At 01:21 PM 7/27/2007 -0700, you wrote:Hi David,
There is NO tax advantage to you to have a corporation in the US and a lot more accounting costs for a very dubious hint of personal liability protection with a Subchapter S US corporation.
I have heard you and others say the above statement, although our own experience is a little different. The first year we moved to the US we were not incorporated and the amount of our FICA tax was enormous because we were self-employed. Our local accountant advised us to form an S-Corp. so that we could receive part of our compensation in dividends, thereby avoiding payment of FICA taxes on that amount. It seems to me that this is a common practice here. Have you thought of this aspect?
As always, I love reading your emails ... thanks!
JXXXXXXXXX
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david
ingram replies:
I understand the FICA problem but you are missing the
point that the FICA is a pension and a form of forced savings. Avoiding it
assures less money in retirement the same as avoiding CPP payments leaves one
short in retirement in Canada.
I was NOT there for the start of
the FICA but I was in the middle of the introduction of CPP in Canada and am
seeing the aftermath today. I could likley name 100 people who were well
off at one time and have fallen on hard times today because of health, divorce
or just plain business disasters.
I can even use myself as an
example because I turn 65 in Sept and have gone through a $5,000,000 bankruptcy
and $1,000,000 divorce in the last 5 years. I will receive a reduced CPP
because of several years of non-contribution when I was literally flying
high.
Every week, I run into someone who is now living on their
CPP and OAS or their CPP FICA and OAS mixture and is getting less because they
arranged their affairs to pay less into CPP or FICA and today, they have lost
all their investments (through illness, divorce or business reversals) and could
really use that extra . $3, 4 or 500.00 per month.
Strangely, Life Insurance sales people and Realtors, in particular are
the worst victims (you notice I did not use the word offenders) because they set
themselves up to deduct everything before net income by being self employed
whereas they could have had full CPP or FICA benefits by being
employees and paying CPP or FICA on gross income and then making just about the
same income tax deductions as an employee. (this does require a little
manipulation to deduct fax and other machinery but it can be done safely and
legally and then the realtor, etc. does not have to rely on welfare in
retirement).
This last statement came to roost just last week when
a former West Vancouver realtor wrote me to say that she just couldn't pay a 3
year old bill she had with me because a leaky condominium situation had wiped
her out. she has moved to a small town 300 miles away because she does not want
to be around her former friends and colleagues as a flat broke retiree getting
GIS (guaranteed income supplement which is a politre word for
welfare).
Then another recently retired lady called 'today" while I was
in teh caribbean Days parade to ask me to represent her at a strata
meeting because she has just been told about a $75,000 leaky condo assessment on
her rental condo and that will take $600 a month out of her retirment income for
a long long time.
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So, I
have thought about the "not paying FICA/CPP argument) it but consider it false
economy for more reasons than one.
All sorts of financial people
have also shown how much better off you would be if you took the money you have
to pay into FICA or CPP and invested it yourself in "their" product.
Interestingly, two of the high profile Vancouver people who have been pushing
that concept for 20 years are living in pure poverty today in Vancouver because
of large scale financial reversals. Knock on wood that I did not become
one of them myself.
Interestingly, their clients have done better than
they did because the advisors took big time 'flyers' that did not work
while their conservative clients stayed safe.
Please do not fall into
that same trap. However, But, IF you are not paying into FICA or
CPP, do invest what you would have been paying into a sound and safe investment
and do not waste the tax 'savings' and spend it in a frivilousl
manner.
The problem with making the investment, of course, is that with
the exception of Saskatchewan and Texas and a couple of other places I do not
know about, most of the private retirement plans can be attacked when you are in
financial distress. CPP and FICA can NOT be attacked by creditors. Living in BC,
I would have lost any RRSP account I might have set up.
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
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Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office)
$1,600 would be for two people with income from two countries
David Ingram expert income tax and immigration help and preparation of US Canada Mexico non-resident and cross border returns with rental dividend wages self-employed and royalty foreign tax credits family estate trust trusts income tax convention treaty
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