Moving from Canada -> USA tax implications

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speer
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Moving from Canada -> USA tax implications

Post by speer » Mon Aug 12, 2019 8:43 pm

Im a dual US/CA citizen. Currently an Ontario resident. I am self-employed (Amazon.ca FBA). I net $95,000 CAD per year. I have no US tax liability and harvest FTC's (Foreign Tax Credits) yearly. Considering moving to Michigan and trying to grasp how my taxes will change while continuing my Canadian business (its mostly online).

How I understand it is all Canadian income will be taxed by the CRA @ 25%. I will no longer be liable for CPP/EI (Not sure if I'll be liable for Ontario income tax). As a Michigan resident Ill be liable for state income tax, self employment taxes (FICA) @ 15.3% and federal income tax. I will still be able to harvest FTC's from the Canadian tax for use against some US tax owed. Can I only offset US federal income tax? Not sure.

Doing quick n' dirty math assuming different scenarios I get these numbers:

* Ontario resident, $95,000 CAD income, total tax: $26,455 CAD (includes federal, provincial, CPP/EI premiums)
* Canadian non-resident, $95,000 CAD income, total tax: $23,750 CAD (25% withholding tax rate) and Michigan resident, $72,000 USD ($95,000 CAD) income, total US tax: $21,082 USD ($27,932 CAD) (Federal Tax: $8,020 USD, FICA: $10,173 USD, MI State tax: $2888 USD)

Assuming the above, being a Michigan resident while continuing my business in Ontario my tax liability appears to increase by ~$1500 CAD (but it gets a lot worse). My $23,750 Canadian tax liability would be FTC's, but this would only offset my US federal taxes owed ($8,020 USD) and I would still be liable for state and FICA taxes. In other words, my tax liability would be: $23,750 CAD to Canada, and $13,062 USD to the US. In summary my yearly net tax liability would be $41,059 CAD ($23,750 CAD + $13,062 USD). Plus, I would also need to get private health insurance.

If I become a Michigander, is my thinking above correct? Would appreciate some others input. Would my tax liability really increase that much? Would I still be liable for Ontario income tax? Would my FTC's offset FICA or state income tax? Is there anyway I can make this work and/or smarter ways to do this? Its sad to see my tax liability would increase from $26,455 CAD to $41,059 CAD by moving to the states.
Last edited by speer on Tue Aug 13, 2019 2:32 am, edited 3 times in total.

Student2
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Re: Moving from Canada -> USA tax implications

Post by Student2 » Mon Aug 12, 2019 9:18 pm

You may have better luck getting a reply if you post on the Canadian forum https://www.financialwisdomforum.org/forum/index.php. (Dual citizen here, but my circumstances were much less complex than yours.) In my experience, you can sometimes find Canadians (or dual citizens) with information on cross-border money issues, but you will rarely find Americans with that experience. (We're all distributed along the border in Canada, whereas only a small portion of the US pop. lives near the border.)

Student2

Topic Author
speer
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Re: Moving from Canada -> USA tax implications

Post by speer » Mon Aug 12, 2019 10:02 pm

Forgot about that forum, posted there as well thank you.

Topic Author
speer
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Re: Moving from Canada -> USA tax implications

Post by speer » Tue Aug 13, 2019 6:47 pm

Update: Talked to an accountant and looks like being a non-resident of Canada I will not be subject to Canadian income or withholding tax because my business will not have a permanent establishment (its all amazon.ca sales, inventory stored in Amazon FBA located in Canada).

Im still surprised my income tax liability would increase though by becoming a Michigan resident. It thought taxes would be lower there.

Chris K Jones
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Re: Moving from Canada -> USA tax implications

Post by Chris K Jones » Tue Aug 13, 2019 6:57 pm

Factor in the cost of health insurance in the US while you are at it! Best wishes

Topic Author
speer
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Re: Moving from Canada -> USA tax implications

Post by speer » Tue Aug 13, 2019 7:22 pm

Chris K Jones wrote:
Tue Aug 13, 2019 6:57 pm
Factor in the cost of health insurance in the US while you are at it! Best wishes
Oh 100%. I did call around and talked to a broker, they sell faith based plans, its about $140 USD per month and covers up to $250k per year to a max of $1 mil. High deductible, but this is all I need. Just dont want to go bankrupt.

Only caveat is they dont cover "sin" type accidents, ie, STD's, smoking cancer, abortions, etc.

obgraham
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Re: Moving from Canada -> USA tax implications

Post by obgraham » Thu Aug 15, 2019 1:33 pm

No comment on the prime questions here, but just pointing out that if you are paying only $140 monthly for health care insurance you are getting a VERY bare bones coverage.

You'll be a cash payer for 90% of your medical encounters. Then you'll be charged top dollar, not what everyone else's insurance pays. Bang your head on the door and expect $5000 for that MRI!

Traveler
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Re: Moving from Canada -> USA tax implications

Post by Traveler » Thu Aug 15, 2019 5:28 pm

If I were you, I would seriously look into the limitations of a faith based plan. It is not insurance coverage. I'm guessing they will be more than happy to take your $140/month but might not be as happy to pay your medical bills should you need them to.

Topic Author
speer
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The US is more expensive to be self-employed than Canada

Post by speer » Sat Sep 21, 2019 11:39 am

[Thread merged into here, see below. --admin LadyGeek]

The US is only marginally more beneficial in the much higher tax brackets.

Medicare / SS also really dig in to income. Im self employed so im paying the full amount (15.3%). Medicare has no cap. SS tax is capped at around $150k USD income. Canadian equivalent CPP is capped at around $5000 CAD (total payable) for self employed.

As a self employed person living in Michigan I calculated:

Income Tax savings $3836 CAD on $100k CAD income
Income Tax savings $8147 CAD on $150k CAD income

These savings are immediately a wash as I must also pay for private health insurance. A non-income tax state would boost tax savings by 4.25%.

Im going to run some ideas past an accountant and see his advice but living on the US side doesn't save a whole lot. Sure the sales tax is lower, but Im not a big consumer so this really doesn't affect me.

Math:

MI vs ontario @ 75k USD or 100k CAD income

US (75k income - freetaxUSA):

FED tax: $6098 USD SE tax: $10,598 USD MI tax: $3015 USD

Total: $19711 USD (26,137 CAD)

Canada (100k income - studio tax)

FED: 16,151 CAD ON: 8,634 CAD cpp: 5187

Total: $29,973 CAD

...

US (113,117 USD income)

FED tax: $12,335 USD SE tax: $15,983 USD MI tax: $4,635

total: $32953 USD (43,697 CAD)

Canada (150k income)

FED: 29316 ON: 17339 CPP: 5187

Total: $51,844 CAD

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JoMoney
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Re: The US is more expensive to be self-employed than Canada

Post by JoMoney » Sat Sep 21, 2019 12:13 pm

I believe it.
In California, I was at a point where my 'side job', which was all self-employment income, each additional dollar I earned was paying >50% in taxes.
At the time, each additional dollar was paying
28% Federal
15.3% Self-Employment
9.3% California
+ I had to have a LLC/corporation to contract with my customers because they didn't want to work with me and run the risk of me being considered a "employee" ... and California assesses a "Franchise Tax Fee" for having an LLC
I eventually decided the additional work was not worth the after tax take-home pay and enjoyed the extra free time and ability to put in over-time at my main job with them on the hook for half the SE tax, no franchise tax, and simpler tax filings for me.

It's also more expensive for many companies to operate in the U.S., lots of stories out there outlining the shenanigans multi-national companies have been using to keep from having to realize income as taxable in the U.S.
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hmw
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Re: The US is more expensive to be self-employed than Canada

Post by hmw » Sat Sep 21, 2019 5:52 pm

OP, one thing to consider is that your future social security checks will be much larger than your CPP checks because your contributions are larger during your working years.

I agree that at 75k income level, the taxation difference is not large.

Topic Author
speer
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Re: The US is more expensive to be self-employed than Canada

Post by speer » Sat Sep 21, 2019 8:28 pm

hmw wrote:
Sat Sep 21, 2019 5:52 pm
OP, one thing to consider is that your future social security checks will be much larger than your CPP checks because your contributions are larger during your working years.

I agree that at 75k income level, the taxation difference is not large.
Doing some more research I could take advantage of an S-Corp and its distributions are not SE taxed. IE 75k net income. 50/50 salary / dist.

Honestly, I dont really care about SS or CPP payments, I may never live that long nor do I want to wait until that age. Any money forcibly taken from me is a tax. I am very frugal and save as much as possible so I can use during a rainy day. I never liked the idea of the government taxing me for a forced retirement plan thinking they know how to better utilize my money. I want to keep as much of my money I earn as possible. I either reinvest this money in my business or save it.

IMO
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Re: The US is more expensive to be self-employed than Canada

Post by IMO » Sun Sep 22, 2019 3:14 am

speer wrote:
Sat Sep 21, 2019 11:39 am
The US is only marginally more beneficial in the much higher tax brackets.

Medicare / SS also really dig in to income. Im self employed so im paying the full amount (15.3%). Medicare has no cap. SS tax is capped at around $150k USD income. Canadian equivalent CPP is capped at around $5000 CAD (total payable) for self employed.

As a self employed person living in Michigan I calculated:

Income Tax savings $3836 CAD on $100k CAD income
Income Tax savings $8147 CAD on $150k CAD income

These savings are immediately a wash as I must also pay for private health insurance. A non-income tax state would boost tax savings by 4.25%.

Im going to run some ideas past an accountant and see his advice but living on the US side doesn't save a whole lot. Sure the sales tax is lower, but Im not a big consumer so this really doesn't affect me.

Math:

MI vs ontario @ 75k USD or 100k CAD income

US (75k income - freetaxUSA):

FED tax: $6098 USD SE tax: $10,598 USD MI tax: $3015 USD

Total: $19711 USD (26,137 CAD)

Canada (100k income - studio tax)

FED: 16,151 CAD ON: 8,634 CAD cpp: 5187

Total: $29,973 CAD

...

US (113,117 USD income)

FED tax: $12,335 USD SE tax: $15,983 USD MI tax: $4,635

total: $32953 USD (43,697 CAD)

Canada (150k income)

FED: 29316 ON: 17339 CPP: 5187

Total: $51,844 CAD

That is an interesting example. Aren't there other financial things to consider regarding one's ability to shelter income from taxes from one country to another (and many other financial factors)? How would each example pan out comparably after living/working in each country and then retired with the various retirement benefits?

There are of course other lifestyle choices which are very individual. Personally, I'd only want to live in 3 areas in Canada (Vancouver, Whistler, Revelstoke) and there are many areas in the US I'd could personally choose and be very happy. But that's just me. Besides, even if I wanted to live/work in Canada, last time I checked there are immigration laws that wouldn't allow us (US Citizens) to simply up and move to Canada.

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RickBoglehead
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Re: The US is more expensive to be self-employed than Canada

Post by RickBoglehead » Sun Sep 22, 2019 6:04 am

IMO wrote:
Sun Sep 22, 2019 3:14 am

That is an interesting example. Aren't there other financial things to consider regarding one's ability to shelter income from taxes from one country to another (and many other financial factors)? How would each example pan out comparably after living/working in each country and then retired with the various retirement benefits?

There are of course other lifestyle choices which are very individual. Personally, I'd only want to live in 3 areas in Canada (Vancouver, Whistler, Revelstoke) and there are many areas in the US I'd could personally choose and be very happy. But that's just me. Besides, even if I wanted to live/work in Canada, last time I checked there are immigration laws that wouldn't allow us (US Citizens) to simply up and move to Canada.
This ^^^
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TBillT
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Re: The US is more expensive to be self-employed than Canada

Post by TBillT » Sun Sep 22, 2019 7:17 am

Self employed in USA are hit pretty hard in the $100-$150k range.
A while back, I was going to do an essay on this but the TCJA (Trump tax cuts) helped the self-employed quite a bit.

We have the Social Security structure that hits lower income people hardest up to $132k, which is a part of it. And then if you work for a company, they pay half of that SS for you, but if you work for yourself you have to pay the whole amount, not to mention Federal and State income taxes.

prd1982
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Re: The US is more expensive to be self-employed than Canada

Post by prd1982 » Sun Sep 22, 2019 7:38 am

TBillT wrote:
Sun Sep 22, 2019 7:17 am
S And then if you work for a company, they pay half of that SS for you, but if you work for yourself you have to pay the whole amount ...
Lets talk compensation rather than salary. The half the company pays is part of the employee's compensation. In theory, if the company stopped paying the half, employees would be given that money as salary. Same is true for company paid insurance.

student
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Re: The US is more expensive to be self-employed than Canada

Post by student » Sun Sep 22, 2019 7:53 am

I don't understand. Even if you live aboard and self-employed, don't you have to pay self employment tax (social security and medicare)? Perhaps there is a treaty between the US and Canada. https://onlinetaxman.com/self-employed- ... gn-income/ "A common misconception among expats and nomads is that the first roughly $100,000 of income are completely tax free in the US under the Foreign Earned Income Exclusion (FEIE). This is however only partially true. The FEIE lets you exclude income from income tax. It does not get you out of paying self-employment tax on foreign income when working as freelancer, independent contractor or sole proprietor abroad."

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Re: Moving from Canada -> USA tax implications

Post by LadyGeek » Sun Sep 22, 2019 9:24 am

speer - In order to give appropriate advice, it's best to keep all the info in one spot. I merged your thread into here, as it is very difficult to answer your question in context without the information from the first post in this thread.

Also, consider asking this question in the Canadian forum (as you've done before).
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TBillT
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Re: The US is more expensive to be self-employed than Canada

Post by TBillT » Tue Sep 24, 2019 11:00 am

prd1982 wrote:
Sun Sep 22, 2019 7:38 am
TBillT wrote:
Sun Sep 22, 2019 7:17 am
S And then if you work for a company, they pay half of that SS for you, but if you work for yourself you have to pay the whole amount ...
Lets talk compensation rather than salary. The half the company pays is part of the employee's compensation. In theory, if the company stopped paying the half, employees would be given that money as salary. Same is true for company paid insurance.
Without passing judgement on the Trump tax cuts, I can tell you I got one heckuva nice discount on my self employed income last year. I only wish I had that discount when I was making more income. In any case, that new discount stops me from complaining quite so much about getting hit so hard in the $100K income range of self-employment.

windaar
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Re: Moving from Canada -> USA tax implications

Post by windaar » Wed Sep 25, 2019 7:48 am

Keep in mind as well the advantage of paying 6% sales tax on most things that you buy in Michigan as opposed to the 13% HST/GST in Ontario.

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