Multi Member LLC

When an LLC only has one member (or owner), the tax treatment in the US is slightly different from an LLC having more than one owner. While there are differences between a single-member LLC (SMLLC) and a multi-member LLC (MMLLC), the basic principles of pass-through taxation remain the same.

A multi-member LLC is more commonly referred to as a partnership because it shares all the tax characteristics of a Partnership (a different type of legal entity). The accounting and tax reporting of a partnership is typically more complicated and there are more nuances to the rules.

The biggest benefit of a multi-member LLC instead of a single-member LLC is the estate tax benefits. A single-member LLC provides no estate tax protection, and US-based assets are exposed to these estate and transfer taxes.

Multi-member LLCs can avoid most transfer taxes with careful planning and therefore are a great alternative to the single-member LLC when investing in certain assets. The biggest reason not to use a multi-member LLC is that it is required to withhold a 37% tax on US Source income attributed to foreign (Non-US) partners.

With careful consideration and analysis of the facts, adding another member to your LLC could save you a lot of money in the long run. That said U.S. multi-member LLCs with foreign partners operate in a bit of a gray area and have not been challenged by the US courts so stay tuned for future developments especially if you already have a multi-member LLC.

If you want to work with us already and start getting paid in the US, schedule a call today.

Corporation

When an LLC only has one member (or owner), the tax treatment in the U.S. is slightly different from an LLC having more than one owner. While there are differences between a single-member LLC (SMLLC) and a multi-member LLC (MMLLC), the basic principles of pass-through taxation remain the same.

A corporation is very different from a single or multi-member LLC because it is considered its own person for us tax purposes.

A corporation pays tax to the U.S. government on its worldwide income, just like U.S. citizens would. The federal corporate tax rate is 21% and most states have a tax rate between 5% and 10% on income earned in their state.

Corporations are best for International individuals and businesses that have a physical presence in the United States. A corporation is the safest way to avoid double taxation with International operations in two countries. Most multinational businesses and large companies operate with corporations instead of LLCs for a number of reasons.

A corporation offers a bit more flexibility and how you do business in a Marketplace.

U.S. corporations can take advantage of the U.S. tax treaties, while LLC’s and not because they are not U.S. tax residents.

One of the most common reasons my clients decide to open a corporation is to seek investment from U.S.-based investors and or potentially go public in the future.

U.S. investors generally prefer to invest in corporations, especially when the owners are not U.S. tax residents.

Also is it important to note that LLCs do not have stock or shares only a corporation can go public with a stock offering and actually sell shares. Even though an LLC can elect to be taxed as a corporation it cannot ever have shares or be involved in an initial public offering.

With a flat tax rate, often a U.S. Corporation will pay fewer taxes and then a Non-U.S. Corporation.

Additionally, corporations draw hard lines between the operations of international business and aid to avoid double taxation.

In referencing double taxation here, I’m talking about the taxation of the U.S. government and other countries. A US Corporation is still subject to a form of double taxation in the United States as it relates to dividends. The profits of a corporation are taxed at 21%, as we know.

After this tax is paid, these funds remaining would be considered dividends when paid to the shareholders. A US person receiving dividends from U.S. Corporation would pay about 15% tax on dividends received from a US Corporation.

Having a 21% corporate tax and then about 15% tax on dividends does not make a U.S. Corporation the best option for many U.S. individuals.

For non residents the rules are a bit different. U.S. corporations still pay a 21% tax on profits. The U.S. corporation is required to withhold 30% of all dividends paid to U.S. non residents.

There are tax treaties that lower your withholding rate based upon the residency of the shareholder, with Canada and Mexico generally being the lowest at about 5%.

Now it’s not all taxes and withholding. There are certainly ways to operate a U.S. Corporation without paying excessive taxes. Since many of my clients are small businesses, oftentimes those that prefer a U.S. corporation instead of an LLC will pay out most of their profits as a salary to themselves. This way there are no corporate profits, no income taxes to pay and there will be no dividends or associated taxes, but it is very important to arrange everything correctly so that this holds up should the IRS ever ask.

Very often we will recommend a combination of US Corp and USOC for our clients, but every situation is different.

If you are interested in finding out if a U.S. Corporation is right for your business, schedule a call today.

Service Businesses

Now that we have talked about the most common types of U.S. companies, I want to get into more specific examples and references.

The clients I work with can be broken down into less three types of businesses; Service providers, e-commerce sellers, and investors.

Service providers have the clearest solution. Through court cases and analysis of the Internal Revenue Code, it is clear that services are subject to tax where they are performed. If you have an internet business, you are performing services generally where you live. If you have no office or employees or fixed place of business in the United States and you don’t travel to the United States to service your clients, you would not be subject to tax in the United States if you use an LLC. This is an obvious answer for many of my clients especially clients who are digital Nomads or just live in low tax countries.

An LLC in a U.S. bank account is a perfect solution or digital service providers whether you are a marketer graphic designer consultant coach it doesn’t matter if you don’t perform your service in the United States, you don’t need to pay taxes here. It doesn’t matter what your clients are either. You could sell 10 million dollars of services only to U.S. citizens, but if you are not a U.S. tax resident, and you don’t perform any services in the United States you do not need to pay tax on this income.

What can get tricky here is deciding and figuring out how to report tax free income generated by your U.S. LLC in your home country. Sometimes we can find more complicated structures to protect you both from the US tax and your local tax but obviously, every country has different tax laws.

The benefits of using LLC goes beyond not paying US taxes. As listed at the top of the page a U.S. company gives you access to U.S. banking, U.S. financial tools, more trust in the U.S. market, and the ability by get paid from clients all over the world while being free from U.S. tax. This doesn’t even reference the amount of capital available to growing businesses from U.S. investors.

If you have a service business and are still paying taxes, schedule a call today.

Ecommerce

The e-commerce space is growing faster than ever, but is also a bit more complicated. I can also break this down into a couple of different subcategories.

The first one I want to talk about is dropshipping. I view dropshipping as a service. Drop shippers just connect buyers and sellers and add a little bit of a margin, sometimes a lot of margins. Since this would be a service delivered online via your home country outside of the U.S. the paragraphs and the service category would generally apply to the taxation of an e-commerce business.

Amazon sellers and actual manufacturers have a bit of a different problem. This is due to inventory. As of today, the IRS has not issued certain guidance whether using a fulfillment center we constitute” doing business in the United States”.

Having your own warehouse and staff and inventory we are clearly doing business in the United States, but a consignment or fulfillment center generally isn’t an employee of yours and works with many other businesses. Therefore, this would be an independent agent and more like a contractor in the U.S.

Having a U.S. contractor does not mean you are doing business in the United States, but there is plenty of room for the IRS to make a case if they wanted to.

So just like partnerships, there is a lot of gray areas as it relates to e-commerce because the tax laws were written in the 1930s when e-commerce wasn’t even a thought.

More often than with service businesses, my e-commerce clients decide to use corporations instead of (or in addition to) LLCs as they develop their optimal business structure.

If you want to work with us, schedule a call today.

Sales Taxes

One extremely important item I haven’t talked about yet is sales taxes. In the very recent court decision Wayfair vs South Dakota, it has been established and widely accepted that states can now impose sales taxes on online sales into their state.

Batman’s if you are delivering Goods to clients that live in the state you need to learn about those that state sales tax laws.

Sales taxes are very much like those taxes however they are widely accepted in the United States from a consumer standpoint and if you add on the 5% sales tax you won’t necessarily lose the sale, but you will protect yourself.

A full sales tax analysis is recommended for large businesses not collecting sales tax because a sales tax assessment can cripple a business.

Imagine you’ve been selling in California for 2 years and you haven’t collected sales taxes. If California finds this out they will immediately assess their let’s say 7% sales tax on your gross sales in to California in addition to interest and penalties.

This very often weight will cause a business to shut down so it is super important to review your sales tax responsibilities.

The general and most commonly accepted thresholds for being liable for sales taxes in a state are 100,000 of total sales in a year or sales of up to 200 items in a whole year. So if you pass either of those thresholds and most states you have to register for and collect sales taxes.

Many companies like Amazon, eBay, and Etsy will automatically assess and collect sales taxes on your sales to most states. This can make it much easier to stay into compliance as learning the sales tax rules and laws and registering for sales taxes in 50 states is a ton of work.

We don’t provide monthly sales tax services, but we can help you with a full sales tax analysis to determine how much, if any, sales taxes you are liable for.

To give you a quick example, I did a sales tax analysis for a contact company last year. By reviewing the sales tax laws, most of the states consider contact lenses a medical device not subject to sales taxes. By making and confirming this determination we were able to exempt this company from sales taxes and confirm the exemption with many states through their specific procedures.

For all large e-commerce businesses I recommend a full sales tax analysis to protect yourself and it’s sure you are complying with the sales tax laws.

Schedule a call today, if you are interested in opening the right company for your e-commerce.

Real Estate in the United States

Real estate located in the United States is subject to U.S. income and estate tax rules because it is physically located there. Wow, real estate can be owned directly by one or more persons. It is often better to use companies to own real estate.

The first reason to use an LLC or corporation to own your real estate is to protect yourself legally. If you own real estate in your name directly and something happens at that property, you could be at Great risk for lawsuits and this would expose all of your assets. While if you use an LLC or Corporation, only the assets held by that LLC or Corporation would be at risk.

Since you will have to pay taxes on rental income, determining whether or not to use a pass-through or a corporate structure very much depends on the activity of the property and the level of involvement. For smaller Investments less than 300,000 that also involve mortgages in LLC structure might be better. Where as an investment over 500,000 would require more complex tax planning. Real estate in the U.S. is subject to U.S. estate taxes. If you are a foreign person and you are on US Real Estate you are subject to a tax of approximately 40% on the net value of your property upon your death, if the property is owned directly by you or in an LLC. This tax is calculated by taking the fair market value of the property less any mortgages or loans against the property if this value is higher than $60,000 you pay tax on that amount. For example if you have a million-dollar house with a $500,000 mortgage and you die oh, your heirs cannot sell or transfer the property until estate taxes are paid on $440,000 of net estate taxable income. 40% on 440000 is $176,000 of taxes.

The most common way to limit your US Estate tax exposure is either by having a foreign corporation on a US corporation which owns the property or by using a US partnership. Why US partnerships may be cheaper to set up, if you are renting the property then you may end up paying more income taxes up front and have more compliance liabilities.

If you are considering investing in real estate in the United States I recommend you schedule a call with someone from our team so that we can work with you to properly advise you on how to structure and operate your US investment so that you are limiting your income and estate taxes exposure.

If you want to work with us, schedule a call today.

US Stock Market Investing

In case you didn’t already know non residents are not taxed on their capital gain income from stocks trading in the United States. For this reason, trading and investing in the US stock market as a non resident is a great opportunity. While you can certainly trade and invest in a TD Ameritrade or other investment account using your own personal name, the issue of state taxes rears its ugly head again. Technically if you own more than $60,000 of stock in your portfolio and you die a brokerage you are investing with legally will not release the stock to your next of kin until it is showing you have paid and filed your estate tax returns. I have helped many clients file their estate tax returns and get this money back but the process can be expensive and very time-consuming.

A great way to limit your state tax exposure is by using a U.S. partnership or multi-member LLC. The rules around operating this type of business can be tricky but that is how we can help. If you create all the companies and methods for sustainable and low-risk trading in the United States then schedule a call today.

If you want to work with us, schedule a call today.

Offshore Corporate Blockers

Offshore corporate blockers are generally corporations set up in low or no tax jurisdictions which are used only to hold the ownership of U.S. LLC’s. The limited liability company would be operating in the corporate blocker with you would be used 2 stop the flow of income from the LLC to the ultimate owner or shareholder. While a corporate blocker isn’t necessary for everyone, many of my clients from Latin America have chosen to use added legal protection and additional support for their income tax planning in their home countries. If you are looking for an offshore Corporation or trust in jurisdictions such as Belize or Nevis or Panama we can help you get setup correctly, legally and quickly.

If you want to work with us, schedule a call today.

US Estate Tax Returns Form 706-NA

This is a service that I’m proud to have learned because I’ve been able to help my clients save a great amount of money with their estate tax filings. These are always difficult because it inherently involves the death of a loved one or family member and surprise income taxes associated with said death. This is most often seen when a family member has an old investment or retirement account located in the U.S. from work done there in the past or when a family member owns U.S. real estate directly. As mentioned in previous sections title attorneys won’t let you transfer the property unless it is shown that state taxes have been paid and investment brokerage companies won’t liquidate accounts until estate taxes are paid.

I’ve gotten most of my non resident state tax Appliance from a couple of Duty videos I put on YouTube back in 2018 when I first learned how to complete these forms. Form 706-NA is very nuanced and since the tax implications could be very high it is important to know how to complete these forms correctly. I’ve had a couple clients who come to me searching for quotes leave to look for other quotes and almost always come back because there are very few professionals who have experienced completing these types of forms. Additionally there have been a handful of clients I’ve worked with that did work with other professionals before finding me and the forms are often prepared in a manner that resulted in an additional $400,000 of estate taxes that could have been avoided if they worked with me.

Well I’m truly sorry that you have to deal with the loss of a loved one and dissociative state taxes. I would be very happy to help you complete these forms and keep as much of your money as possible. Schedule a call today and we can talk about it.

If you want to work with us, schedule a call today.