Understanding how to pay business taxes in the United States is essential to expanding your company to the American Market. Although it is a bureaucratic function that may seem complicated, it is possible to be on top of the subject after we discuss four topics in this post: federal income tax, state income tax, sales tax, and withholding tax.
This content focuses on technology, e-commerce, and international trading companies incorporated in Delaware and Florida, where the partner is not a U.S. tax-paying resident.
One of the first things to keep in mind is that although the United States has 97 tax rates that ought to be paid annually, you won’t have to pay all of them since you are a non-resident entrepreneur who plans to have a business in the U.S.
Below, we list the most common taxes you’ll probably need to pay.
How do business taxes work in the United States?
Federal taxes are paid to the Internal Revenue Service (IRS) and state taxes are paid to the Department of Revenue (DOR) in each state.
Unlike in Latin America, in the United States, you do not need to pay a tax on the note issued. Here, all taxes are classified as deductible income, costs, and expenses, regardless of whether your company is an LLC or CORP.
What are the most common taxes in the United States?
Federal Income Tax
The amount to be paid to the IRS for this tax varies according to your company’s earnings.
Since 2018, company profits are 21%, ceasing to be in bands like before. When distributing profits to shareholders, the amounts received are set according to the information in this table.
Companies recognized as LLCs do not have to pay this tax at a corporate level. This charge will be made only at an individual level and once the profit is shared. In this type of company, the profits are divided 100% among the partners. The brackets in this category are listed in this table.
On the other hand, a C-CORP will pay 21% corporate income tax. C-CORP shareholders pay between 10% and 37% after receiving dividends. This percentage is also valid for members of an LLC who pay taxes on profits received.
What is interesting in this regard is that, until 2017, there was an exception of approximately $4,000 for individuals. With this, the first $4,000 received from these dividends wouldn’t necessarily be declared.
However, this exception was pendent until 2025 under the “Jobs and Tax Cut Act” passed by U.S. President Donald Trump in 2017.
To ensure you do the entire tax payment process right, you need to hire an accountant or tax preparer.
State Income Tax
The United States is full of peculiarities. Some taxes vary from state to state, such as the state income tax (some states do not charge this fee).
In Florida, for example, you do not pay this tax as an individual. On the other hand, a CORP must pay 4.5% per year, except for the first $50,000 of earnings.
In California, while an individual pays between 1% and 12.3% tax, a CORP pays between 4% and 9%. In Delaware, on the other hand, you will not have to pay any state income tax if you are not a resident of the area.
Sales tax is a tax paid by the consumer at the time of the purchase of consumer goods. Because it is a state law, each of the 50 U.S. states has different rules.
For example, if you sell a $100 item to a customer, you must collect a 7% sales tax, then charge the customer $107 for the product and pass the $7 on to the state.
There are 3 factors you must consider in determining whether or not to charge Sales Tax to the customer based on their NEXUS:
- State of registration of your business: If your business is registered in Florida, for example, it must collect sales tax from all customers who have an address in the state. Delaware does not have a sales tax bill.
- Physical presence in the state: If you use a warehouse in California, for example, even if your business is in Florida, you must collect sales tax from customers located in California.
- Economic activity: After July 2018, states established the Economic Nexus, where, depending on the volume of transactions you have for a given state in 12 months, you must also collect Sales Tax in that state.
Tax Withholding and Estimated Tax Payment
In the United States, tax returns are filed annually and are due at the beginning of the next tax year, but tax collection must be done quarterly throughout the current year.
The Withholding/Estimated Tax Payment is not an additional tax and is the name given to these tax collections that occur proportionally during the year. It functions as a guarantee that, at the end of a tax year, you will file your tax return and pay the amount due or receive a refund of what you paid in addition.
This proportional withholding/payment can vary from 10% to 37% of the profit for the period, depending on the corporate structure of your company and the tax status of each member.
Please note the following
This article addresses the most common tax liabilities of a U.S. corporation and its members/shareholders. Other taxes may arise depending on the type of income, operations, and tax status.
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