Canadian entrepreneurs frequently form U.S. entities to reach American customers, raise U.S. investment, or access payment platforms. But this leads to an important question: do Canadians need to file taxes in the U.S. if they own a U.S. business?
Yes. If you’ve formed a U.S. corporation or LLC, the IRS requires you to file U.S. taxes annually—regardless of whether you live in Canada or the U.S.
U.S. Federal Tax Obligations
What Forms You Need to File (By Entity Type)
C-Corporation
- Form 1120 – U.S. Corporation Income Tax Return
- Form 5472 – Required if the business is 25% or more foreign-owned and has reportable transactions
Single-Member LLC (Disregarded Entity)
- Form 5472 + Pro Forma 1120 – Required even if there's no income, as long as there are reportable transactions
Multi-Member LLC (Partnership)
- Form 1065 – U.S. Return of Partnership Income
- Schedule K-1 – Given to each partner
Individual Filing
- Form 1040-NR – If you personally earned U.S.-sourced income that is effectively connected with a U.S. trade or business
What Is ECI (Effectively Connected Income)?
ECI means income that is tied to business activities in the U.S., such as:
- Work performed physically in the U.S.
- U.S.-based employees or contractors
- U.S. rental or real estate income
If your business only sells to U.S. customers from Canada, that alone does not create ECI. But physical presence in the U.S. usually does.
Common Canadian Business Types That File
- Software companies billing U.S. clients
- Marketing agencies or freelancers with U.S. customers
- Dropshipping and e-commerce businesses using U.S. fulfillment
- Startups raising from U.S. investors
U.S. Tax Culture vs. Canada
Financial Reporting
In Canada, companies may be familiar with submitting formal financials to the CRA. In the U.S., most small businesses and startups do not require audits or formal accounting unless specifically requested.
Tax filings in the U.S. are private and not accessible by the public, unlike Canada where certain filings may be more transparent.
GST/HST vs. U.S. Sales Tax
Canada uses the Goods and Services Tax (GST) and Harmonized Sales Tax (HST)—a federal consumption tax system applied to most goods and services. Businesses collect GST/HST on their sales and remit it to the government, while also claiming input credits on business expenses.
In contrast, the U.S. uses sales tax, which:
- Is imposed only at the final point of sale to the consumer
- Is set and administered by individual states (not at the federal level)
- Primarily applies to physical goods and certain taxable services
U.S. service-based businesses typically do not collect sales tax. However, e-commerce sellers using U.S. fulfillment centers may need to register in multiple states.
Bookmate does not provide sales tax filing services.
Common Misunderstandings
- No income = no tax filing – Incorrect. You must file regardless of revenue.
- Only residents pay U.S. taxes – False. If your business is formed in the U.S., you must file.
State-Level Requirements: Delaware and Wyoming
Delaware Franchise Tax (C-Corps)
- Due: March 1
- Cost: $225–$400+ depending on share setup
Delaware LLC Franchise Tax
- Due: June 1
- Cost: $300 flat fee
Wyoming Annual Report (LLCs and C-Corps)
- Due: Anniversary of company formation
- Cost: $60 minimum, based on assets in Wyoming
These state taxes are separate from your IRS federal filings.
Do You Need an ITIN?
If you’re a Canadian founder earning U.S.-sourced income and filing Form 1040-NR, you’ll need an ITIN (Individual Taxpayer Identification Number).
Summary
If you're in Canada and own a U.S. company, you must file taxes with the IRS. Your filing requirements depend on your entity type and U.S.-connected activity. Even if your business didn’t earn income, failing to file can lead to major penalties.
Book a free consultation to ensure full compliance: Schedule Now
Each business is unique—let Bookmate help you navigate your U.S. tax obligations.
