Legal Question in Tax Law in District of Columbia
My fiancee and I are physicians we are seeking advice regarding incorporation and the implication of my dual citizenship (Canadian and US). He only has Canadian citizenship.
We intend to start a medical practice next year in Canada. My US taxes are all filed and up-to-date. There is a preferential small business tax in Canada that allows physicians who incorporate their practice to pay only 15% business tax and maintain the money in the corporation creating a good tax defferal. My understanding is that this tax rate is much higher in the US and this advantage is completely lost.
To get around this, we are considering:
1. My fiancee incorporates the practice and pays me a modest salary. I will pay personal income tax rates on it here (higher than US) and therefore avoid a US tax burden.
The only caveat to this is I know the IRS requires the spouce of US citizen living abroad to also declare their personal business assests etc. They could certainly look closely at this and lead to major issues, although I do not think it is specifically illegal. In this case I would have to file under the married filing separtely category with a higher tax rate, but I think it is still lower than the Canadian.
One of my questions is: if we do not legally marry, we would be considered common-law in Canada, but would the IRS consider us common-law as well? I have looked this up, and on the IRS website it states that if the "state" that you are living considers you common law, then the IRS does. Does this apply internationally as well?
The other solution would be to renounce my US citizenship. I would need to do this before accumulating 2million in assests, to avoid paying an exit tax. If I do renounce, and owe 0 taxes to the USA, will I be allowed to freely travel into the USA on business (ie to attend a conference) or for a brief vacation?
I am aware that renouncing is a serious step, I don't have any plans whatsoever of moving to the USA but would not like to renounce on a whim.
We are seeking formal legal and financial advice, so far aside from vague responces no one was shown an interest in clarifying these issues for us, as we are not a large enough busines to interest international tax specialists in Canada.
Any help is appreciated!
1 Answer from Attorneys
Did you ever get a response on this? This is a particularly complex issue spanning tax law, immigration and business law. Not to mention international transactions and income. Well done!
Do not renounce US citizenship. That would be a VERY BAD IDEA.
Namely, you can exempt a certain amount of income earned overseas. Also, by claiming the business income as...business income (shocking, I know), and paying you as a shareholder instead of a payroll income (modestly sneaky), you may be able control taxable liabilities even further.
There are all sorts of ways to manage out-of-country taxable income. Give me a call to discuss and we can figure a way to maximize income, minimize tax, stay legal, and maybe even get your husband an LPR card in the process.
As you might imagine, if you have not already resolved this issue, international ops is neither simple nor cheap. But...once you get this squared and understand the game, your investment in sound advice will pay huge dividends. (
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