Business Tax Returns
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Before providing an elaboration of available business structures in the United States, it is important to note that expats must consult with tax professionals in their country of residence to determine the source of income as it relates to the residence, permanent establishment, and nature of the business as per the resident country’s tax treaty with the US. Once it is decided that it is an effectively connected US business or investment, we highly recommend consulting with an experienced professional to choose ownership structure and a US business set-up that will be most tax advantageous and provide liability and estate tax protection
A Limited Liability Company business structure is formed under state regulations. Members of LLCs (owners) are not restricted in most states and therefore can include corporations, and foreign individuals or entities. Limited Liability companies offer personal protection from the company’s debts and obligations (similar to a corporation) while affording flow-through tax advantages (like partnerships or sole proprietorships).
In the case of a single member LLC, by default, the business will be treated as a disregarded entity for tax purposes. The income and losses will be reported directly on the owner’s personal tax return, Form 1040, Schedule C. For LLCs with two or more members, the default status of the LLC is to be treated like a partnership and the LLC will file form 1065. Members will be issued k-1 schedules and will report the flow through income and expenses on Form 1040, Schedule E.
LLCs have the option of electing to be treated as a C corporation that will be taxed as a separate legal entity. In order to do so, they must file form 8832. Once the election takes effect, the LLC will file Form 1120. LLCs also have the option of electing to be treated as an S corporation, a flow through corporation; the ownership restrictions that apply to an S corporation also apply to an LLC which elects to be treated as an S corporation (further explained below). Form 2553 must be filed in order to make the S corp election. Both forms 8832 and 2553 must be filed no more than 2 months and 15 days after the beginning of the tax year for which the election is to take effect. However, revenue procedures allow late elections to be made under certain circumstances.
The C corporation is the only US business structure taxed as a separate legal entity. All others have “flow through” status where the income flows through to the shareholders who report the income on their personal tax returns (or business tax return in instances where the shareholder is not an individual.) C corporations are open on the State level and have limited liability, i.e. personal assets of the shareholders cannot be sought after to cover corporate liabilities. The major disadvantage of a corporation is that income is subject to double taxation. Net income is taxed on the corporate level and then again to the individual shareholder upon distribution of income in the form of dividends. Dividend distributions are given favorable qualified dividend rates on the personal level.
S corporations are small corporations that elect to be treated as pass through entities. Shareholders of the S corporations report corporate income and losses on their personal tax returns, Form 1040, Schedule E. S corporations allow shareholders to avoid double taxation; however, some built-in gains and passive income are taxed at the entity level. To elect to be treated as an S corporation for tax purposes, the corporation must submit Form 2553. (See above regarding date to file and late election relief.) In order to qualify for this election, the corporation must be a domestic corporation and shareholders cannot include partnerships, corporations or non-resident alien shareholders. Additionally, it must have no more than 100 shareholders, have only one class of stock, and cannot be a bank, insurance company or domestic international sales corporation.
A general partnership is a partnership whereupon all partners contribute to the day-to-day management of the business and have equal authority to make business decisions. The partners generally have unlimited liability, meaning personal partner assets can be sought after to cover partnership business debt. A general partnership generally has no State filing requirement.
A limited partnership must have at least one general partner. A limited partnership is formed on the State level typically via the Secretary of State. Generally speaking, the general partner is the managing partner, responsible for the daily operations of the Company. General partners are liable for the debts and obligations of a limited partnership. However, limited partners are only liable for debts up to their capital contribution. Some states now allow limited partnerships to elect to be treated as a limited liability limited partnership (LLLP). Under this election, general partners are given limited liability for debts that arise once the LLLP election is in effect.
A Limited Liability Partnership is similar to a general partnership in that all partners contribute to the day-to-day management of the business and have equal authority to make business decisions. However, all partners enjoy limited liability and are only liable for debts up to their capital contribution.
GPs, LPs, LLPs and LLLPs file Form 1065 and issue k-1s to partners. Income amounts are reported on Form 1040, schedule E of the partner’s personal income tax returns.
Form 1120- Corporation Income Tax Return | $825- $1650 |
Form 1120s- Income Tax Return for an S Corporation | $825-$1540 |
Form 1120F- Income Tax Return of a Foreign Corporation | $825-$1650 |
Form 1065- Return of Partnership income EIN and Form 2553, Election by a Small Business Corporation 990EZ- Not-for-profit Tax Return 990- Not-for-profit Tax Return | $715-$1650 $165 From $715 From $935 |
Bookkeeping Audited Financial Statements | $110 per hour
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