How Non-Resident LLCs Need to Pay & File taxes in the USA?

Non-Resident LLC owners can save taxes and still stay compliant if they understand how they need to pay and file taxes in the USA. There are two ways LLCs are taxed depending on the ownership and that directly impacts the taxes that you will have to pay. Let’s understand it through this article.

Understanding Single-Member LLCs Taxation

In the USA, if you get LLC company registration in usa as a single owner, it will be treated as a sole proprietorship for taxation purposes.

As a result, the LLC owner can declare their profits and losses in their personal income return. The personal Income Tax Return form in the USA is Form 1040.

Furthermore, if there is 100% foreign ownership, the LLC can be considered a disregarded entity or non-ETBUS. In this case, the owners won’t even need to file Form 1040 if they are not having any source of income in the USA.

Understand the concept of non-ETBUS to save taxes in detail at: How to make Zero Federal Tax on USA LLC profit by Non-resident

Understanding LLC’s Taxation as Partnership

When you form LLC in USA as partners you will need to pay taxes as per normal partnership taxation rules. That means you will need to file Form 1065 (U.S. Return of Partnership Income).

In addition, each partner reports their share of income, credits, and deductions on Schedule K-1 (1065). This information is then reported on the individual tax return using Form 1040 with Schedule E.

How to choose the taxation period for LLC’s Return filing?

You can file your return based on a tax year, which can be either a calendar year or a fiscal year. In USA, these are:

Calendar Year: January 1 to December 31.
Fiscal Year: Any 12 consecutive months ending on the last day of any month except December.

What if you have a US Drop Shipping or Service Business as a non-resident?

If you have drop-shipping or service businesses without a physical presence in the US, you generally do not pay US taxes. However, you must file an informational tax return (Pro-forma 1120 + 5472) by April 15 for disclosure purposes.

Learn more: Tax on USA LLC Dropshipping Business

What is ITIN and how to obtain it?

ITIN stands for Individual Taxpayer Identification Number. It is meant for foreign nationals who need to file taxes in the US but do not qualify for a Social Security Number. It is also essential to have ITIN for activities like earning money from stage shows in the US or getting refunds from vendors. You need to file an application for ITIN that is made using Form W-7.

Other Crucial Tax Filing Requirements for Non-Resident LLC in USA

Every Non-Resident LLC must file Form 5472 which discloses any transactions between the limited liability company and its foreign owner or related parties, with a maximum penalty for non-compliance of $25,000 per form, per year.
If treated as a partnership, it should complete and file Form 1065 on an annual basis to report income and other tax information. They may also be penalised in case of failure to file including $210 per partner per month for up to 12 months. While LLCs taxed as corporations have to file Form 1120, penalties are based upon unpaid taxes or flat rate.
Additionally, FBAR (FinCEN Form 4) is a must for all U.S persons having foreign financial accounts whose balance goes above $10,000 including LLCs. This can range from ten thousand dollars if there are no intentional violations up to much higher fines along with possible criminal prosecution if such violations were committed knowingly.
Foreign owners of single-member LLCs with U.S sourced income must fill out form 1040-NR. Failure to comply leads to imposition of fines plus interest on unpaid taxes and litigation costs may incur too.