Taxation Documents to File if You Own a Small Business in the USA

Psoted on: October 19, 2021 at 7:38 am, in

The US tax system is renowned for its complexity and numerous nuances that must be studied thoroughly. Unlike personal tax returns, preparing and filing business taxation documents requires a lot more expertise and time. And tax compliance is one of the most important parts of doing business in the US. 

The small business owner is responsible for paying taxes on all profits received by their organization. And even if the company has not made any income for a year, this must be reported to the IRS. Business entity structure directly affects the amount of taxes to be paid and the appropriate tax return form. 

This guide will try to give a better understanding of taxes for small businesses in the US and the required tax filing documents that need to be prepared and submitted. 

Business Taxes in the USA 

Historically, corporate taxes in America are divided into three levels:  

  • Federal taxes; 
  • State taxes; 
  • Local taxes. 

Federal Taxes 

Federal taxes make up the “weightiest” part of your tax burden. That said, when it comes to federal taxes (and sometimes state and local taxes), typically, you may be liable for five types of business taxes. These are: 

  • Income Tax: The fee you pay on the earnings formed by your business. 
  • Self-Employment Tax: A charge you pay as a self-employed person to cover Social Security and Medicare taxes. 
  • Employment Tax: Additionally acknowledged as a “salary tax”, this is the tax you deduct from employees’ paychecks (if you have any) for federal income taxes, Social Security taxes, Medicare taxes, and federal unemployment taxes. 
  • Excise Tax: A charge you pay if your business involves trading with certain goods/services: fuel, heavy trucks, tractors, etc. 
  • Property Tax: This expense you pay on any commercial property, land, or real estate owned by your business. This kind of charge is regulated on a regional level considering your business location. 

State and Local Taxes 

As for the other two levels of taxes, US tax laws pertaining to small businesses can vary greatly from state to state and city to city. This, in turn, means that state and local taxes will be unique to your business depending on its location. But, for Clevver, the location of your business doesn’t matter at all, we can help you register the US company in ALL 50 STATES! 

The following is information about typical state and local taxes for small businesses. It is prudent for an entrepreneur to consult with the IRS both of the state and municipality where their business is located to define the precise taxes to be paid out. 

Most often, the state and city in which the business is situated will require the small business owner to pay Income and Employment taxes. These are the most common fees. 

As with federal taxes, state income tax liability is determined by the structure of the business, its legal form. For instance, Corporations pay and report taxes separately from their owners, their income is unrelated and they use different tax returns. At the same time, Sole proprietors report their personal and business income on a single form. 

Having employees affects your tax liability to the state and municipality greatly. If there are any, the business owner-employer will essentially be responsible for paying State labor taxes (workers’ compensation insurance, unemployment insurance, and temporary disability insurance taxes) and Withholding income tax from employees. Again, these may vary from state to state and city to city. 

45 States have a Sales tax demand if you sell goods/services. In this case, the business owners are responsible for estimating, gathering, and proclaiming Sales tax. 

Since there is a great variety of state and local taxes, it is important to take into account also the certain location of incorporation in the USA. Meaning, that local taxes can vary within the state, depending on the area or city that a company is located. Also, the filing of the local taxes is needed to be filed together with the state declarations. 

Types of Business Entities and Tax Return Forms 

As has been mentioned above, the organizational form of your business will determine your tax burden. It affects the types and amount of taxes to be levied. Also, a business entity implies definite tax form samples to be filed with the government agencies. 

The forms you use to file your federal tax return will vary depending on whether your business is structured as a Sole proprietorship, Limited liability company, S-corporation, C-corporation, Partnership, etc. After calculating all your income and paying the prescribed charges, these will be the forms that you will need to fill out. Additionally, each form has a filing date: 

  • sole proprietorship and single-member LLC write down Schedule C and file their tax statements on April 15 for the past year. 
  • An LLC with more than one member submits its Form 1065 with Schedule K-1 for each shareholder of the LLC. They are due March 15 for income earned in the prior year. 
  • Partnerships also file (for each partner) a Form 1065 with Schedule K-1 on March 15 or the 15th of the third month after the end of your company’s tax year. 
  • C-corporations fill out Form 1120. The deadline for filing tax records is April 15 or four months after the end of their tax year. 
  • S-corporations submit Form 1120S with a Schedule K-1 for each part-owner. These returns are due on March 15 or three months after the expiration of the tax year. 
  • Self-employed individuals pay taxes quarterly on Form 1040-ES. Filing dates: April 15, June 15, September 15, and January 15 accordingly. 

The situation with the choice of the appropriate form for tax filing has a couple of more nuances. The selection of the latter is also affected by the “resident” or “non-resident” status of the owner of the organization. For example, an LLC with more than one member, owned by a foreigner, is required to file Form 5472 + 1120, FBAR, and 1040-NR.  

Important! Forms 1120 and 5472 are only filed together, with 1120 serving as the cover page. Your LLC must have an EIN to be able to complete these forms. The deadline to file Form 5472 is April 15. 

Also, keep in mind that companies in the US must prepare not only tax returns but also Annual Reports. With such a variety of dates and documents to be filed with state agencies, it’s easy to get confused and lost. To keep your company always up to date and have no problems with filing the relevant papers on time, Clevver has developed the Clevver Compliance Center — a new service in the Clevver’s family of digital products. This web app will help keep everything under control and not miss any important dates from sight, such as, for instance, the renewal of your US Registered Agent subscription (it must be renewed annually). The Clevver Compliance Center is available FREE OF CHARGE

Final Thoughts 

Determining tax obligations and filing requirements based on the type of company in the US is difficult and time-consuming.  

In order to compile the necessary documents for small business tax filing and annual reports, it is vital to keep detailed accounting records throughout the year, documenting transactions, etc. This, of course, is not easy and requires a lot of resources. That’s why Clevver has created its new product, the Compliance Center, to make your entrepreneurship a little bit easier. 

Also, remember that our specialists can assist you with your company incorporation in any of the 50 states of the United States of America. Learn more here

DISCLOSURE NOTICE:  Any legal or tax advice in this communication (including any attachments) is for information purposes only and is not intended to be used, and cannot be used against Clevver or its Sender. The sender is neither an Accountant nor a Lawyer and cannot be made liable. Please, contact your tax accountant for individual consultation. Clevver does not provide any legal advice itself. Clevver works together with a network of lawyers and tax advisors that provide all necessary individual legal advice. 


TOP 10 US States to Incorporate a Company as a Foreign Entrepreneur

Psoted on: April 8, 2021 at 7:40 am, in

Overview:

  • The United States has consistently ranked among the best countries in the world for overall competitiveness and ease of doing business.  
  • The US business culture, backed by a regulatory environment, is particularly conducive to starting and operating a business and encourages free enterprise and competition. 
  •  There is a transparent and predictable legal system in the US, all companies – regardless of origin (resident/non-resident) – compete on an even playing field.
  • Clevver experts will readily help you incorporate a company in any of the 50 US states on a remote basis.

Setting ambitious goals and achieving them is the very essence of entrepreneurship. When one has achieved certain results in their business, they want to master new heights, for example, open a new company in another country.  

Today, we will talk about the USA and the best states where a foreigner can register a company on favorable terms. Originating a business entity in the United States is a good way to expand your business globally. An LLC or limited liability company is considered to be the best option for a company status in the US. 

To conclude in which of the 50 states, one federal district, and 5 territories it is better to start up a business for a foreign entrepreneur, we’ll use knowledge about the USA tax system in different states.

The Best US State to Register a Business Entity for a Non-resident

In which state is it better to incorporate a company for a foreign entrepreneur in America? By and large, all paths are free and a company may be registered in any of the 50 states, but some of them may indeed be more “attractive”. Which ones? To determine this, let’s start with taxes first. 

The trustworthy and well-known organization — the Tax Foundation annually publishes the US State Tax Climate Rankings, which showcase the states with the most prosperous conditions for entrepreneurship in terms of laying taxes approach, tax diversity, and their rates.  It is an independent organization, which has been involved in tax research for more than 80 years already. Many reputable business publications refer to their reports. The study, which contains the entire methodology for calculating state ratings depending on taxes, can be found here.

TOP 10 US States for LLC Registration

This is a TOP ranking consisting of 10 US states with the best tax policies for registering a business entity:

  1. Wyoming 
  2. South Dakota 
  3. Alaska 
  4. Florida 
  5. Montana 
  6. New Hampshire 
  7. Nevada 
  8. Oregon 
  9. Utah 
  10. Indiana

You can also see a sketch of the tax policies of different US states below:

Source

Let’s take a quick look at the states to see how they earned their place in the TOP 10: 

Wyoming 

  • Corporate tax rate: 0%
  • Personal income tax rate: 0% 
  • Sales tax rate: 4% 

Are you seriously thinking about registering a business entity in the USA? The company Clevver.io provides a full range of services necessary for this. Visit our website and find out everything about the cost and timing of the service. Conquering new business peaks with Clevver is easy and affordable!

South Dakota 

  • Corporate tax rate: 0% 
  • Personal income tax rate: 0% 
  • Sales tax rate: 4.5% 

Alaska 

  • Corporate tax rate: 9.4% 
  • Personal income tax rate: 0% 
  • Sales tax rate: 0% (but at the local level, municipalities can raise it up to 7%) 

Florida 

  • Corporate tax rate: 5.5% 
  • Personal income tax rate: 0% 
  • Sales tax rate: 6% 

Montana 

  • Corporate tax rate: 6.75% 
  • Individual income tax rate: from 1% to 6.9% depending on income 
  • Sales tax rate: 0% 

New Hampshire 

This state has an additional Business Enterprise Tax, which was originally set at 0.75% of the tax base of the value of the enterprise. 

  • Corporate tax rate: 7.9% 
  • Personal income tax rate: 0% (5% on dividends) 
  • Sales tax rate: 0% 

Nevada 

  • Corporate tax rate: 0% 
  • Personal income tax rate: 0% 
  • Sales tax rate: 6.85% (locally up to 8.26%) 

Oregon 

  • Corporate tax rate: 6.6% on the first million $, 7.6% on income over $1 million 
  • Individual income tax rate: from 5% to 9.9% depending on income 
  • Sales tax rate: 0% 

Utah 

  • Corporate tax rate: 5% 
  • Personal income tax rate: 5% 
  • Sales tax rate: 4.7% (6.85% for Salt Lake City) 

Indiana 

  • Corporate tax rate: 6% (by 2021 will be reduced to 4.9%) 
  • Personal income tax rate: 3.23% + small county tax rate of up to 0.021% 
  • Sales tax rate: 7%

Delaware

Delaware is one of the most popular jurisdictions in the United States for registering corporations. For several years in a row, it has been in 11th place, but you should also pay attention to it.

One of the benefits of Delaware is that there is no state income tax. There is another tax — the so-called franchise tax (it is fixed) in the amount of $300/year (the amount may vary depending on the company’s turnover and the type of activity).

But huge corporations choose the state of Delaware because of the state’s judicial system, which is even called the “Delaware Corporate Shield.” Delaware laws provide the best protection for business owners’ personal assets from creditors. Delaware has a separate court called the Court of Chancery. Its judges have extensive experience in resolving business disputes, and the state has the largest case base in the country. In sum, this allows even very complex economic disputes to be resolved quickly (within weeks, not years) and as “transparently” as possible.

To incorporate an LLC in Delaware with Clevver.io assistance is the right decision because pricing starts from 129 Euros here. Visit our site to learn more.

Final Thoughts

Do not forget about the simple truth: how many people — so many opinions. It is crucial to remember that you ought to focus on the needs of your business. You can concentrate on absolutely any indicators that are important for its prosperity. 

Such states as Delaware and Wyoming are definitely worth considering to open the LLC. These states provide excellent opportunities for registering companies by non-US residents + the cost of registering/maintaining companies in these states is one of the best in the country. Clevver specialists support the company incorporation in any of the 50 states on request.

DISCLOSURE NOTICE: Any legal or tax advice in this communication (including any attachments) is for information purposes only and is not intended to be used, and cannot be used against Clevver or its Sender. The sender is neither an Accountant nor a Lawyer and cannot be made liable. Please, contact your tax accountant for individual consultation. Clevver does not provide any legal advice itself. Clevver works together with a network of lawyers and tax advisors that provide all necessary individual legal advice.


Steuernummer and Umsatzsteuer-ID. What Is the Difference?

Psoted on: March 16, 2021 at 10:03 am, in

Germany uses many different tax identification numbers. For an entrepreneur who writes an invoice for the first time, it can be difficult to distinguish them. They are faced with the question: Do I have to state a Steuernummer (a tax number) or Umsatzsteuer-ID (VAT ID) on the invoice? Finally, both numbers can be given on the invoice. You can now find out the difference between those two tax numbers and when exactly which one is required.

Steuernummer vs. Umsatzsteuer-ID: What is What?

As an entrepreneur, you can have both a Steuernummer and Umsatzsteuer-ID (VAT ID, sales tax ID) in Germany. Both numbers equally serve for tax identification.

Steuernummer

A Steuernummer is your tax identification number. Every private (legal) person in Germany has such a tax number. If you write an invoice, you usually have to provide it for identification.

Steuernummer Brief Factsheet

  • Steuernummer may also be referred as Steuer-Identnummer or St-Nr
  • It’s a 10- or 11-digit number, and has the format “12/345/67890”. It’s sometimes written in the unified federal format as “3012034567890” (the first two digits are the number of your Bundesland). 
  • You get a Steuernummer after you fill the Fragebogen zur Steuerlichen Erfassung. You will receive your tax number by mail, 2 to 4 weeks after you submit the form. If it takes longer, call your local Finanzamt (Tax Office), and ask for your tax number. You can also go in person. 
  • The Steuernummer is unique, but not permanent. If your business moves to a different Finanzamt’s area, you will get a new Steuernummer.

Umsatzsteuer-ID

An Umsatzsteuer-ID (VAT ID) can only be assigned to companies in certain cases and is your tax identification number for other EU countries. In other words: it may be necessary when you write an invoice to a business partner in another EU country.

Umsatzsteuer-ID Brief Factsheet

  • Umsatzsteuer-ID may also be referred as Umsatzsteuer-Identifikationsnummer, USt-Identifikationsnummer or USt-IdNr
  • It’s a 9-digit number with the format “DE123456789”. 
  • You also get a VAT number by filling the Fragebogen zur Steuerlichen Erfassung. You will not get a number if you declare a small business (Kleintunternehmer), because small businesses do not need to charge VAT. 
  • When you receive a VAT number, you must put it in your Impressum. It’s the law.

Stating of the Steuernummer and Umsatzsteuer-ID on the Invoice

You should always state one of these two tax numbers on the invoice. But when exactly each of them is required on the invoice? Have a look at the table presented below.

INVOICES

STEUERNUMMER UMSATZSTEUER-ID

You enter Steuernummer when you send invoices to another entrepreneur or to a private person who is based in Germany. It is, so to speak, your domestic German tax identification number.

However, you are also allowed to enter the VAT ID (sales tax number) instead of the Steuernummer also within Germany.  
  
In fact, many entrepreneurs prefer to include their VAT ID on invoices within Germany because it is more secure from a data protection perspective.


Umsatzsteuer-ID (VAT ID) is required if you and your customer are both regular entrepreneurs subject to VAT and your customer is based in another EU country. Because then the principle of intra-community delivery or service applies: Your customer, not you, has to pay the sales tax for the purchase to their tax office.






In order to handle the VAT transaction within the EU, you and your customer must both be identified by a European VAT ID. You must therefore state both your VAT ID and your customer’s VAT ID on the invoice. In addition, in this case, you are not allowed to show any other tax number on the invoice. Otherwise, your customer would pay sales tax twice: once to you and once to their tax office.  

If you are a small business owner or your customer is a small business owner or a private person, the principle of intra-community delivery/service does not apply. This means that there is no need to include a sales tax ID on the invoice.

Foreign Companies and the German Umsatzsteuer-ID (VAT ID)

Foreign businesses that conduct taxable activities in Germany may be required to apply for a German VAT number. Typically, these activities include:

  • Imports into Germany; 
  • Buying and selling goods in Germany; 
  • Conducting live events with ticket sales; 
  • Sale to German consumers via the Internet.

Applications for a VAT number must be submitted to the appropriate tax office. The choice depends on where the foreign company is located. Non-EU companies wishing to register must apply to the tax office in Berlin.

Summary

The Steuernummer and Umsatzsteuer-ID are both tax identification numbers that the tax office can use to assign invoices to companies. If you write an invoice to a customer in Germany, the Steuernummer on the invoice is sufficient. If your customer is based in another EU country, you have to state the Umsatzsteuer-ID on the invoice under certain conditions: this is the case if you and your customer are both regular entrepreneurs who are subject to VAT. 

While the tax office automatically provides you with a Steuernummer when you set up your company, you must explicitly apply for the Umsatzsteuer-ID at the Federal Central Tax Office. You will not get this tax number if you declare a small business (Kleintunternehmer), because small businesses do not need to charge VAT.

DISCLOSURE NOTICE: Any legal or tax advice in this communication (including any attachments) is for information purposes only and is not intended to be used, and cannot be used against Clevver or its Sender. The sender is neither an Accountant nor a Lawyer and cannot be made liable. Please, contact your tax accountant for individual consultation. Clevver does not provide any legal advice itself. Clevver works together with a network of lawyers and tax advisors that provide all necessary individual legal advice.


British Virgin Islands – Your Choice for Asset Protection

Psoted on: October 12, 2020 at 2:49 pm, in

Nestled in the heart of the Caribbean, the British Virgin Islands attracts countless visitors with its sandy white beaches and glorious weather, but unlike other holiday destinations, it offers more than beauty to those who want to protect their money and assets. Comprised of 16 habited and more than 20 uninhabited islands, BVI is a self-governing overseas territory of the United Kingdom. It boasts a steady parliamentary democracy, and its relationship with the UK ensures protection and stability, important to anyone considering benefiting from the territory’s ample financial advantages.

With a population of around 35,000, the island conveniently uses the USD as currency, and in 1994 it inscribed confidentiality for registered business ownership into law, hence many businesses take full advantage of their offshore registration program.

There are over 500,000 companies currently registered as offshore entities in BVI, making the British Virgin Islands one of the most popular tax havens in the world.

Tax facts

Annual tax rate0% on a firm’s capital
The local equivalent to limited liability companyBVI Business Company (BC)
Company SuffixLtd.; Corp.; Inc.; S.A. (freedom of choice)
Starting costs€1995.- | no paid-up capital required
Income tax on foreign establishments (operating outside the country)0%
Corporate tax on foreign establishments (operating outside the country)0%
Capital gains tax on foreign establishments (operating outside the country)0%
Founders & Shareholders need to be residentsNo
Identity submission to public recordsNo
Legal SystemCommon Law

 The BVI platform for your business

What else is there that makes BVI a great place to register your business? Here’s an outline of how a BVI-registered organization can save you money.

Taxation

The BVI has no capital gains tax, no gift tax, no sales tax or value-added tax, no corporation tax, and no inheritance tax. There is income tax, but that is currently also set at zero and has been for many years with no sign of change. In fact, much of the country’s income comes from new business registration fees, so it is not in the interest of the government to change the situation.

Salaries are taxed, however, through a payroll tax, 8% for the employee and 12% or 14% for the employer for any salaries above $12,000.

The BVI Business Company

With very few restrictions, most people can register a BVI Business Company (BC) in the country. It is available regardless of your location in the world, and it can be formed as a continuation of another company at request, creating a wholly owned yet confidential, tax-efficient subsidiary.  

Businesses can be incorporated under a variety of suffixes to suit, including:

In all cases, they need just one director, who does not have to reside, or even visit BVI in person.

Judicial System

The system of judiciary is based on that in the UK, in addition, BVI is a member of the Eastern Caribbean Supreme Court.

A great place to hide your yacht, plane, or any asset

The BVI BC can be incorporated by anyone, anywhere in the world. The legislation is simple, with each company requiring a single director, who does not need to reside in the country, and annual reporting is not required under law, making the maintenance very simple too. With an offshore entity so easy to create, startups can compete with big players.

With no corporation tax, there are only two costs to concern yourself with: the first is the $450 a year official fee to maintain the status (for businesses with less than 50,000 shares), and the other is a payroll tax. The payroll tax applies to all employee wages, and it is paid at the rate of 8% by the employee, and either 12% or 14% by the business, depending on the annual income.

While incorporating is easy in BVI, there is a downside. Banking opportunities are limited, with just three BVI-based banks, all of which require a face-to-face meeting to open the account. This could be an issue, yet several banks in Singapore cover BVI and offer a more digital-friendly solution that works for owners in other countries.

Summary

With a simple setup, low maintenance requirements, high levels of confidentiality, minimal taxation, and low annual cost, BVI tax haven is the perfect offshore option to keep your assets out of the reach of others. From yachts, planes, or anything of value, ownership through a BVI BC offers high levels of protection while minimizing costs.

If you want to find out more about the BVI and how remote incorporation can help your business, contact the team at Clevver Company.

Clevver now supports the incorporation in the BVI, check it out!

DISCLOSURE NOTICE: Any legal or tax advice in this communication (including any attachments) is for information purposes only and is not intended to be used, and cannot be used against Clevver or its Sender. The sender is neither an Accountant nor a Lawyer and cannot be made liable. Please, contact your tax accountant for individual consultation. Clevver does not provide any legal advice itself. Clevver works together with a network of lawyers and tax advisors that provide all necessary individual legal advice.