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Taxation for LLC (1 Canadian, 1 American)

Asked by: Paul  — 8 April, 2013

I am starting an LLC with a partner. I am a Canadian citizen and he is an American living in Illinois. Our business is an exam preparation company, with most business being done online. I will be doing all of the work in Canada, while he will do his work in the US.

We plan on hiring 1-2 employees to work in Illinois. I understand that the company will pay all required taxes in the US for our employees and my partner, but my confusion comes in for my own earnings. Will I have to pay taxes based on US tax laws even though I will not be working in the US? As I seem to understand now, I do not, but I haven’t found a straight answer yet.

Thank you in advance.

Answered by: admin  — 8 April, 2013


Generally ownership in a US partnership requires a non-resident owner to file a US non-resident tax return, because any profits from a US partnership are considered income effectively connected to a US business. That would mean a Canadian partner would need to file a form 104NR to report his share of profits from the partnership.

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