If you’re working across borders, understanding the cross-border tax regulations can be quite complex. The United States citizens need to pay taxes even if they are working in Canada or Mexico. Irrespective of where you live, individuals and businesses need to follow certain laws. Understanding the complex cross-border tax laws can be confusing because it involves several legal terms and complicated rules. So, to make things easier and stay tax compliant, most people seek the services of a cross-border tax specialist. The tax lawyers specializing in international taxes have in-depth knowledge of the tax laws of at least two countries. So, whether you live abroad or have businesses in different countries, a cross-border tax professional can help you avoid paying taxes in all countries.
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As we all know, no two countries have the exact same tax structure. So, if you receive income from another country or own assets in a foreign nation, you need to reconcile tax obligations. As compared to the standard tax system of a country, understanding double taxation, deductions, exchange rates, US expat taxes, and other issues can be way more complicated. When it comes to international tax laws, typically there are two types of cross-border transactions- outbound and inbound. The inbound transactions refer to foreign taxpayers working or investing in the United States. The outbound transaction, on the other hand, refers to the US citizens working in other countries.
Why Hire a Cross-Border Tax Professional?
When it comes to inbound and outbound transactions, there are several rules and without proper knowledge, you may either pay taxes twice or commit an error that could result in serious penalties. With that in mind, here are some more reasons to hire a US and Canada cross-border tax advisor.
- Navigate Multiple Tax Systems
If you’re Canadian planning to expand the business to the US, you will need the assistance of a US tax advisor to understand the implications of the US inbound tax rules. What works for one country’s tax system may not suit another country’s rules. Only a professional who understands the tax laws of both Canada and the United States can find the best solution for your specific situation. The US-Canada Cross-border tax advisors are licensed to provide tax planning services for both countries. This can help in meeting complicated tax filing obligations in Canada and the U.S.
- Utilize All Credits and Deductions
Individuals and businesses are entitled to specific credits and deductions on the U.S income tax return. However, to seek the benefit of deductions and credits, you will need additional filings that you might not be aware of. But your cross-border tax advisor can identify all applicable credits that will reduce your tax burden. Working with a professional means you can avoid double taxation, as well as seek benefits of available credits or deductions that you may qualify for. All this results in reducing your tax burden while ensuring that you stay tax compliant in both countries. The complexities of the U.S and Canadian tax system often confuse people and they fail to apply for available credits.
- Prevent Tax Penalty
Understanding all the tax rules, exceptions, and deductions can be tricky. Tax payable typically depends on the type of business and income generated. Passive income generated from US businesses can be taxable to the Canadian parent company. Without the help of an experienced tax professional, you may make serious mistakes that could violate the tax laws of the US or Canada. Also, you need to report your income to the IRS in US dollars. An expat taxpayer can make serious mistakes when calculating income on the annual, monthly, or daily exchange rate. So, to avoid fines and tax penalties due to incorrect or late tax filing, it’s best to hire a cross-border tax professional.
