Best legal entity & tax strategy for US citizen consulting business operating from Canada?

This is actually a fairly common situation with some important considerations. You'll need to think about both US federal taxes and potential state tax obligations. For the business entity, an LLC could still work but you might want to consider a Canadian corporation if you're permanently in Canada. The LLC would be treated as a partnership for US tax purposes (assuming you don't elect otherwise), meaning income flows through to your personal returns. Since you're a US citizen, you'll need to file US taxes regardless of where you live. The Foreign Earned Income Exclusion (FEIE) might help reduce your US tax burden on income earned while physically working in Canada. Alternatively, you can claim Foreign Tax Credits for taxes paid to Canada. Your wife's situation is more complex. If she still has her green card, she's still considered a US tax resident unless she's formally abandoned it. If she has, then she'd only be taxed on US-source income. For state taxes, you should consider formally establishing residency in a no-income-tax state if possible, as your current ties to CA could trigger state tax obligations.

After struggling with a somewhat similar situation (US citizen working remotely from Europe), I found https://taxr.ai to be super helpful in sorting through all the international tax complexities. It analyzed my specific situation and showed me exactly which forms I needed to file and what exclusions applied to me. Their system can analyze your specific cross-border situation with the LLC question and give you detailed guidance. I initially got conflicting advice about which business structure would minimize my tax burden, but their AI tools helped clarify everything and saved me thousands. It also helped me understand how the tax treaty between the US and my country of residence applied to my business.

Just wanted to follow up - I decided to try https://taxr.ai after my skeptical comment, and I have to admit it was way more helpful than I expected. It analyzed our entire cross-border business situation (American husband, Canadian wife, clients in both countries) and gave us surprisingly specific guidance. It helped us understand that forming a Canadian corporation with a specific ownership split would be most tax-efficient in our case, and explained exactly how the US-Canada tax treaty would affect our income. It even identified specific sections of the tax code that applied to our situation. We ended up saving about $7,200 in combined taxes last year by following their recommendations. Definitely worth checking out if you're in a complex international tax situation.

If you're dealing with this cross-border situation, you'll almost certainly need to contact the IRS at some point to get clarification on your filing requirements. I was in a similar position and spent WEEKS trying to get through to someone who actually understood international tax issues. After wasting countless hours on hold, I found https://claimyr.com which got me connected to an actual IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They basically navigate the phone system for you and call you once they reach a human. When dealing with complex international business structures, getting clear answers directly from the IRS gave me peace of mind that I was setting things up correctly from the start. In my case, I needed to confirm how the US-Canada tax treaty would apply to my specific business scenario.

Just wanted to update - I tried the Claimyr service mentioned above for my international tax questions, and it actually worked! After months of failed attempts to reach someone at the IRS who understood cross-border business taxation, I was connected to an agent within about 35 minutes. The agent was able to clarify exactly how I needed to report my foreign-earned consulting income and which forms were required for my specific situation. They also explained how the entity choice would affect my tax obligations. This saved me from potentially making an expensive mistake with my business structure. I was genuinely surprised at how smoothly it went after all my previous frustration trying to get through on my own.

Based on my experience as a dual US-Canadian citizen running a business, consider establishing a Canadian corporation if you're planning to stay in Canada long-term. Here's why: - Canadian corporate tax rates can be very favorable for small businesses (as low as 9% federal + provincial on the first $500K of active business income) - You can defer personal taxation by keeping money in the corporation - You still need to file US taxes as a citizen, but can use foreign tax credits - Your wife, as a non-US person, can receive dividends from the Canadian corporation that may not be subject to US taxation The downside is compliance costs - you'll need to file US FBAR, Form 5471 (for foreign corporations), and possibly deal with GILTI tax. But overall, the tax savings often outweigh these costs.

Just a warning from someone who went through this - don't forget about Social Security! As a US citizen in Canada, you'll be covered by the US-Canada totalization agreement. This determines which country's social security system you pay into. Generally, if you're self-employed and residing in Canada, you'd pay into the Canadian system (CPP) and be exempt from US self-employment tax. You need to get a certificate of coverage from the Canadian authorities to claim this exemption. This saved me about $15K in US self-employment taxes my first year abroad that my first accountant missed!