IRS Usa Forms
September 22nd, 2010
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Question: Reporting Income (foreign income and T2125 self emloyed)?
I live in Canada and self emloyed. I work in the USA most of the time , therefore I pay taxes to the IRS (I do a US tax return).
When I report my income , which is foreign income, do I report on line 104 other employment income and/or on T2125 as income as well?
Also , same questions for tax payed to the USA, where on the Canadian forms do I report this as a self-employed person?
I would like to deduct some of my expenses, I assume I do this on T2125.
Thanks
If I report foreign income on the schedule and then on form T2125, wont my income credits double up?
So, if I have foreign income and I am self-employed I report T2125 and not on line 104 other incomeAnswer: Sparky is a little confused regarding the effect of the Canada-US Income Tax Treaty.
First you determine if your income is taxable by one country or both under the tax treaty. If it is NOT taxable in Canada, you exclude it on line 256 of your return. This deduction has NOTHING to do with the Foreign Tax Credit.
http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000-g-03-09e.html#P1038_137026
THEN, if and only if the income is taxable by both the US and Canada, do you worry about claiming a Foreign Tax Credit.
Again, the Foreign Tax Credit ONLY applies if the income is NOT addressed under the Treaty.
As for Self-Employment income, the treaty is quite clear:
Article XIV
Independent Personal Services
Income derived by an individual who is a resident of a Contracting State [CANADA] in respect of independent personal services may be taxed in that State. Such income may also be taxed in the other Contracting State [USA] if the individual has or had a fixed base regularly available to him in that other State but only to the extent that the income is attributable to the fixed base.Your question describes the exact situation above which allows the SE income to be taxed by BOTH Canada and the US. You therefore declare the income and take deductions on BOTH Schedule C/SE and form T2125. (Currency must be converted at the DAILY rate of income or expense at the Bank of Canada rate. A spreadsheet is helpful!)
You will therefore calculate the taxes paid to both countries on this income, and claim a Foreign Tax Credit for the amount of the lesser tax on the tax return for the country imposing the higher tax.
Hope this answers all your questions.
======EDIT============
You don’t allow email… that’s too bad….
“If I report foreign income on the schedule and then on form T2125, wont my income credits double up?”
I have NO IDEA what you mean by this. You do NOT report self-employment income anywhere OTHER than T2125 on your Cdn return.
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