Discover the tax benefits of forming an LLC in the United States, a flexible and popular legal structure. Learn how to legally optimize taxes, protect your assets, and choose the right taxation method. Explore the advantages for non-resident owners and access expert advice on setup, banking, and more. Don’t miss out on efficient tax strategies for your LLC!
An LLC, or a Limited Liability Company, is one of the most popular and attractive legal forms of business in the United States. The structure is very flexible, so both residents and non-residents can be business owners, partners, or own shares in the LLC. However, there is one problem that entrepreneurs solve in different ways: tax optimization. You cannot have zero tax rates in the USA, so you need to take some steps to minimize the amount of tax liabilities.
You probably know that tax evasion is one of the most serious crimes in the United States, so you cannot resort to some dubious schemes: the ways of tax optimization you apply should be perfectly legal. What can you do? We invite you to our portal where you can read a more detailed article on how to pay less taxes for LLCs and follow other links to different posts on international business, taxation, accounting, banking, and many other aspects of entrepreneurship.
We also have qualified experts who can give you advice on any issues related to your business, such as setup, corporate banking, accounting, tax schemes, and business re-domiciliation. Some of our services are provided at no fee, like choosing a suitable country to start a company or open a bank account to best satisfy your requirements. We also have fee-based turnkey packages that will take all the administrative burden off you. Contact us today by following the link above!
An LLC in the United States: Benefits
An LLC is the best choice for non-residents of the USA as they form their company in a highly-reputed jurisdiction and receive an opportunity to pay lower taxes. But how does an LLC help if you want to have less tax liabilities? The matter is that you can choose how to be treated for taxation purposes: a corporation, a partnership, or a sole proprietorship. You can analyze which option will be best for your business and enjoy the most efficient tax optimization scheme possible.
Here is a list of tax benefits that a US LLC will give you:
- Your assets will have reliable protection from company debts (especially if your LLC is established as an S Corporation).
- You can pay taxes as an S Corp, a single-member LLC, or a partnership. It means that the tax liabilities are attributed to the owner or partners rather than to the company itself.
- Your business can be easily expanded on a global scale, so you will receive profits worldwide.
- The tax benefits you can get include subtracting the costs of business travel, office maintenance, and keeping a home office, which adds to lowering your tax burden.
- You don’t need a US visa or green card to be a business owner or director of a United States company.
- The US banking sector offers a lot of products designed specifically for small businesses, and you can get access to them.
- The tax burden is legally reduced for LLCs established by foreigners that do business outside the United States, are not tax residents, and have no economic presence in the state where they are incorporated.
Taxation for LLCs in the United States: Details
The taxation rates applicable to an LLC in the United States depend on its structure, as well as the number and residency of owners. An LLC is typically regarded as a transparent entity for taxation purposes and is not liable for corporate tax. Each LLC owner pays taxes on its profits instead.
Single-Member LLC (Sole Proprietorship)
If you are an individual that set up an LLC in the United States, you will be regarded as a sole proprietor by the IRS and incur the following tax and administrative liabilities:
- You will not need an EIN (Employer Identification Number) for your LLC.
- You will have to pay a self-employment tax (15.3% in the United States).
- If your LLC is focused on passive kinds of activities (investments in real estate, and so on), you will not pay taxes on personal income (social security, Medicare, and so on).
The business owner will need a Schedule C Form 1040 to report the LLC’s profits in his or her tax return.
If you have a single-member LLC, you can pay less taxes in some situations:
- The LLC does not have any tax liabilities in the country of incorporation.
- The LLC owner is not a tax resident of any country or a territorial system is applied to the company.
The company has to fulfill three requirements to be exempted from the US federal income tax:
- All its owners are not US residents (individuals or legal entities).
- The company has no economic importance or presence in the United States.
- The profits generated by an LLC are not related to the country of its incorporation.
US LLCs: Partnership Approach to Taxation
If your LLC has several partners, it will be taxed as a partnership. Each partner submits an individual tax return in the country of its tax residence, while the company itself does not pay a corporate tax.
Here is what your LLC will have to do to comply with the requirements of US tax authorities:
- File Form 1065 (Tax Return for Partnership) to the IRS.
- Submit Schedule K-1 to the IRS to show each partner’s profits/losses.
- Provide a personal tax return (Form 1040) to make sure the information in it conforms to Schedule K-1.
United States Corporations (C Corp or S Corp)
If you have a C Corp, you will pay business taxes and capital gains taxes (from dividends). This legal form is often used by large companies with a complicated structure (even despite double taxation). The tax rate applicable to the LLC equals 21% in this case (if you separate the income of owners and/or partners, tax rates range from 22% to 37%).
As for the S Corp, it does not pay corporate income tax on a federal level: each member pays taxes on his or her share of profits. S Corp members are not liable for a self-employment tax (and this is what differs this structure from a sole proprietorship or partnership).
Conclusion
We strongly recommend you to visit our portal using the above link and read the full text of this article as we give more advice on tax optimization in it. And if you are not very competent in taxation matters, book a session with our experts and get invaluable advice for your business!
