LLC Tax System - How it work actually?

[WPninja]

I'm outside of the USA and wanna create an LLC company as low as possible. Currently, consider two-states -

1. Delaware (Corporate tax rate: 8.7 percent)
2. Wyoming (Corporate tax rate: 0 percent)

I'm now working as a freelance web developer at several marketplaces. Now planning for forming LLC to extend my businesses. Can you guys tell me how actually those two state taxes?

Like, consider I make $20k in the whole year. So what will be the ending taxes at the end of the year?

And the second confusing part for me about the SALE tax. Though it'll an online business so my clients can be found from all over the world. So what sale taxes will be applicable for me? Wyoming has 5% sales tax, where Delaware has zero. So what if I charge a client from Texas or outside of USA, should I also include the sales tax according to the state's fee?

Thanks in advance

 

[WPninja]

Any kind reply?

 

[seopenguin]

I'm not a major expert in this, but are you sure you want to go through all this trouble and paperwork, especially if you are outside the US

LLCs are more for liability than they are for taxes. Delaware is always the way to go, they have the most favorable corporate laws in the US and the person suing you would have to go to Deleware to file the suit. If your revenue is 20k after deductions and expenses your tax bill would be essentially 0, you would pay around $300 to your accountant to file the taxes and the minimum tax fee of most likely no more than $500 total to federal, city and state. The place where you would get hit would be on personal income tax not on the corporate tax side, but I do not know how it works if you are outside the US for personal income taxes.

As far as sales tax goes when you are selling online you have to collect the sales tax based on the buyers location and then pay that sales tax to that state. Right now it is a gray area and on such a small scale it would cost you more in accounting fees than you would be making to collect and account for the sales tax. Unless you are running a big ecommerce site I don't think doing things like upwork or fiverr you have to worry about sales tax.

Again I'm not an accountant, but I think generally I'm in the right ballpark.

 

[WPninja]

I'm not a major expert in this, but are you sure you want to go through all this trouble and paperwork, especially if you are outside the US

LLCs are more for liability than they are for taxes. Delaware is always the way to go, they have the most favorable corporate laws in the US and the person suing you would have to go to Deleware to file the suit. If your revenue is 20k after deductions and expenses your tax bill would be essentially 0, you would pay around $300 to your accountant to file the taxes and the minimum tax fee of most likely no more than $500 total to federal, city and state. The place where you would get hit would be on personal income tax not on the corporate tax side, but I do not know how it works if you are outside the US for personal income taxes.

As far as sales tax goes when you are selling online you have to collect the sales tax based on the buyers location and then pay that sales tax to that state. Right now it is a gray area and on such a small scale it would cost you more in accounting fees than you would be making to collect and account for the sales tax. Unless you are running a big ecommerce site I don't think doing things like upwork or fiverr you have to worry about sales tax.

Again I'm not an accountant, but I think generally I'm in the right ballpark.

Thanks for those details. That helps me to think how to proceed and what should I consider. Though I'm a solo person and have limited resources, so forming LLC will be a big initiative to move one step ahead

 

[yonizzle]

The govement understands that people do this scheme with begin ina different state. You can use an company that will provide you with an address but banks and other places will know it's not a real location. Depends on what you want to do. Its difficult when outside the states as well. You would have to find someone in the states to form it with you.

 

[James2774]

1) You're not a citizen or a resident of the USA, you pay zero income tax.

2) Also, there is no corporate tax on an LLC. So that's zero too.

3) Lastly, sales tax, you only need to collect sales tax in states that you have a sales tax nexus in ie you have physical store, you store inventory, your employees work there, etc. I'm sure you don't have one, but maybe you do, sounds like you're completely online.
If you did, the sales tax charged would the to the state you have a nexus in, so if you had a store in Delaware, you'd be liable for Delaware sales tax.

Very likely The only tax you have to pay will be to your own country, whatever you declare as income etc. IDK how your laws work but as far as US tax goes likely zero

 

[seopenguin]

Having an LLC is not a scheme at all, it is literally part of corporate and tax law. You would most likely need to file for a ITIN number with the IRS so that you can open a bank account and take the pass through income.

You can open an LLC as a foreigner without any problems and once you have your corporate papers and ITIN number you can open a bank account.

I'm pretty sure you would need to pay income tax on the pass through income otherwise the IRS will freeze your bank account after the first year or 2

Yes if you have a store you collect and pay sales tax in the state your store is in, but with the rise of ecommerce you need to collect tax from the buyers state and pay it to that state, but with services you can get away without dealing with sales tax.

 

[TiagoS]

I’m from Brazil and I have a LLC in Wyoming. I’m taxed as a individual on what they call a pass trough company.
I have a business bank account at Chase, had to open in person there, only needed the EIN. I have a business credit card at American Express, they only asked for my passport.
You have to check if your country has a no double taxation treaty with US, Brazil for example does. In my case, you pay the taxes in the US and you can deduct from Brazilian taxes. Would pay a difference if the Tax amount ended up being less than Brazil.

 

[Ar7emis]

If you are going to open a single member LLC then you are going to get taxed at 15.3% rate by IRS on your profits + state sales tax ( every state has different sales tax ) . Also state of Nevada has good benefits for LLCs.

 

[James2774]

If you are going to open a single member LLC then you are going to get taxed at 15.3% rate by IRS on your profits + state sales tax ( every state has different sales tax ) . Also state of Nevada has good benefits for LLCs.

Where are you getting this information from?
LLCs dont really get taxed, they are pass through entities, and the owner pays income tax as he pays himself out.
He is not a US citizen so no income tax.
As far as sales tax goes first google on sales tax and nexus, which he likely wont have any:
https://www.taxconnex.com/blog-/understanding-sales-tax-nexus
Likely just end up paying any taxes owed to his home country.

 

[Ar7emis]

Where are you getting this information from?
LLCs dont really get taxed, they are pass through entities, and the owner pays income tax as he pays himself out.
He is not a US citizen so no income tax.
As far as sales tax goes first google on sales tax and nexus, which he likely wont have any:
https://www.taxconnex.com/blog-/understanding-sales-tax-nexus
Likely just end up paying any taxes owed to his home country.

Yes you are right I got it wrong. You have to pay self employment tax which is 15.3% when you paying yourself out.


'' LLCs that opt for a pass-through tax status are still required to pay self employment
tax. The self-employment tax rate for 2007 is 15.3 percent of the
first $97,500 of income and 2.9 percent for all income greater than $97,500. ''

 

[Mcherch]

Yes you are right I got it wrong. You have to pay self employment tax which is 15.3% when you paying yourself out.


'' LLCs that opt for a pass-through tax status are still required to pay self employment
tax. The self-employment tax rate for 2007 is 15.3 percent of the
first $97,500 of income and 2.9 percent for all income greater than $97,500. ''

Just a note, if you are doing business in the USA, and you are not a citizen, you are supposed to be paying 30% in personal income taxes if you are making over 100k, if not 100k, you will recieve a refund at the end of the year from the IRS when you file your taxes.

Businesses who are paying the non-citizen employees are supposed to withold the 30% of taxes until the end of the year, regardless of the $100k threshold.

This was told to me by my accountant.

 

[Teeto]

I’m from Brazil and I have a LLC in Wyoming. I’m taxed as a individual on what they call a pass trough company.
I have a business bank account at Chase, had to open in person there, only needed the EIN. I have a business credit card at American Express, they only asked for my passport.
You have to check if your country has a no double taxation treaty with US, Brazil for example does. In my case, you pay the taxes in the US and you can deduct from Brazilian taxes. Would pay a difference if the Tax amount ended up being less than Brazil.

How many % do you pay as an individual on the pass through company?

 

[James2774]

Just a note, if you are doing business in the USA, and you are not a citizen, you are supposed to be paying 30% in personal income taxes if you are making over 100k, if not 100k, you will recieve a refund at the end of the year from the IRS when you file your taxes.

Businesses who are paying the non-citizen employees are supposed to withold the 30% of taxes until the end of the year, regardless of the $100k threshold.

This was told to me by my accountant.

As a non resident also?
Bc a non citizen and a non resident are different.
As a non resident/non citizen you shouldnt have a tax liability to the USA.

 

[Mcherch]

As a non resident also?
Bc a non citizen and a non resident are different.
As a non resident/non citizen you shouldnt have a tax liability to the USA.

"Federal Withholding Tax and Tax Treaties

In most cases, a foreign national is subject to federal withholding tax on U.S. source income at a standard flat rate of 30%.. The tax is generally withheld from the payment made to the foreign national

Tax law recognizes that businesses may be owned by non-Americans who are not permanent residents. ... No one who earns income in the U.S. is exempt from tax responsibility because of citizenship or immigration status.

In most cases, a foreign national is subject to federal withholding tax on U.S. source income at a standard flat rate of 30%.

A nonresident alien (for tax purposes) must pay taxes on any income earned in the U.S. to the Internal Revenue Service, unless the person can claim a tax treaty benefit. ... Generally, a resident alien can't qualify for a tax treaty benefit."

Yes, a nonresident alien, apologies for the correction.

 

[bandititf9]

Best countries to have a company as a freelancer with low as zero taxes is Hong Kong or Singapore, along with couple of others.
Read more about creating a corporate / company in the countries I mentioned. You only paying for accounting company for the yearly / monthly report of your income, if it's made out of the country you have to pay %0 tax.

No idea why would you pick the USA to create a company, basically the worst one to choose, especially if you're living out of the US.

This is only my opinion and information I read online, I recommend you to consult with a certified accountant.

 

[James2774]

"Federal Withholding Tax and Tax Treaties

In most cases, a foreign national is subject to federal withholding tax on U.S. source income at a standard flat rate of 30%.. The tax is generally withheld from the payment made to the foreign national

Tax law recognizes that businesses may be owned by non-Americans who are not permanent residents. ... No one who earns income in the U.S. is exempt from tax responsibility because of citizenship or immigration status.

In most cases, a foreign national is subject to federal withholding tax on U.S. source income at a standard flat rate of 30%.

A nonresident alien (for tax purposes) must pay taxes on any income earned in the U.S. to the Internal Revenue Service, unless the person can claim a tax treaty benefit. ... Generally, a resident alien can't qualify for a tax treaty benefit."

Yes, a nonresident alien, apologies for the correction.

Got jt, though I do t think this applies innthe ops case, or many cases, as the icons isn’t earned in the US.
“Effectively, foreigners are only subject to US tax if they are “engaged in atrade or business in the United States” (ETOB). If your business is not ETOB, even if it generates income in the US, the income is not taxed in the US. ... Tax treaties also play a role.”
https://onlinetaxman.com/us-llc-tax-haven-for-foreigners/
If he is not living here, not visiting to conduct the business, and does not have an agent here, it looks like there is zero tax.

 

[AAW]

You have received many different responses and some are good and other may be confusing.
For the LLC and what you need to pay as a single member LLC and other stuff such as federal and state taxes as well as sales taxes.
I have done my share of the LLCs in different states (never do it in CA, unless you live there). Nevada, Wyoming, Delaware ... are Prefered.
I have excellent lawyer (affordable) that do these for me, you can PM me to get you his info as I don’t want to advertise him. I don’t like lawyers in general LOL. But boy, you need them sometimes.

 

[TiagoS]

Just a note, if you are doing business in the USA, and you are not a citizen, you are supposed to be paying 30% in personal income taxes if you are making over 100k, if not 100k, you will recieve a refund at the end of the year from the IRS when you file your taxes.

Businesses who are paying the non-citizen employees are supposed to withold the 30% of taxes until the end of the year, regardless of the $100k threshold.

This was told to me by my accountant.

Not true, especially if you own an LLC, and it's a single owner only. The flat 30% only apply to certain things like if you are working or doing services for a US business, and other things like -

1. Interest: If the debtor is a U.S. resident, the interest is generally U.S. sourced.
2. Royalties: If the subject property is used in the U.S., the royalty payment is U.S. sourced. Payments made in connection with the sale of certain intangible assets, including copyrights and patents, are generally sourced similar to royalties when the payments are contingent on the productivity, use or disposition of the intangible.
3. Rents: If the rental property is located in the U.S., the rental payment is U.S. sourced.
4. Personal Services: If the services are performed in the U.S., the payment for those services is generally U.S. sourced.

For instance, last year went to vegas and I got a hand pay. 30% of it was withheld by the casino.

I have an LLC in Wyoming, the income tax is based on the profit and depends on how much I´m earning. That´s because it´s a single owner LLC. if you add another person, then it´s much more complicated, higher, and subject to withholding. I had to pay for a consultancy from a company that has lawyers and accountants that specialize in international business matters like this. I have the video recorded of the session we did, and I remember this was my question regarding the 30% and they explained to me. I would post the video here to help others because I asked the most common questions for non-residents wanting to open a US business, problem is the video call was done in Portuguese.
It´s always a good idea to hire consultancy from an accountant that specializes in international tax. Research first, write down your questions and hire at least a one-hour session. Make sure you also mention the country you are from, as there can be a treaty or something else. Can be costly but it´s worth it.

 

[WPninja]

Thanks, everyone for your valuable comments and advice as well.

Though I'm not a US citizen, so the Personal Income Tax and Corporate LLC tax as well. Now remaining parts are - Sales Tax and Federal Tax.

My plan is to sell online services and products like web design, SEO etc so my customers will be worldwide and I believe the sales taxes are only applicable for US customers.

And finally, the Federal tax. That's flat I guess. So I think I can go with Wyoming LLC as it'll cost lower to start the business.

Adios.