very significant rules for bringing money into the US, from a tax perspective, with heavy penalties for failing to do so with appropriate tax declarations.
Since you are apparently profitable, this should not be a burden to you, and if you're not, yet have significant assets, conducting the tax matters appropriately is a cost you are able to pay to avoid trouble, and avoid needless risk.
I'd estimate you can save enough money by being well-advised that it would more than pay for the professional fees by avoiding trouble, and perhaps by taking advantage of appropriate tax rules for your situation that you are unaware of.
It is a good accountant's business mission to save people more money than their cost, and aid people to grow their business.
Doubtless you have business relations with people who have accountants they trust and rely on. Just like hiring a lawyer, you can talk to an accountant in a hiring conversation to learn of their expertise, interest and compatibility with your desires, without the obligation.
There are business associations, such as Chambers of Commerce (since you're in a border state) that may have people who have experience or opinions about people or firms to suggest you might engage. Work your network.
The accountant(s) can save you a lot of money by advising you on appropriate record keeping, business entity structure, appropriate characterization of the transactions you describe, as well as knowledge about tax rules that you may trip over (with associated penalties). Plus hiring one would allow you to spend your time and effort better on the business you know.
There are some very significant rules for bringing money into the US, from a tax perspective, with heavy penalties for failing to do so with appropriate tax declarations.
Since you are apparently profitable, this should not be a burden to you, and if you're not, yet have significant assets, conducting the tax matters appropriately is a cost you are able to pay to avoid trouble, and avoid needless risk.
I'd estimate you can save enough money by being well-advised that it would more than pay for the professional fees by avoiding trouble, and perhaps by taking advantage of appropriate tax rules for your situation that you are unaware of.
It is a good accountant's business mission to save people more money than their cost, and aid people to grow their business.
Doubtless you have business relations with people who have accountants they trust and rely on. Just like hiring a lawyer, you can talk to an accountant in a hiring conversation to learn of their expertise, interest and compatibility with your desires, without the obligation.
There are business associations, such as Chambers of Commerce (since you're in a border state) that may have people who have experience or opinions about people or firms to suggest you might engage. Work your network.
If I were in your situation, at the start I probably would have looked into having the Canadian entity contract with the US entity for services, so that the US entity is the one paying you personally (but that also may involve registering the US entity in Canada).
The tax season has now started for accountants, it being January, so it is desirable to talk to and engage someone quite soon before they are too busy with their existing clients to deal with you.
The tax season has now started for accountants, it being January, so it is desirable to talk to and engage someone quite soon before they are too busy with their existing clients to deal with you.
Thank you for your tips. Can I retroactively subcontract (the books) canadian --> US? That makes a lot of sense, otherwise I think I'm facing a double taxation problem.
A question to get an answer to from your new professional advisor, is, can you reasonably and legitimately treat those payments as personal loans or advances (if paid to you and not paid to third parties), pay these loans back at this point to the Canadian entity, and belatedly contract between Canadian/US entities for services rendered.
You're a couple of years late on getting good advice on business entity structures and relationships...since you've been operating for a while now.
You're a couple of years late on getting good advice on business entity structures and relationships...since you've been operating for a while now.
I'd recommend talking to a Canadian CPA. In my experience Canadian CPAs have far more relevant experience dealing with Canada-US taxes than US CPAs do, most US CPAs are focusing on other pools of countries.
I have no idea what I'm doing re: tax. My first year I stumbled through filing a net loss in Canada. Now that I'm doing significant money, I'm looking for some high level advice. One of my main questions is how to declare money that I've drawn from the Canadian company for living expenses. Since I can't legally work in Canada, I'm guessing it has to be a dividend. I don't want to get double taxed either.. the money is pretty substantial.
Thank you for any pointers. This is a bootstrapped business, so hiring the kind of accountant I would need to handle international tax seems too prohibitive.