Most businesses are responsible for a few main types of taxes. Non-residents can view our guide to U.S. taxation for non-residents here
All businesses have to file an annual income tax return. C corporations pay income tax at the corporate rate, while all other businesses are considered “pass-through” entities and are taxed at the individual rate. Tax liability for "pass-through" entities is dependent on income according to the following table.
For LLCs, S Corporations, Partnerships, Sole Proprietorships
For C Corporations
C Corporations pay a 21% flat tax rate on profits earned.
If the corporation pays dividends, shareholders pay taxes on those on their personal tax returns. So, C corporation profits are taxed twice. There are two types of dividends: qualified and unqualified. Let’s take a look at those:
If you choose to employ yourself at your company you are responsible for self-employment taxes.
The self-employment tax rate is 15.3% for the first $128,400 of net income
People who are self-employed have to pay self-employment taxes, which are Social Security and Medicare taxes.
A common misconception among foreigners is that the first roughly $100,000 of income are completely tax free in the US under the Foreign Earned Income Exclusion (FEIE). This is however only partially true. The FEIE lets you exclude income from income tax. It does not get you out of paying self-employment tax on foreign income when working as freelancer, independent contractor or sole proprietor abroad.
Generally, self-employed individuals pay income tax and self-employment tax (SE tax). If they qualify for the FEIE, they can exclude foreign earned income up to $104,100 (2018) from income tax. (Although the FEIE will be pro-rated depending on the business expenses.) But they still have to pay self-employment tax. Being self-employed, you must pay SE tax on your entire net profit, even the amount you can exclude from income tax.
You have to pay self-employment taxes if:
If you have employees, you have to pay employment taxes, which include:
There are also various excise taxes depending on the type of business. This could be anything from taxes on trucks and impact to the environment or for things like sweepstakes giveaways or winnings from playing daily fantasy sports.
Some clients who plan to only serve non-U.S. customers and live outside the U.S. may be able to reduce their income tax burden by paying themselves as an independent contractor.
However, if a US court or the IRS determines a person your company hired as an independent contractor is, in fact, an employee, you can face liabilities for not meeting the requirements of employment.
So what are the criteria for being an independent contactor?
According to IRS definition, people who are in an independent trade, business or profession offering their services to the general public, are generally independent contractors. The payor for independent contractors has the right to control only the result of the work and not what will be done or how it will be done.
What are the differences between a contractor (1099) and an employee (W-2)?
Here are three types of questions to distinguish between the two:
Unless you live in one of the states that doesn’t have them, you will owe state income taxes.
Want to see the specific tax rates by state? You can find them here.
If you sell things, you’ll be responsible for collecting sales taxes. If you sell things online, this can get complicated, because some states charge based on where the seller is located, while other states charge taxes based on where the buyer is located.
If you're an eCommerce seller, I recommend looking at Avalara Tax software or take a look here for state specific rates.
If you own commercial property, you will have to pay property taxes, which are typically assessed at the county or city level.
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