Self Employment and Canada

Today TaxMama® hears from Tony in the TaxQuips Forum with this question. “I have a friend / client who had self employment income in both US and Canada. He has already filed in Canada and is asking me to use the same income amount declared there, here in the US. He now owes the Canadian Government $5,000.00.  Any advice on how to handle this will be appreciated.”

Ask TaxMama

Dear Tony,

If he is a US taxpayer, and files a regular US resident tax return (Form 1040), then that’s just what you do. You file a regular tax return. You report all his world-wide income.

Then, you can use Form 1116 to take a tax credit for the taxes paid to Canada. Or you can take the Canadian taxes as a tax deduction on Schedule A. (Note: Check with your state laws. They might also accept the Canadian taxes as a state tax deduction.)

If your friend lived in Canada for more than 330 days out of 365, he might be entitled to the Foreign Earned Income Exclusion (Form 2555). But I don’t get the impression that this was the situation. If he was living in Canada, and is entitled to the FEIE, he would still be subject to the self-employment taxes.

Naturally, if I were working with such a client, I’d be getting a lot more information about the nature of his work – and where the work was done. Then I would check the Canadian tax treaties to see if there are any provisions to take into account.

If this is more complicated, you need to provide more information. Otherwise, it’s pretty straightforward.

And remember, you can find answers to all kinds of questions about international tax matters and other tax issues, free. Where? Where else? At

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