We are not professionals, nor should any of the content here be used without professional validation to make decisions for your situation. Since entries appear with the most recent on at the top, if you would like to read in a chronological order start at the bottom.

If you feel that the experience shared here has helped you save time and money please consider donating to help spread the costs of acquiring it. Any contribution is appreciated. By way of thanks, anyone who donates will receive bonus materials:

- Current copy of detailed notes

- A sample accounting spreadsheet we use instead of costly accounting software

- A sample Statement of Qualification and Operating Agreement for an LLP

Thanks and good luck with your property!

Saturday, February 16, 2013


Further to the blog about taxes, a few more thoughts on withholdings:

- The LLP is supposed to withhold and submit a percentage of income on behalf of partners. For standard income it is 35%!
- So in the case of these small LLPs, this amounts to the LLP withholding and submitting to the IRS much more income than will ultimately be owed by Partners as calculated on their individual tax returns. Yet, if the LLP doesn't do the withholding, then a penalty may be assessed by the IRS.
- A side effect of this is that the LLP sends the IRS too much money, and then the partners claim back the escess, effectivly doing a distribution to the partners from the LLP.
- One thing that can be done to mitigate this is for the partners to complete 8804-C forms that indicate they will have an exemption to reduce tax owing. Those are given to the LLP, which then can reduce the withholding amount accordingly, and submit a smaller withholding to the IRS. It will still be too much, if as in our case, the partners have very little US income so the tax will be calculated at a low rate. But it helps.

For any IRS staff that might happen to read this, how about changing the wittholding rules so there is a clip level that excludes LLP's with small incomes, or allocations to partners of a few hundred bucks. There must be a cost of collecting all this paperwork and the withholdings, and then giving it back. Make it easy to invest in the US!


  1. I have LLP setup with 2 rentals in AZ. This year was my first reporting for last year tax & was a loss for first year. I did not do witholding. Now its middle of yaer (May). what shall I do because now it seems next 6 month I might be in net profit.

  2. Hi guys - I came across the following in the IRS instructions for the 8804-C:

    "A partnership that receives this (8804-C) certification from a foreign partner, and that may reasonably rely on such certification, is not required to pay 1446 tax (or any installment of such tax) with respect to such partner if the partnership estimates that the annualized (or, in the case of a partnership completing its Form 8804, the actual) 1446 tax otherwise due with respect to such partner is less than $1,000, without taking into account any deductions or losses the foreign partner certified to the partnership or any state and local taxes the partnership withholds on behalf of the partner."

    Since 2014 was our first year investing in the US our total income was very minimal and the 1446 tax owing is well below $1000. Additionally, I had my partner and I complete 8804-C's and gave them to our LLP.

    I am hoping you may be able to help me understand that if the 8804-C is submitted and the estimated tax is less than $1000 does that mean you would submit an 8813 form but state the amount owed is $0? Would you also state the same on the 8804 and 8805 and attach the 8804-C and computations as "support"?

    For the most part I have had no issues completing our 2014 return, but this one has really confused me and I can't seem to find an answer anywhere so I hoping that because you have done a few filings now you may be able to share some info or suggestions.

    Thanks for sharing all your experiences and tips so far, what a great resource you have established here.


  3. Never mind, I finally found the answer:

    If the partnership relied on a certificate (8804-C) the partner submitted under Regulations section 1.1446-6(c)(1)(ii) to determine that the partnership is not required to pay any section 1446 tax with respect to that partner, enter -0- on line 10 of 8804

    Sorry for the inconvenience. Hopefully this will help other Canadian investors in their tax prep.
    Happy investing!

    1. Thank you very much for sharing your research! This may save me doing contributions that aren't really required and then having to claim it back. Much appreciated!