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I am in the construction business and am expanding to the US from Canada. Should I form a US LLC?
Hi Ben,
You can form a US LLC, but make sure that you elect that it be taxed as a C-corporation. Otherwise, you will be double taxed. This is because, without the election, the IRS will treat the LLC as a pass-through entity. However, the CRA always treats US LLCs as foreign corporations. This creates a double tax problem because the IRS and CRA classify LLCs differently.
The Canadian holding company should own the shares of the LLC (taxed as a C-corporation). This allows for the tax-efficient repatriation of profits from the LLC to the Canadian holding company. The Canadian holding company can claim a tax deduction for 100% of the dividends received from the US LLC and no Canadian corporate tax is payable.