Frequently Asked Questions and Answers on Taxation of U.S. Companies
Q1. How to deal with tax audits?
For American small and medium-sized enterprises, the most troublesome thing is the tax audit. Generally, small and medium-sized enterprises need to face tax agencies including the Internal Revenue Service, Customs, and state and local tax bureaus, involving federal income tax, state income tax, sales tax, wage tax and additional taxes.
There are three main methods (levels) of tax audits in the United States: letter audits, office audits, and on-site audits. General tax audits are mainly due to the complexity of tax forms and the need to explain some follow-up matters. However, letter auditing is actually used more frequently in work, that is, through computer "cross-check" of taxpayer's relevant information, if problems or questions are found, the taxpayer is contacted by letter, and the audit result is notified by letter or email. Failure to provide a complete and reasonable response to the notification, or disclose redundant information, may lead to escalation of the audit.
For example, if a cross-border e-commerce company hires employees in the United States, it needs to pay social security taxes and health care taxes, as well as federal and state unemployment taxes and other wage taxes. If there is a discrepancy between the amount of the payroll tax table and the income tax paid in the annual settlement, it may lead to tax audits. In addition, cross-border e-commerce companies selling products in the United States will inevitably involve sales tax. If there is a comparison between the sales tax return and the annual income tax settlement, it will also lead to tax audits.
If the tax audit is not handled properly, it may eventually lead to tax penalties and greatly increase the tax cost of the enterprise. According to official statistics, in the United States, there are more than 150 penalties due to tax audits.
Randy team members have many years of experience in responding to tax audits, and can assist or represent companies to communicate and negotiate directly with tax audit agencies to minimize audit upgrades and reduce corporate tax costs.
Q2. How to avoid the company from paying more taxes?
When a cross-border enterprise establishes or operates a company in the United States, if it does not properly plan the company's organizational structure and effectively establish an accounting system, it is likely to "pay tuition" and bear double or additional tax costs. In particular, foreign companies investing across borders need to pay attention to U.S. regulations on international taxation.
For example, if a cross-border e-commerce company is recognized as a partnership in the U.S. tax status, it may involve up to 37% personal income tax and the highest state tax. However, the Randy team can help companies rebuild the company's organizational structure, distribute company income through dividends, dividends, and other methods, and allocate funds back to China in a reasonable and legal manner. The tax involved may only be 10%.
In the United States, taxes can penetrate. Many inexperienced CPA companies may recommend cross-border e-commerce companies to use limited liability companies or partnerships to avoid double taxation problems. However, due to the different circumstances of each company, if you blindly use the default mode or do not tailor the tax structure for the company, it will eventually lead to a higher tax burden. For example, double taxation may consist of a corporate income tax of up to 21% and a dividend tax of 10%, a total of 31% of the tax cost; if a company chooses a single tax, it may face a tax cost of up to 37%. In addition, tax also involves planning issues. If the planning is reasonable, the Randy team can help companies greatly reduce tax costs and pay less "wonder money."