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Double Taxation Problems
What is double taxation?
is where two separate jurisdictions levy
on the same declared income, assets or financial
. In other words, it could occur with
, capital tax or
. Certain countries have tax
to mitigate the effects of double taxation. In the U.S., the term double taxation usually refers to a situation where tax is levied on a corporation’s profits as well as on the shareholders’ income when they receive a part of this profit. Listed below are a few questions answered by the Experts on double taxation problems.
If a person was to start their own business and wanted to avoid double taxation and protect their assets, would an S-Corporation or a Limited Liability Company (LLC) be better for the person?
In most cases, both an S-Corporation and an LLC would provide asset protection to the owner as long as they followed the proper procedures and adhered to the guidelines. Double taxation generally happens when the corporation is taxed and then the employees of the corporation are taxed as well through their paychecks. To choose what is best for the business, it would be better to speak with an attorney and a CPA in the state where the business is going to be registered to ensure that all guidelines are met to avoid double taxation.
If a person wanted to start a company, would they want to start it in the State of Massachusetts so that it would be cheaper to avoid double taxation? And how would filing for an LLC versus a corporation affect this?
In most cases, filing for an LLC in the State of Massachusetts would cost around $500 and filing for a corporation would cost around $275. If you are
to file for a corporation, it may be better to file as an S-Corp so that the business may get pass-through taxation and avoid double taxation. However, filing for an LLC is a less complicated process due to the absence of shareholders. If you have many shareholders, you may need the assistance of an attorney. For more information on this, visit
What is the difference between an S-Corp and a C-Corp?
An S-Corp is generally considered a pass-through entity where all the income passes through the shareholders so the company doesn’t pay taxes. Double taxation does not usually occur here because the only taxes that are paid are the
of the shareholders. A C-Corp, on the other hand, is generally taxed as a separate entity and files a
return. Here, the shareholders have to pay taxes on their personal income as well as on after-tax profits given to them by the corporation in the form of
—leading to double taxation.
What is the difference between an LLC and a corporation?
A corporation and an LLC are both considered limited liability entities as well as flow-through entities. In the case of a corporation, you could choose to be treated as an S-Corp to avoid double taxation. However, an S-Corp is more limited in terms of the kinds of shareholders that they have, so you may consider an LLC because they have more flexibility if you need to add shareholders later on.
In business, there are several
and regulations that govern double taxation. While you may have come across some of the problems related to double taxation above, there could be others that pertain to your own unique situation. If you need more clarity on this topic, put your questions to an Expert for quick insights and information to deal with your own case.
Recent Double Taxation Questions
I own a part time Painting company. It's a sole proprietorship. I also have a full ti
I own a part time Painting company. It's a sole proprietorship. I also have a full time job so my business net profit gets lumped up with employment income and my tax bracket goes up. What is the best way to structure my business to save on taxes?
This might be a little confuising, but I'll do my best to explain.
This might be a little confuising, but I'll do my best to explain. I am a Canadian resident with dual citizenship (US and Canada). I will be making a temporary move to the US for 2 years max (could be shorter) for my son to receive speech and autism therapy. I have a small income coming in from Canada ($320 a month just from the child tax benefit and universal child tax benefit). Canada is allowing me to keep these monthly payments if I keep "residential ties" in Canada (house, car registration, a spouse still in canada, bank accounts etc), which I am. Every year I file both Canada and US tax using my residential address in Canada. Next tax season though, I will also be considered a resident of California since I will be living there for two years I will eventually establish residency for tax purposes. I also recently received my California resident card with my parents address, so I am confused as to how to file my taxes being a resident of two countries for next tax season. I would also like to add that we need to establish residency in California to be eligible to get health insurance there.
My question is....how will I file taxes? Will I use my parents address for filing my US tax and my Canadian address for filing Canadian tax? Or will I still use my Canadian address for both? (If I use my Canadian address, I won't be eligible for health insurance since I believe they base it off the taxes you file) Or use my US address for both? (which I think will affect receiving my son's canada tax benefits to pay for his therapy) Sorry if its confusing. I just want to do it all correctly so I dont get into any trouble regarding taxes.
Trying to look up pension income taxability -sourced
Trying to look up pension income taxability for UK-sourced pension for US citizen
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