US citizen + Sole owner of Canadian Corporation = Form 5471

If you are a U.S. citizen and run your own business you may want to incorporate.


Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) really is something to consider.

If you are already incorporated then you may want to dissolve the corporation and just continue as self-employed.  Of course, there are many variables to consider such as you may just prefer being a corporation.


Form 5471 is an information return that gets filed along with your U.S. individual tax return which U.S. citizens are required to file.  Form 5471 reports the Controlled Foreign Corporation's (CFC's) transactions and profits and may impose US tax on passive income (investments), related party transactions and Personal Services Income ( e.g. Health, Law, Engineering, Architecture, Accounting, Fee based Consulting) regardless of the taxability in Canada.   This taxable income will flow from Form 5471 to your individual tax return (1040) and your tax burden may increase.


If you are incorporated in Canada, a sole owner and also a U.S. person, then just watch your income and make sure that you don't create unnecessary U.S. tax.