Moving family to Canada while I continue to work in US on TN

I currently work in USA on TN1 and live with my spouse and kids here. My wife wants to return back and start her hair salon in Canada. I can't quit job for now as we want have one stable source of income till business is established in Canada. I am planning on travelling to Canada on weekends untill that happens and we will be moving kids there as well.

My question is; how is this going to impact our taxes. Do we need for file taxes both in Canada and USA once my wife has her own salon running there and I work here. This setup may not last for more than a year but can be longer too..

Yes, you'll have to file taxes in both countries, and you may want to hire yourself an acomplished tax accountant familiar with both tax systems.

It depends on how you're filing at the moment, from the sounds of it you're filing jointly as US residents.

Given that your wife is a Canadian citizen who will be resident in Canada and you're in the US in a non-immigrant category, basically your tax home will move back to Canada this year as your spouse is a residential tie to Canada.

You will file jointly on a T1 for whichever Province she lives in next year and claim a foreign tax credit for the tax you pay in the US. However your overall tax bill will likely go up as you have to pay the difference between the US and the Canadian rate, which is usually higher.

On the US end you'll have to file dual-status from the date she moves back to Canada, i.e. a 1040 for the first portion of the year, pro-rated to the date she left, and a 1040NR for the rest of the year. You may have to file an 8833 to claim tax treaty status as well, although in this case it's pretty clear your tax home is Canada so maybe not, you'll have to quiz the IRS on that one.

Have a read of IRS publication 519. And this: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html

This advice all depends on the fact you're filing as a US resident. If you're currently filing as a non-resident, nothing changes except you stop filing 1040NR jointly, you file as an individual.