At Globalfy, when we talk about Tax Season, we integrate two major declarations: Income Tax and State Renewal. To better organize the proceedings, we start preparing months before to ensure that, at the beginning of each year, we have all of our client’s taxes delivered to keep their companies in compliance with the American Government. Take a look at this guide to Tax Season so you won’t miss a deadline or important information.
When should you use this guide to Tax Season?
The Tax Season runs from January to April. It is when individuals and businesses must prepare, file, and pay their federal income taxes to the Internal Revenue Service (IRS) regarding the previous calendar year. Here is how it works: tax declarations from 2023 are turned in 2024. This process is specific to income-related taxes.
But in order to get everything organized, we have to prepare in advance. That is why we strongly advise you to hire our services months ahead so our team of experts has enough time to deduct the amounts from the Income Reports. There is much more to this guide to Tax Season. Check it out!
How does the Tax Season relate to the State Renewal?
In parallel with the Tax Season, companies need to declare the State Renewal at the beginning of the year too. That’s why we’ve put them together to make annual obligations easier.
The State Renewal, as the name gives away, is the renewal of the company within the state. By not doing so, it can cause fines or even the dissolution of the company, depending on the state where it is formed. It provides crucial information about a business’ ownership and status to a government agency, such as the Secretary of State’s office. The specific requirements vary based on the business type and jurisdiction. While the deliveries for State Renewal and Tax Season may coincide in some cases, they generally have separate deadlines and serve different purposes. State Renewal focuses on business details, while Tax Season deals with income, deductions, and tax declarations.
The State Renewal is a very important part of the guide to Tax Season.
Income tax: the breakdown
The Income Tax is part of the Tax Season and refers to the report of your income, expenses, and other financial information for a specific period. The goal is to calculate how much income tax you owe or how much of a refund you are eligible to receive. They are filed annually.
The Withholding or Estimated Tax Payment is the name given to these tax collections that occur proportionally during the year. It is the guarantee that, at the end of the tax year, you will file your tax return and pay the amount due or receive a refund of what you paid in addition. It is the tax collection done quarterly throughout the current year.
Income Tax Filing Deadline: the most common deadline for filing federal income tax returns for individuals and businesses is April 15th. This date is known as the “Tax Day.” It is important to have everything set up before April.
Extension Deadline: it is possible to request an extension for filing your tax return for individuals and companies, and you will gain an extra six months.
Even though this extension gives you more time to file your tax return, it does not apply to paying any taxes due: you have to pay outstanding taxes by the original due date. Our clients can reach out to our experts to discuss details and be rest assured we will conduct the process according to each company’s needs. The specialized service is one of our main features.
Why is Tax Season so important?
Just like in every country, everybody has to comply with tax declarations. Please note the reasons why you can’t miss the Tax Season:
– It’s the Law: Filing taxes during Tax Season is mandatory by the law in most countries. Ignoring it can get you into legal trouble.
– Avoiding Penalties: Reporting your taxes on time and with accuracy avoids financial penalties and extra charges for not following the rules.
– Earn benefits: Accurate tax reports open doors to government benefits like tax refunds and credits, which can add more money to your wallet.
– Financial planning: Filing taxes is not just a chore; it’s a handy tool for planning your finances. It helps you budget and prepare for your tax-related expenses.
– Build Trust: Getting taxes right isn’t just about numbers. It’s about showing that a business is honest about its finances, which builds trust with your customers, partners, and investors.
Please pay attention to the deadlines:
We prepared a table to make it easier for you to keep up with the declaration calendar:
|March 15th||April 18th|
|8804 (PARTNERSHIP)||1040 OR 1040RN|
|1065 (PARTNERSHIP)||1120 ( C CORPORATION)|
|1120S (S CORP)||1120 F (FOREIGN COMPANIES)|
|5472 (DISREGARDED ENTITIES)|
State Renewal main due dates
|FLORIDA||DELAWARE||WYOMING||TEXAS||NEW MEXICO (ONLY C CORPS)|
|May 1ST||June 1st (LLC)|
|Business Anniversary||May 15th||15th day before the 3rd month after the fiscal year ends|
State Renewal fees
|LLC: $138.75C CORP: $150||LLC: $300|
Corp: *$225 +
(*it depends on the number of shares)
|LLC and C Corp: $62||Corp: $25|
Now, you must be thinking why are Texas and California missing from the table?
Well, they have specific rules:
In Texas, the Franchise Tax is imposed on entities that do business there. Companies, including Corporations and LLCs, are subject to this tax. Its amount can vary based on gross revenue and other factors.
Important: filing the Annual FranchiseTax Report is mandatory, regardless of whether the company makes a profit or a loss.
In California, the Franchise Tax Board (FTB) administers the taxation of businesses. The main tax obligation for companies is the Franchise Tax Board’s Corporation Tax.
Both states have specific regulations that companies must follow to avoid fines and penalties.
How do taxes work for LLCs?
Within LLCs, there are Partnerships and Disregarded Entities/Sole Proprietorships. The main difference resides in the number of partners. While Partnerships have two or more members, Sole Proprietorships have only one partner. This kind of company is similar to an individual who has become a legal entity.
In this case, profit distribution occurs among its members at the end of the fiscal year. But what does it mean? It means there is no taxation at the business level, only for company members. Each partner files their individual income tax separately as an individual after the distribution of profits. Partners’ taxation is between 10% and 37% based on the amount of profit each receives.
Each partner needs a personal identification number, known as an ITIN/SSN. An ITIN is designated for foreigners, while an SSN is for US residents. It is similar to a CPF (individual taxpayer identification number) in Brazil.
LLC: exclusive tax exemption for disregarded entities
For single-member LLCs, there is still an exception to tax payment. According to the IRS, only individuals “engaged in trade or business” (ETBUS), meaning involved in trade or business within the US, pay income taxes. Therefore, companies that do not have their own operational structures or employees in the United States and do not use platforms like YouTube, Shopify, etc, may be considered not engaged in trade or business.
IMPORTANT: This determination of non-payment can only be made after an analysis of a client’s activity conducted by a tax specialist.
Taxes as a foreign company member
When an LLC has a foreign company as a member, it becomes taxed as a corporation, and it needs a different declaration form: the 1120F, which is specific to the foreign company member. To submit it, an identification number is mandatory, such as the ITIN. However, since it involves a foreign company, the number is an EIN Foreign, a specific EIN for foreign companies.
Taxes and C-Corps
The C-Corp is specific to foreigners who wish to open a Corporation in the USA. In this company structure, partners do not need to file a tax return in the United States. It is only necessary when there is a distribution of profits to shareholders. Because of this detail, many foreigners opt for a Corporation instead of an LLC.
Understanding American taxes beyond Tax Season
Navigating the American market can be difficult, but not if you count on experts to help you. Globalfy is here to simplify your international business journey beyond the guide to Tax Season.
When it comes to taxes, the Essential plan, our client’s favorite, provides you with specialized services. As for the Scale, our complete package, you have a team that take care of every transaction of your business bank account, ensuring the delivery of all declarations to the IRS on time. For sure, you will be ready for Tax Season.
We are more than a service provider. We are your business partner. Count on Globalfy to guide you through all American regulations and deal with the bureaucracy while you do what you do best: take care of your business success.