If your business is growing and you’re considering establishing it in the United States, you’ll need to know how to navigate U.S. tax and other business regulations.
This guide includes a basic inventory of what you’ll need to help you establish your business with federal and state tax and revenue agencies.
•Determine the legal structure of your U.S. business
Before starting a business in the U.S, consider what legal structure fits your business activity and long-term planning. You might operate through a separate U.S. entity or your existing Canadian entity. Common structures include sole proprietor, corporation and partnership. There are a number of variations of each type that result in different U.S. and Canadian tax and legal implications. For example, “S” corporations, although popular in the U.S., cannot have non-U.S. shareholders. LLCs, the entity of choice in the U.S., are generally taxed as partnerships by the U.S. and taxed as corporations by Canada, which often results in an element of double taxation.
•Apply for federal employer identification number (EIN)
The Internal Revenue Service (IRS) keeps track of your business by assigning you an employer identification number. EINs are issued for tax administration and are required to open a bank account. States have similar requirements.
•Register and obtain state and city licences and permits
A business must register with each state, and sometimes cities, where they transact business. Each state has different tax and registration thresholds. The states often access customs or trade show records to discover businesses with activity in their state.
•Income tax filings
Federal and state income tax returns are filed annually, and the filing deadline varies by entity type. Unlike Canada, an extension of time is available if requested by the due date.
•Employment filings
Common federal and state employment taxes are social security, unemployment, workers’ compensation and disability insurance. Businesses must also furnish information returns to independent contractors working in the U.S., regardless of where they live.
•State and local filing
Laws and regulations vary by each state, county and city. The IRS and the states are not integrated in their tax laws or application of those laws. Common state and local taxes include:
Excise: in Washington state this tax is referred to as business and occupation tax (B&O). It’s based on gross receipts for the privilege of transacting business in the state or city.
Franchise: a minimum tax due regardless of the businesses’ net profits or lack thereof.
Net worth: a tax based on the assets or stock of an entity.
Sales tax: charged to customers on the sales price of the product sold.
Most counties also assess property tax on the assessed value of real and personal property owned. To encourage business, each state offers various tax incentive programs. The states’ websites offer information on these programs; you can also contact your tax adviser.
Finally, some specialized businesses require unique federal or state permits or taxes. For example, businesses with highway vehicles might be required to file federal fuel excise tax reports.
A helpful starting point for tax and accounting related matters is www.taxsites.com. With appropriate planning, you can manoeuvre through the U.S. tax rules with ease and cash in on the U.S. market.
