Company Introduction
1. Types of American companies
Unlimited liability companies include:
– Sole Proprietorship ( Sole proprietorship)
-General Partnership (operated by two or more people)
-Limited Partnership
The limited liability company mainly includes:
-LLC: Limited Liability Company (Limited Liability Company), this is a more suitable form for small business.
-C Corporation: Corporation Limited. C Corp's profit has double taxation, corporate tax and dividend tax. If the company's income or net profit will be high, then C-Corp may be a better choice. Because the money earned by C Corp's profit can be put in the company, and the tax rate is relatively low. If you pay with the personal income tax, the tax may be higher. And C Corp has many tax reliefs that LLC does not.
-S Corporation: No more than 100 shareholders. S Corp is limited to US citizens or resident aliens to register.
2. The difference between LLC and S Corporation
LLC is simple to operate, while S-Corp is more troublesome. It needs to hold regular shareholder meetings and keep meeting minutes.
In terms of taxation, the profits and losses of LLC and S-Corp are passed-through to shareholders and reported together with the individual income tax of each shareholder. S-Corp is reported in Schedule E of the personal tax return. But LLC is counted in Schedule C of the personal tax form. This part of income is not only subject to personal income tax, but also to employment tax, which includes SSN + medicare tax, which has a tax rate of 15.3%.
S-Corp has certain advantages over LLC in terms of taxation, that is, only the part of the salary that S-Corp sends to you is collected employment tax. Other parts other than salaries are counted as distributions. Dividends do not have to pay payroll tax, but are only taxed together with personal income tax, so the tax rate can be very low.
In this case, many people will say, then I take the money out of S-Corp and try to count it as dividends, so I don’t have to pay payroll tax. But this idea is very naive, because IRS has something to do with it. Specified. In other words, S-Corp must pay employees a reasonable salary. Therefore, if you take money out of S-Corp and give it to yourself, you must be careful not to take the money that should be used as salary as a dividend, otherwise it will cause trouble for the IRS.
According to my analysis, if your company is profitable, S-Corp may be more suitable. Because your salary is basically fixed according to industry standards, you don’t need to pay payroll tax if you pay dividends to yourself for the remaining substantial profits. This is much better than the LLC's full payment of payroll tax.
3. The difference between C Corporation and S Corporation
When C-Corp pays taxes as an independent legal entity, it needs to fill in Form 1120. According to the corporate tax return, the initial tax rate is relatively low. For example, for a net profit of less than 30,000 US dollars, the tax rate is 10~15%. In addition, because the money earned by S-Corp and LLC is passed-through to the individual’s tax return, while C-Corp earns The money can stay in the company, so if you want to invest the profitable money in the company to make the company bigger, C-Corp’s corporate form is better. This form is also the corporate form that VC venture capital likes.
The disadvantage of C-Corp is that there is a problem of double taxation between the company and its shareholders. Because the money earned is taxed according to the company; this money is taken out of the company and is also taxed in the personal income tax. So in terms of taxation, C-Corp needs good planning and reasonable tax avoidance.
S-Corp's revenue or loss needs to be reported together with the personal income tax, so S-Corp is called a pass-through tax entity in English. Because the company itself does not pay taxes, but it needs to fill in the US Federal Form 1120S tax form.
In terms of company ownership, C-Corp has no restrictions on the number of company owners; however, S-Corp is limited to a maximum of 100 shareholders. In addition, S-Corp shareholders must be US citizens or permanent residents.
4. The question of what company to register under what circumstances
LLC: Most people start doing business in the United States by registering an LLC because the company is simple.
S-Corp: Foreigners cannot be registered. They need to be US citizens or green card holders. S-Corp is more complicated than LLC in terms of operation, but once it makes more money, it has an advantage over LLC in tax avoidance because of the LLC’s All income is paid in accordance with salary tax, and the tax rate is high; while S-Corp's revenue can be divided into salary and dividends. The tax rate on income from dividends is lower than the payroll tax.
C-Corp: If the company is more profitable, and hopes to continue to invest the profit in the company to grow bigger, C-Corp is a good choice. It can effectively avoid tax (this is the CPA certified accountant and I suggested this). For foreigners, some lawyers will suggest registering C-Corp in the United States. Because of doing business, C-Corp feels more magnificent and the company's image is more formal. In addition, compared to registering and maintaining a company in other countries, registering and maintaining a corporation in the United States is not particularly troublesome.
LLC + S-Corp tax declaration: This is to register an LLC company, and then apply to IRS for tax declaration in accordance with S-corp (Form 2553). The advantage of this is that there is no need to maintain complicated S-Corp company operating procedures. This is a company form that I know of some old people.
5. Conditions and procedures for registering a US company
In the United States, companies are under the jurisdiction of each state, so you must apply to the Secretary of State for company registration. The process of starting a company is probably to go to the office of small business of the state government to fill in a form and pay the money. Then wait two weeks. Then apply for a Federal EIN number, and then open a bank account.
The specific registration steps are as follows:
1) First decide what kind of company you want to start. That is to choose corp, LLC, or partnership, etc.
2) Registered company name (business name). If you don't give your company a name, your company's legal person name is your name.
3) Register with the U.S. Revenue Service (IRS) and apply for a Federal Tax ID (Federal Tax ID)
This may not apply to all companies. If your company has employees or is a corporation, you need to apply for an Employer Identification Number (EIN). If EIN is not required, you can use your Social Security Number as Tax ID.
4) Register the company with the Secretary of State of the state government
Different states have different names, but the Secretary of State's office is generally State Tax Office, State Revenue Office or Secretary of State. In addition to registering a company, it may also be necessary to apply for a sales tax permit. With this permit, it can be used to charge customers Sales tax. For example, if you are selling goods, you must apply for a sales tax permit. The goods sold are subject to state sales tax. The sales tax of merchants is also a source of finance for the state government.
5) Some business licenses (business licenses & permits) that may be required for registration applications
For example, if you want to operate a catering business, in addition to registering a company, you have to apply for some licenses.
After registering the company, you can basically run any legal business. If you are profitable, you generally have to file a tax return to the IRS every quarter. If the payment is overdue, the government will punish it. If you have not started business for the time being, you should fill out a form and notify the tax bureau.
6) Open a bank business account
6. Questions about how to file tax returns properly
In terms of tax filing, I understand that if you are a sole proprietorship company (Sole Proprietorship), you can report it together with your personal income tax (using schedule-c), just use software like turbotax. , Relatively simple. These tax software are very easy to operate, and there are step-by-step explanations and hands-on teaching without professional knowledge. But there is a problem that only the profitable part can be offset by the business expense. But schedule-c cannot make negative numbers.
If your company is a limited company in the form of LLC, according to my understanding, Schedule-C can be made into net loss (net loss), and then deduct personal income tax. For example, if the company is established, it will lose money within 5 years It is understandable for two to three years. Therefore, in the first few years, when you can file a tax return, it is a net loss to offset your income.