

Ask HN: I am a US Citizen and I own a Canadian Corp and a US LLC ..Tax advice? - jeffblake

So I run a company by myself that has a physical and legal presence in both the US and Canada. (Business Banking, address, merchant processing, etc). The Canadian company is a Corp, the US entity is an LLC (Washington State). I am a US citizen who recently relocated from Canada back to the US.<p>I have no idea what I&#x27;m doing re: tax. My first year I stumbled through filing a net loss in Canada. Now that I&#x27;m doing significant money, I&#x27;m looking for some high level advice. One of my main questions is how to declare money that I&#x27;ve drawn from the Canadian company for living expenses. Since I can&#x27;t legally work in Canada, I&#x27;m guessing it has to be a dividend. I don&#x27;t want to get double taxed either.. the money is pretty substantial.<p>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.
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philiphodgen
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. :-)

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jeffblake
I did stumble across that form 5471 while googling. Ouch. I will PM you, thank
you for your advice.

~~~
philiphodgen
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.

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redtexture
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.

~~~
redtexture
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.

~~~
jeffblake
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.

~~~
redtexture
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.

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rubiquity
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.

