"Understanding the Tax Implications for Australians with a US LLC"

In the US, the word tax is a very broad term. It refers to a fee or payment that can be levied at the various levels of government - Federal, State, County and City. Here are 4 common types of taxes that you are likely to experience with your US LLC

Income Tax

The most common type of tax we are familiar with is income tax. Just like Australia, the US taxes both business and personal income ata graduated rate based on how much you earn in the given fiscal year. Unlike Australia, the US taxes income at both the federal and state level. There are 7 US states that have no personal income tax, so when choosing where to establish an LLC, non-residents have the luxury of choosing to incorporate in a tax friendly state such as Wyoming or Delaware.

You are more than welcome to file your own US income tax return with the federal governemnt (IRS). If you have a very simple US tax situation, you may find this cost effective. The IRS has a Free File system which allows people with a pre-existing SSN/ITIN, to prepare and submit their return electronically.

However, the IRS is a complex beast. So many people choose to engage a professional tax preparer to help them complete their income tax return correctly, efficiently and to legally minimise the amount of tax they must pay. Additionaly, if you are applying for an ITIN with your initial US tax return, then this is one instance when you must lodge your return via paper. If you want assistance with your income tax return, please contact us and we will put you in touch with one of our tax return partners.

Working out the tax you owe can be complicated

Sales Tax

Another common type of tax is sales tax. In Australian we know this as GST and it is levied by the federal government ata rate of 10% . However, in the US, sales tax is calucated as a combination of state, county and city levels. This results in over 11,000 sales tax juristdictions.

This scenario was established in pre-internet days, and so it can be a compliance nightmare for online business which sell large quantities (have a nexus) across multiple jurisdictions. For this reason, many online retailers choose to sales channels (marketplace facilitors) like Amazon, iTunes, eBay and Walmart as these organisations manage the sales tax collection through their platforms.

Luma Tax provide a quick sales tax assessment calulator to help determine if your LLC is likely to have a sales tax nexus. If you are needing to determine sales tax rate for a specific jurisdiction, then contact Harbor Compliance for a sales tax consultation.

Franchise Tax

When you register an LLC with one of the 50 Secretaries of State, you will be required to annually report the owner's details and financial size of the business. Additionally you will need to pay a renewal franchise tax (in most cases it varies between $60-$800) to keep your LLC in good standing. If your LLC fails to maintain its ' good standing' it loses its legal status in that state and the bank may choose to freeze associated accounts. A certificate of good standing is generally required when your LLC enteres into a major financial contract or buys or sells property.

Gingerbread can file your annual report and process your franchises taxes for LLCs that are formed in either Wyoming or Delaware.

Property Tax

If you purchase US real estate, then the county (and sometimes the city) will send you an annual properrty tax bill. This is similar to what Australians call council rates. Property taxes are levied to fund schools, police and firefighters. The amount of property taxes you woe will depened on the nominated value of your proerty as determined by the local 'tax assessor'. If the district where your real estate is located is managed well, then the rate of your property taxes will likely be lowered.

Many Australians get tripped up by the US tax system, but the key thing to remember is that taxes paid to other jurisdictions are tax-deductible on your federal income tax return. As Australian and the US have a tax treaty, this also means that you will not be double taxed. If you pay income on your US sourced income, then you are entitled to a corresponding tax credit from the ATO when you report that income and tax paid on your Australian return. Additonally, you only owe income tax on profit, so keep records of all taxes paid.