When an individual or an entity imports goods into the United States, they may have to pay import tariffs based on rates in the Tariff Schedule.
Common words used for a tariff are import duty, custom duty, custom tariff, etc. Virtually all goods are listed in the tariff schedule; some of them are rated at 0%, and some of them may be rated at 37.5% at the maximum. There are also some exemptions or reductions on tariffs for the items imported for personal use based on the dollar value limit.
Import tariffs are collected at the border or seaports by the Customs Border Protection Department. Either you or your clearing agent needs to fill out a Bill of Entry and some other forms and also needs to provide some documentation. You can also make a declaration online before the shipment arrives at the border to avoid any delays in clearing at the border.
Clearing the goods at the border and paying duty is the responsibility of the importer or his/her appointed agent. You might have seen at the Fedex or similar courier companies asking you to pay the duty when delivering the goods at your door, before they hand over the goods to you. In such cases, Fedex or a similar courier company works as your clearing agent to pay the duty at the border on your behalf and collect the same from you when delivering the goods.
A limited liability company (LLC) is a legal form of an entity created by law in the United States. The liability of its owners or members is limited. Compared to a Corporation, an LLC can not issue shares/stocks, and its taxation for income tax purposes is done differently in the United States. An LLC does not have a board of directors or shareholders; instead, they have owner/owners or member/members. They do not have to conduct a meeting of the board of directors or a meeting of the shareholders. An LLC is more straightforward than a corporation in terms of compliance or corporate record maintenance. An LLC can have a meeting of the owners/members. The details of owners/members are usually outlined in the operating agreement. A new member can join an LLC based on the guidelines provided in the LLC’s operating agreement.
You can form an LLC in the United States by filing the formation/registration documents with a particular state. Each states in the United States may have their own requirements.
A new limited liability company (LLC) incorporated in New York must publish a notice of its formation in two newspapers in the county where they are located within 120 days of the initial articles of organization taking effect. The publication should include either a copy of the articles of organization or a notice related to the formation of the LLC. The two newspapers should include one daily newspaper and one weekly newspaper, and the publication should stay for six consecutive weeks.
The LLC should file a Certificate of Publication with the New York Department of State, along with affidavits of publication from the newspapers.
You can incorporate your business in the United States by filing the articles of incorporation with the State Department. You can not incorporate federally in the United States. Each state has its own requirements of incorporation based on the state’s law. One of the biggest reasons for incorporating your business in the United States is the “limited liability” protection.
Learn about incorporating in the United States
The state of Pennsylvania requires every corporation incorporated in the state must advertise in two newspaper either its intent to incorporate or have incorporated in the state of Pennsylvania. One of that newspapers should be a legal journal. The proof of advertising should be included with the minutes of the corporation. The advertisement must contain the name of the proposed corporation and a statement that the corporation is to be or has been incorporated under the provisions of the Business Corporation Law of 1988.
The state of Pennsylvania does not state any time frame within which it publication must be made.
In our view this is a legal requirement and should be complied with before starting any operations. The corporate existence or the protection form the limited liability may at questions when any adverse situations arises.
A corporation in the United States or in Canada distributes its profits to the shareholders by declaring dividends. The corporation declares dividends from its after-tax profits. Although the corporation has already paid the corporate income tax on its profits but again, the dividends declared or paid to the shareholders become taxable in the hands of the shareholders for income tax purposes. The shareholder includes the dividend to his/her income and reports on his/her annual income tax return. This is an issue of double taxation. Both Canada and the USA have created some provisions under the Income Tax Act to minimize the impact of double taxation.
In the United States, a shareholder can get dividends from a corporation as ordinary dividends or qualified dividends. The corporation declaring or paying dividends to its shareholders reports them on Form 1099-DIV and submits a copy to the IRS and a copy to the shareholder. The shareholders receive the dividend and report it as income on their personal income tax return; however, the taxation of a qualified dividend is done differently than the ordinary dividend on the personal income tax return of the shareholders. A qualified dividend has tax advantage.
A qualified dividend is a dividend that meets the criteria.
A dividend is considered qualified if the shareholder has held a stock for more than 60 days in the 121-day period that began 60 days before the ex-dividend date. The ex-dividend date is one market day before the dividend’s record date. The record date is when a shareholder must be on the company’s books to receive the dividend.
A qualified dividend in the United States taxed at Capital gain tax rate.
A Health Savings Account (HSA) in the United States allows you to contribute every year from your pretax income, and this fund can be used for your qualified medical expenses. You need to be enrolled in a high-deductible health plan (HDHP) before you can contribute.
One of the conditions for an HSA contribution is that you do not have any medical coverage elsewhere. For example, if an Ontario, Canada resident is covered under the medical coverage under OHIP, he will not be eligible to contribute to HSA in the United States.
The following contribution limits apply:
For the tax year 2024 –
HDHP Coverage for self $4,150
HDHP Coverage for family $8,300
For the tax year 2024 –
HDHP Coverage for self $4,300
HDHP Coverage for family $8,550
There is a penalty, may apply to you if you over contribute to your annual limit.
Health Savings Account (HSA) contributions allow you to save money for your future qualified medical bills. You must be enrolled in a high-deductible health plan to be eligible to contribute to HSA. Contributions made to HSA are not subject to federal income tax, and any income from the HSA account is also tax-free. HSA is owned by an individual unless you have Health Reimbursement Arrangements (HRAs), which is owned by the employer.
People work or do business on both sides of the border. It becomes complicated when you have to report income on both your Canadian tax return and also on your U.S. tax return and pay taxes. This brings the situation of double taxation when you have to pay taxes in Canada and the United States on the same.
The state of California and, recently, New York have adopted an approach whereby taxes paid in the Canadian Provinces are allowed as a credit to avoid double taxation.
If you were a full-year or part-year resident of New York State, or a New York State resident estate or trust, or a part-year resident trust, and you had income sourced to and taxed by a Canadian province, you may claim a credit against your New York State tax. This credit is allowable only for the portion of the tax that applies to income sourced to and taxed by the Canadian province while you were a New York State resident.
You report and claim this credit on New York State income tax Form IT-112-C-1.
Every resident of Canada must file an income tax return in Canada every year and report his/her worldwide income. When you have substantial ties with Canada, you will be filing a tax return in Canada as a resident of Canada. If you are a non-resident of Canada, you may only be required to file an income tax return if you have income from sources in Canada.
A U.S. citizen must file an income tax return in the United States every year, irrespective of their residential status. Otherwise, all residents of the United States must file an income tax return in the United States and report his/her worldwide income. If you are a non-resident of USA, you may only be required to file an income tax return if you have income from sources in the United States.
In the same tax year, suppose you have income from sources in the United States and in Canada. Since you are a Canadian resident and you have to file an income tax return in Canada. And if, based on the Green Card Test or Substantial Presence Test, it is determined that you are also a resident of the United States, then you have to file an income tax return in the United States as a resident of the United States.
In the above situation, you are in Dual residency status for tax purposes. The criteria applied for testing residency status in Canada and in the United States are different. Canada determines your residency status based on the substantial ties with Canada. While US determines your residency status based on either the Green Card Test of number of days present.
Capital gain tax is an income tax that is levied on your income that arises from gain on sales of your investment properties. Income tax on capital gains is usually lower than the income tax you pay on your ordinary income on both sides of the border.
The tax on capital gains in the United States is computed differently than in Canada. In the United States, capital gains are classified as follows:
In the United States, net capital gain is taxed separately from ordinary income. Normally, a lower tax rate is applied to your net capital gain depending on your overall taxable income. The tax rate on your net capital gain may range from 0% to 28%.
Learn more about Capital Gain Tax in USA
Global Intangible Low-Taxed Income (GILTI)
A U.S. person who holds 10% stocks of a controlled foreign corporation (CFC) must report CFC-tested income on Form 8992. This applies regardless of whether the US shareholder has actually received the CFC income as a dividend. Depending on the status of the shareholder the tax rate may range from 10% to 37%.
You can defer your income tax on capital gain when you make an election under section 1031 Like-kind exchange.
45 Day Rule
You need to designate the replacement property within 45 days of the sale of your property. You have the option to designate three properties subject to that they should fall under the same valuation rule.
180-Day Rule
You must close the above-designated property within 180 days of the sale.
Section 1031 election allows you to defer your income tax on capital gain under Like-kind exchanges.
Like-kind exchanges — when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind” — have long been permitted under the Internal Revenue Code. Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss under Internal Revenue Code Section 1031.
A U.S. Person is…
FINANCIAL CRIME ENFORCEMENT NETWORK (FinCEN) is a bureau of the U.S. Department of the Treasury. The Director of FinCEN is appointed by the Secretary of the Treasury and reports to the Treasury Under Secretary for Terrorism and Financial Intelligence. FinCEN’s mission is to safeguard the financial system from illicit activity, counter money laundering and the financing of terrorism, and promote national security through strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.
A U.S. person uses Form 5471 to report if he/she is an officer, director, or shareholder in certain foreign corporations. Many Canadians working in the United States or engaged in the trade of business in the United States and filing a U.S. return 1040 are required to file Form 5471 if he/she is an officer, director, or shareholder in certain foreign corporations.
Since Form 5471 is filed with Form 1040, the same due date applies as the due date of 1040.
Failure to file a penalty may range from $10,000 to $50,000.
A tax transcript is a copy of the tax return that you filed with the IRS. There are four types of Business Tax Transcripts.
A corporation that is registered within the jurisdiction of the United States is a domestic corporation. A domestic corporation files its income tax return on form 1120. There are two types of corporations: 1. C. Corporation, and 2. S. Corporation. A non-resident of the United States can not incorporate an S. Corporation. A non-resident of the United States can only incorporate a C. Corporation.
A reporting entity in the United States, which is a domestic corporation for which 25% or more is controlled by a foreign person or a foreign entity engaged in trade or business in the United States, will be required to report certain information, including any related party transactions on form 5472.
The form 5472 is filed with IRS along with your annual income tax return.
Approx. $591 per may apply if you fail to report BOIR by the due date.
BOIR reporting has three sections:
Any changes in the identification information of the above three must be updated within 30 days.
Any individual who owns directly or indirectly or controls directly or indirectly 25% of the ownership interest of the reporting entity.
Beneficial Ownership Information Reporting (BOIR) requires certain types of U.S. entities and foreign entities to report information about the reporting entity and their beneficial owners. The report is submitted to the Financial Crimes Enforcement Network (FinCEN) in the United States. This reporting was implemented since January 01, 2024.
If the entity already existed on January 01, 2024, then they must submit this report by January 01, 2025; otherwise, a new entity must file BOIR within 90 days.
Now you can pay IRS your income tax owing in the United States from Canada using your debit card, credit card, or through your paypal account. This method is easy, convenient, faster, and secured. This payment provider has also been suggested by IRS to international taxpayers to pay their taxes from most of the countries in the world.
In the United States, individuals can choose from five different tax filing statuses when preparing their federal income tax returns:
It’s important to choose the correct filing status, as it can affect the amount of tax owed or the size of any refund. Taxpayers should review the eligibility requirements for each status carefully to determine the most advantageous option for their specific situation.
A pass-through entity is a type of business entity in the United States in which the profits and losses of the business are passed through to the owners or investors for tax purposes. This means that the income earned by the business is not taxed at the entity level, but rather, it is “passed through” to the owners or investors, who report it on their personal income tax returns.
Pass-through entities include sole proprietorships, partnerships, limited liability companies (LLCs), and S corporations. In contrast, traditional corporations (C corporations) are subject to double taxation, meaning that they pay corporate income tax on their profits and then shareholders pay personal income tax on any dividends they receive.
Pass-through entities are popular among small business owners because they generally offer simpler tax filings and lower tax rates than traditional corporations. However, it’s important to note that the tax treatment of pass-through entities varies by state and the specific entity type.
LLC stands for “Limited Liability Company” in the United States. It is a type of business entity that provides limited liability protection to its owners, also known as members.
LLCs combine the liability protection of a corporation with the tax benefits of a partnership. This means that the personal assets of LLC members are generally protected from business debts and liabilities, similar to the protection enjoyed by shareholders in a corporation.
In addition, LLCs are treated as pass-through entities for tax purposes. This means that the LLC itself does not pay federal income tax, but rather, the profits and losses of the LLC are passed through to the individual members, who report them on their personal income tax returns.
LLCs are popular among small business owners because they provide liability protection while also being relatively easy to set up and maintain. LLCs are governed by state law and the specific requirements for forming and operating an LLC vary by state.
A W-3 form is a tax form used in the United States by employers to summarize the information from all of the W-2 forms issued to their employees for a given tax year.
The W-3 form provides totals for the wages, tips, and other compensation paid to employees, as well as the federal income tax, Social Security tax, and Medicare tax withheld from their pay. The form also includes the total amount of wages subject to Social Security and Medicare taxes, and the total amounts of those taxes withheld.
Employers are required to file a W-3 form with the Social Security Administration (SSA) along with the W-2 forms issued to their employees. The deadline for filing the W-3 form with the SSA is the last day of February following the end of the tax year.
The W-3 form is an important document that helps ensure accurate reporting of wages and taxes withheld for tax purposes. It also provides the SSA with information needed to properly credit the earnings of workers for Social Security and Medicare purposes.
A W-2 is a tax form used in the United States to report an employee’s wages and taxes withheld for a given tax year. Employers are required to provide a W-2 to each employee who earned at least $600 in wages during the year.
The W-2 form includes information such as the employee’s total wages earned, federal, state, and local income taxes withheld, Social Security and Medicare taxes withheld, and any other income or deductions related to employment.
The employer must provide a copy of the W-2 to the employee by January 31 of the year following the tax year. The employer must also send a copy of the W-2 to the Social Security Administration and the appropriate state and local tax agencies.
Employees use the information on the W-2 form to prepare their federal, state, and local income tax returns. The W-2 form is an important document that helps ensure accurate reporting of wages and taxes withheld for tax purposes.
The corporate income tax rate in the United States is 21% for C corporations, which are corporations that are taxed separately from their owners. This rate was established by the Tax Cuts and Jobs Act of 2017, which went into effect in 2018.
It’s important to note that some states also impose their own corporate income tax, which can vary from state to state. For example, the state of California has a corporate income tax rate of 8.84%, while the state of Texas does not have a corporate income tax at all.
Additionally, certain types of businesses, such as S corporations, partnerships, and sole proprietorships, are not subject to the corporate income tax. Instead, the income earned by these types of businesses is “passed through” to their owners and taxed at the individual income tax rates.
Head of household is a filing status for taxpayers in the United States who are unmarried and provide a home for a qualifying person for more than half of the tax year. The qualifying person can be a child, parent, or other relative, as long as they meet certain requirements.
To qualify for head of household filing status, you must meet the following criteria:
Head of household status is advantageous because it offers a higher standard deduction and lower tax rates than the single filing status. Additionally, you may be eligible for certain tax credits, such as the earned income credit and child and dependent care credit.
It’s important to note that the head of household filing status has strict requirements, and you must meet all of the criteria to qualify. If you’re unsure about your eligibility, you may want to consult with a tax professional or use tax preparation software to help determine the best filing status for your situation.
The physical presence test is a test used by the Internal Revenue Service (IRS) in the United States to determine whether a person meets the requirements for the foreign earned income exclusion. The foreign earned income exclusion allows US citizens and resident aliens living abroad to exclude a certain amount of their foreign earned income from US federal income tax.
To qualify for the foreign earned income exclusion, a person must meet either the physical presence test or the bona fide residence test. The physical presence test requires that the person be physically present in a foreign country for at least 330 full days during a 12-month period. The 330 days do not need to be consecutive, and the 12-month period can begin on any day of the year.
To meet the physical presence test, the person must be present in a foreign country, or countries, for at least 330 full days during a 12-month period. A “full day” is generally considered to be a 24-hour period beginning at midnight, local time. However, there are exceptions for travel days, when a person is in transit between countries and not physically present in any country for a full day.
If a person meets the physical presence test, they may be able to exclude up to a certain amount of their foreign earned income from US federal income tax. For the tax year 2021, the maximum foreign earned income exclusion is $108,700. However, it is important to note that the physical presence test is just one of the requirements for the foreign earned income exclusion, and there are other eligibility criteria that must also be met.
A tax treaty is an agreement between two or more countries that aims to prevent double taxation and to promote cooperation between their tax authorities. Tax treaties are typically negotiated bilaterally (between two countries) or multilaterally (between multiple countries) and are designed to promote international trade and investment by removing barriers to cross-border business activities.
The main purpose of a tax treaty is to ensure that businesses and individuals are not subject to taxation by both countries on the same income or profits. The treaty allocates taxing rights between the two countries, with each country agreeing to tax certain types of income or profits in a specific way.
Tax treaties typically cover a wide range of taxes, including income tax, capital gains tax, and withholding tax on dividends, interest, and royalties. They also provide for procedures to resolve disputes between the two countries and to exchange information for the purposes of tax enforcement.
In general, tax treaties aim to provide certainty and predictability for businesses and individuals engaged in cross-border transactions, and to promote a fair and efficient international tax system.
Click-through nexus is a concept in state tax law that refers to a situation where an out-of-state retailer has a physical presence in a state (such as a distribution center, warehouse, or office) and enters into an agreement with an in-state business or individual to refer potential customers to the retailer’s website in exchange for a commission or other consideration.
The term “click-through” refers to the fact that the in-state business or individual typically places a hyperlink on their website that directs users to the retailer’s website. When a user clicks on the link and makes a purchase, the retailer pays the referring party a commission.
Many states have enacted click-through nexus laws that require out-of-state retailers to collect and remit sales tax on transactions with customers in that state if they meet certain revenue or transaction thresholds. These laws are intended to capture revenue from online sales that would otherwise go untaxed and to level the playing field between in-state and out-of-state retailers.
However, click-through nexus laws have been controversial and have faced legal challenges from out-of-state retailers who argue that they violate the Commerce Clause of the U.S. Constitution by imposing an undue burden on interstate commerce. The Supreme Court’s decision in the 2018 case South Dakota v. Wayfair, Inc. upheld a South Dakota law that imposed a sales tax collection obligation on out-of-state retailers with no physical presence in the state, and opened the door for other states to enact similar laws.
Yes, a company incorporated in New York can have a legal address in a foreign country. However, the company must still maintain a registered agent in New York who has a physical address in the state and is authorized to accept legal documents on behalf of the company.
The registered agent’s address is the official address of record for the company in New York, and it must be a physical address where service of process can be made during normal business hours. This is important because legal documents such as lawsuits or subpoenas may be served on the registered agent.
While a company can have a legal address in a foreign country, it’s important to note that maintaining a physical presence in New York is necessary for conducting business in the state. This may include having a physical office, employees, or assets located in New York. Additionally, the company may be subject to New York state and local taxes, depending on its activities in the state. It’s recommended that you consult with an attorney or a tax professional to ensure that you comply with all of the necessary requirements.
Yes, it is possible to incorporate a company in Delaware with a foreign address. Delaware is a popular state for incorporation due to its business-friendly laws and the Delaware Court of Chancery, which has a reputation for being a fair and efficient forum for resolving corporate disputes.
To incorporate a company in Delaware, you will need to file the necessary paperwork with the Delaware Division of Corporations. The filing can be done online, and you can use a registered agent service if you do not have a physical address in Delaware.
When incorporating in Delaware with a foreign address, you may also need to provide additional documentation, such as a Certificate of Good Standing from your home country or a power of attorney to authorize someone in the United States to act on behalf of your company. It’s recommended that you consult with an attorney or a business formation service to ensure that you comply with all of the necessary requirements.
The Other Dependent Credit is a non-refundable tax credit that can be claimed by taxpayers who have dependents that do not qualify for the Child Tax Credit. This credit was introduced with the Tax Cuts and Jobs Act (TCJA) that took effect in 2018.
To claim the Other Dependent Credit, the dependent must be a qualifying relative of the taxpayer, meaning they meet certain criteria such as living with the taxpayer for the entire year, not being claimed as a dependent by anyone else, and having less than a certain amount of gross income.
The Other Dependent Credit is worth up to $500 per dependent and is subtracted from the taxpayer’s tax liability, reducing the amount of taxes owed. However, unlike the Child Tax Credit, the Other Dependent Credit is non-refundable, which means that if the credit exceeds the taxpayer’s tax liability, they will not receive a refund for the difference.
Earned Income Credit (EIC) is a refundable tax credit for low to moderate-income working individuals and families. It was created to provide a financial incentive for people to work, and to help offset the impact of Social Security taxes and other payroll taxes on low-wage workers.
To qualify for the EIC, a taxpayer must have earned income from wages, salaries, tips, or self-employment, and meet certain other requirements, such as having a valid Social Security number, being a U.S. citizen or resident alien, and not having investment income above a certain amount.
The amount of the EIC varies based on the taxpayer’s income, filing status, and number of qualifying children. The credit is calculated on a sliding scale, so the more earned income a taxpayer has, the larger the credit may be, up to a certain point.
In addition, taxpayers who qualify for the EIC may be eligible for free tax preparation services through the Volunteer Income Tax Assistance (VITA) program, which is offered by the IRS and other organizations.
Most likely United States is the only exception, who requires you to file a US tax return every year if you are a citizen of the United States, irrespective of your tax residency. That means even if you do no live in the United States and you live in another country, if you are a US citizen you need to file a US tax return every year.
Gig economy as defined by IRS, is the digital platform where people provide services on part time or temporary or side work basis weather on demand or on an ongoing basis. The service providers get paid either in cash or properties or in crypto currency. The service providers need to report this income on their annual income tax return and if these income were not reported on forms 1099-K, 1099-MISC, or W-2.
Individuals involved in the gig economy may also be required to make quarterly estimated tax payments to pay income tax and self-employment tax, which includes Social Security and Medicare taxes.
You are a citizen of the United States but you are not living in the United States, you can claim foreign earned income exclusion when you are filing a U.S. tax return. The United States requires its citizen to file a U.S. tax return every year based on their citizenship. Whether you are living in the United States or living else where in the world you need to file a U.S. tax return every year.
If you have unfiled overdue tax returns or you have failed to report foreign financial assets for a year or several years, you can use streamlined filing compliance procedure to file your taxes and can comply with the reporting obligations without incurring penalties and interest. However, you have certify to IRS that the non compliance was not a willful act from your side.
If you are not a citizen of the United Sates and if you do not meet the substantial presence test for the tax year, you are considered a non-resident alien for that tax year in the United States. If you are filing an income tax return in the United States, you will use form 1040NR to file your tax return in the United States. Taxation of a non-resident alien is done differently than of a U.S, citizen in the United States. For example, a non-resident alien can not claim Standard Deductions on his/her tax return in the United States.
With the emergence of eCommerce business and remote sellers, selling their products in the United States, it has become difficult to collect Sales and Use Tax by the State Governments. As a result of that almost all states in the United States have defined criterion based on which if your business have a nexus in that state then you need to register your business, collect sales and use tax from your customer and pay the collected sales and use tax to the state and local authorities. In most of the states the nexus is established based on two categories, 1. Physical presence, and 2. Economic nexus. For e.g. If a Canadian selling through his website in the state of Texas and its gross receipts exceeds $500k from Texas in the last 12 months, you have established your business has an economic nexus in Texas and you have to register and collect sales and use tax.
If you are incorporated in New York or doing business in New York, or if you are a foreign corporation owns or leasing properties or have an office or deriving income from New York, you have to file an annual income tax return in the State of New York and pay the Franchise Tax. There are four different methods to calculate the New York Franchise Tax. You need to calculate the tax amount under each method and you need to pay the maximum amount. The four different methods are 1. EIN – Entire Net Income, 2. Minimum Taxable Income, 3. Business Capital base, and 4. Minimum Dollar amount. The filing is due by the 15th day of the 3rd month from your fiscal year end, for calendar year end it is due by 15th April.
If you are incorporated in California, or doing business in California, or have received income from California, you have to pay a minimum Franchise Tax $800.00. However, if your California income tax payable is more than $800.00 then you will pay the income-tax amount. California income tax rate is 8.84% (2022). The California Franchise Tax is due by the 15th day of the 3rd month from your tax year-end.
Every corporation incorporated in Delaware has to pay an annual franchise tax for doing business in Delaware and also has to file an annual report every year.
The fees and taxes paid by the corporation is collected the state government of Delaware. There are to methods of paying the franchise tax.
Method one – is based on the number shares authorized in the certificate of incorporation by the corporation. Under this method the corporation pays a minimum franchise tax of $175 if it has not authorized more than 5,000 shares. If the corporation has issued 5,001 to 10,000 shares than the franchise tax is $250 and there after $85 for each additional 10,000 shares issued by the corporation.
Method two – is based on the assumed par value of shares issued by the Corporation. Under this method the corporation pays a minimum franchise tax of $400 if it has a total $1,0000,000 or less assumed par value of its capital. The corporation pays additional $400 as franchise tax if it has more than 1,000,000 assumed par value of capital, for each additional 1,000,000 par value of capital.
You can defer your tax liability on the capital gains that you have realized by selling a real property in the United States. You have to buy a similar property within the specified days. Section 1031 of the IRS – Internal revenue code gives a exchange relief, in which case you will more money to buy another property. You need to complete form 8824 and file this with your U.S. tax return.
A U.S. citizen has to file his/her U.S. income tax return whether he lives in the United States or anywhere in the world. However, to claim that his certain income is not taxable in the United States, he/she has to prove that he has been maintaining a tax home outside of the United States.
In your business, if you are paying At least $600 in: Rent, Prizes and awards, other income payments, Medical and health care payments, Crop insurance proceeds, Cash payments for fish (or different aquatic life), Payments to an attorney, Any fishing boat proceeds, you may need to issue form 1099 and file with IRS before the due date.
A Canadian or foreign resident individual or partnership or a corporation or trust doing business or deriving income from the United States may need to prepare and submit W-8ECI to its withholding agent to certify his claim that his income is effectively connected with the conduct of a trade or business in the United States. As a result, the withholding agent will not be obligated to deduct the withholding tax from your income. However, the Canadian or foreign resident individual or partnership or corporation, or trust must file a U.S. tax return in the United States and report this income.
Some states in the United States charge you a franchise tax for doing business in that state. Usually, the franchise charge is based on the amount of net worth in the industry or capital employed. The condition may have set a maximum or fixed amount to pay as franchise tax every year. You may also need to file a franchise tax return and pay the franchise tax amount.
Whether it is C Corporation or an S Corporation, the liabilities of the shareholders are limited to the extent of the corporation’s net assets. Regarding income tax, the taxation of both corporations is treated differently. A C Corporation pays income tax on its net income, while an S Corporation passes its income to its shareholder’s income tax return, and the shareholders pay income tax. You must be a U.S. resident to form an S Corporation in the United States.
The Internal Revenue Service IRS is the administering body of the ministry of finance under the Government of the United States or the Federal Government or State Government. The federal and State government imposes taxes on citizens, residents, and businesses, and IRS administers them. The federal and State governments also provide benefits, and IRS issues them.
A foreign corporation in the United States is not a domestic corporation. A domestic corporation is a corporation that has been incorporated in a state of the United States and under the law of the United States. A Canadian corporation doing business in the United States will be considered a foreign corporation in the United States. All foreign corporations in the United States must file an income tax return of Form 1120F.
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In general, transfer pricing is a price you charge to your business division or an entity charge to a related entity. Transfer pricing can be an excellent tool to transfer profit from one division to another division or an entity to another related entity. In the United States, Congress has placed legislation to control transfer pricing, which is enforced and administered by the IRS.
Under the FBAR reporting, you only report your cash securities balances held with a financial institution outside the United States if it is more than US $10,000.00. Under the FATCA, it includes your other assets held outside of the United States, and the total value is more than US $50,000 in general.
Under the U.S. tax system, many filing statuses can apply to you when filing a U.S. income tax return in the United States. The word “Aliens” primarily referred to the three filing statuses, which are 1. Resident Aliens, 2. Nonresident Aliens, 3. Dual-Status Aliens. When filing a U.S. income tax return in the United States will require you to report income differently, and it should be based on your filing status. You will also be allowed deductions from your income, exemptions, and tax credits based on the filing status that you have selected.
A 401k plan is similar to an RRSP in Canada. The only difference is that it is an employer-sponsored plan. That means the employer sets up the program; most commonly, you contribute to the project, and your employer will match your contribution. It is a retirement saving plan which reduces your tax liability in the current tax year, but when you withdraw, it will be taxable.
An IRA is an individual retirement plan. As opposed to a 401k plan your employer sets up, your personal retirement plan is set up by yourself. You have control over where you want to invest your money. You can only contribute to the extent of your contribution limit. The year you contribute to the plan, it is tax deductible. However, when you withdraw money from your retirement plan, it is taxable.
You can claim a dependant on your U.S. tax return if your filing status on the tax return is either a U.S. citizen or a resident alien in the United States for tax purposes. You can only claim a dependent if they are your qualifying child or a qualifying relative.
You report all your income on your U.S. tax return. However, you need to pay taxes only on your taxable income. Your taxable income is the income you reported on your tax return minus standard deductions or itemized deductions. The amount you can deduct as a standard deduction depends on your tax filing status. You can only claim a standard deduction on an itemized deduction.
You can only claim the itemized deductions on your U.S. tax return or a standard deduction. You can not claim both on your tax return. It may involve tax planning, and your tax consultant will suggest which one to argue. If your filing status is nonresident alien, then you can not claim the standard deduction and only claim certain items as itemized deductions on your U.S. tax return.
When you hire an employee in the United States, you must have the employee complete a Form W-4 which is the Employee’s Withholding Certificate. This form provides information about the employee’s tax situation, based on which you can determine the taxes to be withheld from their paycheque. If an employee fails to provide this information, you should withhold their taxes as if they were single or married, filing separately with no other entries on steps 2, 3, or 4 of the Form W-4.
PTIN stands for “Preparer Tax Identification Number.” Any tax professional who is preparing your tax return and you are paying fees for that must have obtained a PTIN from the IRS. Before filing this to IRS, a tax preparer must mention his Preparer Tax Identification Number on your tax return. Your tax professional must apply to IRS to get PTIN and must adhere to the rules and regulations set by IRS.
Your tax professional must have an “Electronic Filing Identification Number” (EFIN) before they can file your tax return electronically with IRS. Your tax professional must apply to IRS to get EFIN and must adhere to the rules and regulations set by IRS.
IP PIN is your Identity Protection Personal Identification Number issued IRS. You enter this number ob your Federal Income tax return or provide this number to your tax preparer to enter this number on your Federal income tax return. If you do not enter this number on your Federal income tax return, the IRS may reject your return or delay the processing of your return.
You can estimate your tax liability and pay through your online banking system by selecting the option “Estimated tax payment with extension request” or request your tax preparer to file electronically Form 4868, an application for the automatic extension of time, and the estimated tax to IRS. Your extension request will not be accepted by IRS if you have not paid the estimated tax.
A tax transcript is a summary of your tax return which has been assessed by IRS. The IRS issues the tax transcript. You can apply online if you have Social Security Number. Please click the link tax transcript to apply. If you do not have a Social Security Number, you can not apply online. However, you can call IRS (Internal Revenue Services) and request for the tax-transcript. If you are a Canadian resident for tax purposes and also filing a tax return in the United Sates, you should be able to claim a foreign tax credit on your Canadian tax return for the taxes that you have paid on your US tax return. Generally, when Canada Revenue Agency is assessing your foreign tax credit, which has been claimed on your Canadian tax return, will ask you to provide the tax transcript to verify your claim for the foreign tax credit.
FUTA stands for Federal Unemployment Tax which funds state unemployment programs. The employer is responsible for paying the FUTA premium and no deduction is made from the paycheque of the employee. FUTA is similar to the EI (The Employment Insurance in Canada). The only difference is that in the United States the employer is responsible to pay this. FUTA in the United States pays to unemployment compensation to an employee when an employee has lost his job. To learn more, please visit our blog “Payroll processing in the United States.”
FICA stands for Federal Insurance Contribution Act taxes which funds Social Security and Medicare programs. The employer is responsible for deducting from each paycheque of the employee and add his contribution and remit to IRS (Internal Revenue Services). Federal Insurance Contribution Act provides benefits for disabled, retirees, and children in the United States. To learn more, please visit our blog “Payroll processing in the United States.”
Generally, states like Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose sales with some exceptions. To learn more about sales tax rates in the united states, please visit “Sales tax rate.”
States like Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no state income tax in the United Sates.
ITIN stands for Individual Tax Identification Number. An individual who does not have a social security number and he has either taxes payable or refundable can apply for ITIN. Usually you apply for ITIN on form W-7 and attach your income tax return with the ITIN application to IRS (Internal Revenue Services). ITIN is only issued to individuals who do not have a Social Security Number.
EIN stands for Employer Identification number. This number is issued by IRS (Internal Revenue Services). An entity once registered in the United Sates has to apply for EIN. A foreign entity for example a Canadian corporation doing business in the United States can apply for EIN. You can apply for EIN on form SS-4, complete this form, sign it and mail it to IRS. You can also apply for EIN online or call IRS to get your EIN. All entities when filing a tax return or when paying taxes in the United States must mention their EIN on the tax document.
A registered agent is the agent of the corporation or the entity who is authorized to receive mail on behalf of the corporation or the entity that is registered in the United States. The registered agent is required to maintain a physical office in the state. When a Canadian or a foreign person incorporating an entity in the United States must provide the name and the address of the registered agent in the state in which they are registering. To learn more about incorporating your business in the United States, please visit “Incorporation.” If you have an office or a physical address in the state in which you incorporating in the United States, you can use this address and appoint yourself as the registered agent. Otherwise, you can hire a registered agent in the state for a fee.
We provide services to incorporate in all the states of the United States. With our services, you get the first six months of free registered agent services. We also provide services for an honorary Board of Directors. With our annual tax filing and compliance services, we take care of all your state annual filings, franchise tax, sales and use tax, local taxes, payroll processing, and income-tax filing for the state and federal.
Yes you can. Many states in the United States allows a non-resident or a foreign person to incorporate and some state even allows to maintain a foreign address. To learn more about the available type legal entities/business structure, please visit “Business structure.”
We provide services to incorporate in all the states of the United States. With our services, you get the first six months of free registered agent services. We also provide services for an honorary Board of Directors which can help you in opening a bank account. With our annual tax filing and compliance services, we take care of all your state annual filings, franchise tax, sales and use tax, local taxes, payroll processing, and income-tax filing for the state and federal.
No. You can not incorporate a Federal Corporation in the United States. As opposed to Canada this facility is not available in the USA. You can only incorporate at the state level. To learn more about the available type legal entities/business structure, please visit “Business structure.” You can incorporate a federal corporation in Canada and conduct business in any or many provinces with an extra provincial registration. Once you you a federal corporation name registered in Canada no other province will allow the same name to be registered by another person.
We provide services for incorporation in all provinces of Canada and in all states of the United States. You get the first six months of free registered agent services in the United States with our services. We also provide services for an honorary Board of Directors. With our annual tax filing and compliance services, we take care of all your state annual filings, franchise tax, sales and use tax, local taxes, payroll processing, and income-tax filing for the state and federal.
Foreign tax credit is the deduction from your total taxes payable on your U.S. tax return. You can claim foreign tax credit if you have paid income tax to another country with whom the United States has a tax treaty. When you are a U.S. citizen or a resident of the United States for the tax purposes, you have to report your world wide income on your U.S. tax return and you can claim a foreign tax credit that you paid to a foreign country. U.S. citizen when maintaining a tax home outside the United States and claiming foreign earned income exclusion, will not be able to claim the foreign tax credit.
If the United States has a tax treaty with another country, you will be eligible to claim foreign tax credit to avoid double taxation issues.
It depends on your tax residency status in Canada. If it is determined that you are resident of Canada for tax purposes, you may have to file an income tax return in Canada. Your residency status depends on several factors and you can make a request to Canada Revenue Agency to determine your residency Status. For more information on your Residency Status in Canada, please visit our Canada blog.
All residents of the United States, for tax purposes, and all U.S> citizen irrespective of their residency status, have to report their worldwide income on their income tax return in the United States. If your residency status is determined as a non-resident of the United States for tax purposes, then you do not have to report your worldwide income. When you report your worldwide income on your U.S. tax return, you may have paid taxes in foreign countries which you should be able to claim as a foreign tax credit on your U.S. tax return.
A U.S. Citizen or Resident Alien, Corporation, LLC, or Partnership must file an FBAR report every year and report your deposits held or your interest in foreign financial accounts every year. A Foreign financial account is an account that is held outside the United States. The threshold for reporting is aggregate value in all accounts when exceeding $10,000.00 at any time during the year. To learn more about this topic, please visit “FBAR reporting.”
Every U.S. Citizen and Green Cardholder has to file a U.S. tax return every year by the due date, irrespective of their residency status. If you are considered a resident or the United States for tax purposes, you have to file a tax return in the United States. If you are doing business in the United States or have income from the United States, you have to file a U.S. tax return in the United States.
Profits/losses from the purchase and sales of stocks and options in the normal trading activities can be considered as business income or loss. Stocks and options purchased with an intention to hold can be considered capital transactions. The capital gain/loss is recognized on the disposition or on the close of the transaction. Only 50% of capital gain is added to your income for income tax purposes. So if you are in gain, you pay tax on only the 50% of gain.
In the USA, there are several business structures that you can choose from. Each structure has its benefits and reporting requirements. For forming an LLC or Incorporating in the USA, each state has its requirements and tax rates. Which structure is right for you depends on several factors?
For more information on the TYPES OF ENTITIES in the United States, please visit our USA Blog.
We provide services to incorporate in all the states of the United States. You get the first six months of free registered agent services in the United States with our services. We also provide services for an honorary Board of Directors. With our annual tax filing and compliance services, we take care of all your state annual filings, franchise tax, sales and use tax, local taxes, payroll processing, and income-tax filing for the state and federal.
If your income is effectively connected with a business, you are carrying in the United States, You must file an income tax return and pay taxes in the United States. Several factors like your presence, physical locations, nexus, agents, etc. will decide if your income is effectively connected with the USA. You can also avail the tax treaty benefits.
Several factors may decide, including your tie-up with Canada or the USA. Your status may be determined based on these factors as a resident, non-resident, or resident alien for tax purposes. If you are a US Citizen or Green Card holder, you must file your US tax return irrespective of your residency status. In Canada, you may not have to file your Canadian income tax return based on your residency status and income sources. You may have to file your tax return in Canada as well as in the USA. Your income may be under double taxation; however, you should be able to get foreign tax credits and avail of some tax treaty benefits, including income exclusion.
Both side of the border, whether CRA or IRS establishing the reasonability of the management fees lies on the taxpayer. CRA may only disallow your management fees; however, they may impose a penalty on this in the case of IRS. Rules for charging management fess in the United States is strict. This may also trigger a question if there are any transfer pricing issues. You should seek professional advise from a tax consultant.
Withdrawing money from the corporation as dividends, whether in Canada or in the USA, will attract double taxation. Another option is to pay salaries from the corporation to the shareholders. However, withholding taxes must be paid on or before the due dates to avoid interest and penalties. In both situations, you need advice from an experienced tax professional to plan and implement since the beginning of the year.