US Citizen living in Canada going business in Canada and the US

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Question

Mr. Hogan

I’m 59 years old and a US Citizen and Canadian Permanent Resident.

For the last 10 years, I’ve been an employee of a US Management Consultancy, working entirely in the US for US clients while residing in [Canadian province].  I’d been advised by their cross-border tax advisors that income generated while working in Canada for those US clients qualifies as Canadian-source income and the income generated when I work in the US qualifies as US-source income, and have filed my US and Canadian taxes accordingly in the past.  In a typical year, I’d guess that no more than 20% of my income was reported as Canadian-source.  I usually average an annual income of about $160,000

I’ve never made CPP contributions, but have maxed-out my US SS contributions each year for over 30 years.

I’m married to a Canadian citizen, and will eventually (sooner rather than later) be processing her through as a US permanent resident so that she will be able to draw spousal benefits and survivor benefits from my Social Security account.  I have a former spouse who will also be able to claim benefits based on my contributions.  She does not work outside the home.  Social Security and/or CPP/OA income is a factor in how we select our best options.

I recently began working as a sole-proprietor for my US-based clients.  Currently ALL of my work is for my US clients, and is performed on-site at their US facilities.  I currently have no Canadian clients, but occasionally work from my home office in [Canadian province] to perform work for those US clients.

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I have not filed business registration, incorporation or other formalities for that business, but will need to do so quickly.  And will need immediate advice on where and how to set up the business so as to minimize my total tax liability to Canada and the US.   I suspect (but need advice on) that I should continue to max out my Social Security contributions in the US so that my combined benefits from CPP and US SS are not reduced because of lower US-source income and SS contributions.  This clearly would also affect my wife’s eventual spousal & survivor benefits, so I need to understand options and the impact that my business decisions and working location have on that.

Until this year, I’ve maintained a US apartment, but not considered my tax home.  I currently have no physical US residence, but believe it will be necessary for business purposes, and am considering using a company that provides a physical address and mail services for a nominal fee to establish a US address for my pending business, but I’m not sure if that’s wise or sufficient for tax purposes.

I know that the 5th protocol in the US-Canada tax treaty has complicated the situation a lot, so need advice considering all of the above.

I have not yet registered a business name, nor decided whether it benefits me to set up an LLC or Subchapter-S corporation…or none…and if so, what am I able to do for myself vs. What do I need to have an accountant do for me, where to have it established, etc..  I cannot see a real reason to even register my business name in Canada, much less do the incorporation there…but will do so if it makes sense from a tax and retirement income perspective.  If it make sense to establish an LLC or S corp in the US, I have a strong personal preference to have it in Las Vegas.

I’ll need advice, assistance in setting up my company if it makes tax-sense for me to do so, and assist in  preparing my US and Canadian income tax returns.  I’ll look forward to the opportunity to have someone knowledgeable throw some light on things.

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XXXXXX

Answer

Hi XXXXXX

It’s not clear from the above, however I hope you have been recorded your “total worldwide” income on both returns.

It will be more efficient to discuss your situation over the phone rather than typing a long email answer.

Please give me a call so we can discuss.

Regards

Phil

Phil Hogan, CA
250-661-9417

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