Your First and Second Year of U.S. Business Taxes

Quick Answer

The U.S. has no federal sales tax, no business number registration like Canada's BN, and no automatic CRA-style assessment. You self-file with the IRS based on your entity type. The trap most Canadian founders walk into: a foreign-owned single-member LLC must file Form 5472 every year even with zero revenue, and the penalty for missing it is $25,000 per form.

Quick glossary before we start

If a term feels unfamiliar later, scroll back here. Each one is also unpacked in plain English the first time it appears in the body.

LLC: A U.S.-only entity type. The closest Canadian analog is a CCPC, but the tax treatment is very different.
EIN: Employer Identification Number. The IRS-issued business tax ID. Same slot as a Canadian BN, but only for U.S. tax matters.
IRS: Internal Revenue Service. The U.S. equivalent of the CRA, but built around self-reporting. If you miss a form, you hear about it as a penalty, not as an assessment.
C-Corp / S-Corp: Two U.S. corporate tax classifications. C-Corps are taxed at the company level (21%). S-Corps pass income through to owners but are not available to non-U.S. residents, so most Canadians can ignore them.
Pass-through: The entity itself does not pay corporate tax. Profit flows straight onto the owner's personal return. Not identical to a Canadian sole proprietorship, but the math feels similar.
Owner draw: Moving money from the LLC's account to your own. It's a transfer, not a paycheque, and it does not reduce the company's taxable profit.
W-2 salary: The U.S. equivalent of a T4 paycheque, with payroll taxes withheld at source.
Sales tax nexus: The condition of "having enough business presence in a state to owe that state's sales tax." Triggered by an office, an employee, or in most states by online sales above a dollar threshold. Full unpacking in the body below.
Form 5472: An informational return foreign-owned U.S. LLCs must file every year, even with zero revenue. Missing it costs $25,000 per form.

Canada vs U.S.: How the Two Systems Actually Differ

If you have run a Canadian corporation, you know the rhythm: register a BN, charge GST/HST once you cross $30,000, file a T2 every year, and pay corporate tax on the result. The U.S. system breaks each of those steps differently. Here is the side-by-side.

Topic	Canada	United States
Tax ID	Business Number (BN) from CRA	EIN from the IRS (federal)
Sales registration trigger	GST/HST registration once you cross $30,000 in revenue	No federal registration. Each state with sales tax nexus has its own registration
Consumption tax	GST 5% federal, plus HST/PST in most provinces	No federal sales tax. State-level only. Five states charge 0%
Corporate tax	Federal 15% general rate, 9% small business; provincial rates added	C-Corporation 21% flat federal. LLCs are pass-through by default, meaning the LLC itself pays no corporate tax and the profit shows up directly on the owner's personal return
Personal tax	Federal 15-33% plus provincial	Federal 10-37%, plus state where applicable
Payroll on a salary	CPP, EI, federal/provincial withholding	Social Security 6.2%, Medicare 1.45%, federal/state withholding
Dividends to a foreign owner	Generally 25% withholding, 15% under treaty for U.S. residents	30% default withholding from a U.S. C-Corp. Reduced to 5-15% under the Canada-U.S. tax treaty
Filing rhythm	GST/HST monthly, quarterly, or annual; T2 once a year	Income tax once a year, plus quarterly estimates (if applicable) and payroll filings (if you pay anyone)
Assessment style	CRA issues a Notice of Assessment after you file	Self-reporting. The IRS sends penalty letters first, not assessments

Two surprises trip up most Canadian founders. First, there is no GST/HST equivalent at the federal level. The U.S. concept that replaces it is called "sales tax nexus." Second, the IRS does not send a Notice of Assessment. If you miss a form, the first thing you hear is a penalty letter.

Wait, what exactly is "sales tax nexus"?

Canada has one tax registry for sales: GST/HST through the CRA. The U.S. has no federal version. Instead, each state runs its own sales tax program, and you have to ask the question "do I owe this state's sales tax?" state by state. The answer to that question is called nexus.

In plain English, nexus means "you have enough business presence in a state that you have to start charging that state's sales tax." Nexus is usually triggered by one of these:

Having an office, warehouse, or other physical presence in that state (physical nexus)
Having an employee or full-time contractor based in that state
Selling above a dollar threshold to buyers in that state ("economic nexus"). The most common threshold is $100,000 in revenue or 200 transactions per year, into that state alone.

Once you trip a state's threshold, you register with that state's department of revenue. From that point on, you collect sales tax from buyers in that state and remit it monthly or quarterly. The closest Canadian analog is HST, but the key difference is this: instead of one federal registration with the CRA, you may end up registered in five or ten different states, each with its own form, due date, and rate.

Good news: if your business is digital (SaaS, consulting, services) and you have no U.S. office or employees, you may not trigger nexus in any state for the first year or two. The check becomes important once revenue grows past the economic nexus thresholds in your largest customer states.

Year One: Which Forms Does the IRS Want?

Year-one filing in the U.S. is decided entirely by entity type. The catch: the IRS does not tax "LLCs" as a category. Every LLC gets reclassified as a sole proprietorship, partnership, C-Corp, or S-Corp, and the form you file depends on which bucket you land in. Two Canadians with the same kind of LLC can end up filing very different paperwork. If you are a foreign owner, an extra layer of foreign-owner forms stacks on top of whichever base form applies.

Entity types in one line each

Single-member LLC = an LLC owned by one person. The IRS treats it as a "disregarded entity," meaning it isn't taxed as a separate company at all. Income flows straight onto the owner's personal return.
Multi-member LLC = an LLC with two or more owners. The IRS treats it as a partnership. The company files an informational return (Form 1065), and each member reports their share of profit (Schedule K-1) on their own return.
C-Corporation = the company itself pays 21% federal corporate tax. The closest Canadian analog is a regular corporation paying T2. Dividends to shareholders are taxed again at the personal level, which is the famous "double taxation."
S-Corporation = a special pass-through form available only to U.S. residents. If you live in Canada, this option is off the menu from day one.

Entity	Primary Form	Due	Notes
Single-member LLC, foreign-owned	Form 5472 + pro forma 1120	April 15	Mandatory even with zero revenue. Paper or fax filing only (no e-file)
Single-member LLC with U.S. source income	Form 1040-NR + Schedule C/E	June 15 (auto-extended)	Non-residents get an automatic extension from April 15 to June 15
Multi-member LLC	Form 1065 + Schedule K-1 per member	March 15	Treated as a partnership. Withholding on foreign partners via Forms 8804/8805
C-Corporation	Form 1120	April 15	21% flat federal rate. 30% dividend withholding on foreign shareholders, reduced under treaty
S-Corporation	Form 1120-S + K-1	March 15	Foreign owners are not eligible. If you are a Canadian resident, this is not on your menu

An extension only buys you time to file the paperwork. Payment is still due on the original date. "I extended" does not mean "I can pay later."

When You Are a Foreign Owner: The Extra Layer

If you live in Canada and own 25% or more of a U.S. LLC, the IRS treats the entity as foreign-owned. From year one, an extra return stacks on top of whatever your entity type already requires. The heaviest of these is Form 5472.

Form 5472: An informational return required from foreign-owned single-member LLCs every year. The IRS counts almost any money movement between you and your own LLC, including putting in startup capital or pulling money out, as a "reportable transaction." That's why the form is mandatory at zero revenue: just funding your own company with $100 is enough to trigger it.
Form W-8BEN / W-8BEN-E: A form you give to a U.S. customer (not the IRS) to claim treaty benefits and reduce withholding from 30% to 5-15%. U.S. companies will often ask for it before they can pay you. Without it, the default 30% withholding applies.
C-Corp dividend withholding: Default 30% on dividends to a Canadian resident. The Canada-U.S. tax treaty drops it to 5% (for 10%+ corporate shareholders) or 15%.
Form 8804/8805 (Partnership): Multi-member LLCs with foreign partners must withhold tax on the foreign share of effectively connected income.

Heads up

The Form 5472 penalty is $25,000 per missed form. "No revenue, the IRS won't notice" is the most expensive misconception we see. Read more in our tax guide.

Zero Revenue. Do I Still File?

In Canada, a no-revenue T2 still has to be filed. The U.S. version is similar but stricter. Here is the scenario map.

Scenario	Must File?	If Skipped
Foreign-owned single-member LLC, no revenue	Yes (Form 5472 + pro forma 1120)	$25,000 per form
Multi-member LLC, no revenue	Yes (Form 1065)	$245+ per partner per month
C-Corporation, no revenue	Yes (Form 1120)	5% of unpaid tax per month, max 25%
S-Corporation, no revenue	Yes (Form 1120-S)	$245+ per shareholder per month
Canadian-resident single-member LLC, no U.S. source income	Form 5472 is still required. 1040-NR usually not	$25,000 if Form 5472 is skipped

There is an upside. Even with no revenue, the IRS lets you deduct up to $5,000 of startup costs in year one under IRC Section 195. Filing in year one is not just penalty avoidance, it is how you lock in those early losses for later use.

Salary, Distribution, or Dividend: Where the Tax Splits

In Canada, the salary-vs-dividend decision is one of the central planning questions for an owner-manager. Salary creates RRSP room and CPP contributions, dividends are taxed via integration. The U.S. version of this question exists, but the menu is set by your entity type, not your preference.

One thing to unpack before the table: "self-employment tax" is a 15.3% U.S. payroll-style tax (Social Security 12.4% + Medicare 2.9%). The closest Canadian analog is CPP, but in the U.S. version a self-employed person pays both halves themselves. Owner draws from an LLC trigger this tax on the full profit every year. C-Corp and S-Corp salaries split it between the company and the employee.

Entity	W-2 Salary	Distribution/Dividend	SE Tax
Single-member LLC	Not allowed	Owner draw (not deductible)	Yes, on full net profit (15.3%)
Multi-member LLC	Not allowed	Guaranteed payment or draw	Yes, on share of profit
S-Corporation	Required, reasonable amount	Allowed after salary	On salary only
C-Corporation	Allowed (deductible)	Dividend (double-taxed)	On salary only

Two traps catch Canadian founders here. Let's unpack them in plain English.

Trap 1. The owner of a single-member LLC cannot pay themselves a W-2 salary.
Inside a Canadian corporation, putting yourself on payroll is the default. Inside a U.S. single-member LLC, it's not allowed. If you transfer money from the LLC's account to your own, the IRS doesn't see that as a paycheque (W-2). It sees it as an "owner draw," which is just "moving your own money out of your own company." It is not deducted as a company expense, and it does not lower the LLC's taxable profit. The IRS doesn't care, because the entire LLC profit is already showing up on your personal return anyway.

Trap 2. The S-Corp "zero salary, all distributions" trick is one of the IRS's favourite audit triggers.
Inside an S-Corp, paying yourself dividends instead of salary skips the 15.3% self-employment tax. Some owners try "zero salary, all distributions" to maximize this. The IRS treats it as an audit red flag and applies a "reasonable compensation" test against industry averages. The good news for Canadian residents: you can't use S-Corp anyway, so you won't fall into this trap. But it's worth knowing if you ever relocate to the U.S. and want to use this structure.

State by State: Where the Numbers Diverge

Federal tax looks the same everywhere. State tax does not. And the variable that matters is not where you formed but where you have nexus. A Delaware LLC operating out of California still owes California's $800 minimum tax.

State	Annual Fee	State Income Tax	Notes
Wyoming	$60 annual report	None	Lowest total carrying cost. Popular for solo Canadian founders
Delaware	$300 franchise tax (June 1)	None on out-of-state income	Standard for VC-track C-Corps
Texas	Exempt under $2.65M revenue (2026-2027)	None	Public Information Report due each year
Florida	$138.75 annual report	None on individuals	Sunbiz filing
California	$800 minimum even at zero income	Yes	Highest carrying cost. The AB 85 first-year waiver expired Jan 2024, so $800 hits in year one
New Mexico	None	Yes	No annual report at all

For deeper state-level numbers, see our state comparison guide.

Year One vs Year Two: What Actually Gets Added

The biggest shift from year one to year two is that taxes stop being a one-time April event and start becoming a quarterly rhythm. Three things get added.

1. Quarterly estimated taxes

If you expect to owe $1,000+ in personal tax (or $500 for a C-Corp), payments are due April, June, September, and the following January.

2. Payroll filings

If anyone is on payroll, including yourself in a C-Corp, Form 941 (quarterly), Form 940 (annual), and W-2s/1099s appear. January 31 becomes the busiest day of your year.

3. State annual reports

Almost every state wants an annual report. Skip it and the entity drops to "not in good standing," which blocks bank changes and payment processor approvals.

U.S. Tax Calendar at a Glance

Seeing the whole year at once makes the rhythm obvious. Bold dates are the ones founders most often miss.

January 15Q4 estimated tax

January 31Form 940, Q4 Form 941, W-2 and 1099 issuance

March 15Form 1065, Form 1120-S, deadline to elect S-Corp

April 15Form 1120, Form 1040, Form 5472, Q1 estimated tax

June 1Delaware franchise tax

June 15Auto-extended 1040-NR deadline, Q2 estimated tax

September 15Q3 estimated tax, extended 1065/1120-S due

October 15Extended 1120 and 1040 due

QuarterlyForm 941 (April 30, July 31, October 31, January 31)

Five Mistakes Canadian Founders Make

1. "EIN means I'm done"
EIN is the start, not the finish. Federal returns and state annual reports run on their own clock from then on.
2. "No revenue, no filing"
If you're a foreign owner, Form 5472 is mandatory at zero revenue. The penalty is $25,000 per missed form.
3. "I formed in Wyoming so I owe nothing"
Where you formed does not control state tax. Where you operate (nexus) does. A California office still triggers $800.
4. "I'll just put myself on payroll from my LLC"
A single-member LLC cannot put its owner on a W-2 paycheque. Any money you move from the LLC to yourself is treated as an "owner draw," a transfer rather than a salary. It does not count as a company expense, so it does not reduce the LLC's taxable profit.
5. "My Canadian accountant has it covered"
Cross-border filings exist on both sides. CRA wants T1134/T1135 if you have a foreign affiliate or holdings over CAD $100,000. Hire someone who handles both jurisdictions.

Frequently Asked Questions

Do I need a Canadian-style business number to operate a U.S. LLC?+

No. The U.S. has no equivalent to the Canadian BN. You start with an EIN, the IRS-issued business tax ID. Sales tax registration only happens state by state, once you trigger sales tax nexus in that state.

Do I have to file in year one if I had no revenue?+

A foreign-owned single-member LLC must file Form 5472 every year, even with zero revenue. The penalty for missing it is $25,000 per form. C-Corporations and multi-member LLCs also have annual filing requirements regardless of income.

I formed in Wyoming but I work from Toronto. Do I owe Wyoming tax?+

Wyoming has no state income tax, so the formation state itself adds almost no tax cost beyond a $60 annual report. What matters is whether you have nexus inside any specific state. Working from Toronto with no U.S. office or employees usually means no U.S. state tax beyond Wyoming's annual fee.

Can I put myself on payroll from my single-member LLC?+

No. A single-member LLC cannot pay its owner a W-2 salary. Any money you move from the LLC to yourself is treated as an owner draw, a transfer rather than a paycheque, and it does not reduce the company's taxable profit.

How does the Canada-U.S. tax treaty actually reduce my taxes?+

Tax paid in the U.S. can be claimed as a foreign tax credit on your Canadian return, preventing double taxation. The treaty also reduces dividend withholding from a U.S. C-Corp from 30% down to 5-15%, depending on your shareholding. To claim treaty benefits, you submit Form W-8BEN to the U.S. payer, not to the IRS.

Can my Canadian accountant handle my U.S. tax returns?+

It is safer to work with a CPA qualified in both Canada and the U.S., or a dedicated cross-border tax specialist. A Canadian-only accountant typically cannot handle IRS forms like 5472, 1120, or 1065, and Form 5472 in particular carries a $25,000 penalty for mistakes.