This Article shall be discussing federal annual income returns filing for non resident LLC. It’s important to note that this Article is particularly focused on “federal income tax return”. In the United states there is ald the “State income tax returns” but this Article is not focused on “State income tax returns”
If you would like to see an overview of different taxes, e-commerce businesses may be obligated to pay in the United States, you can check out this Article.
First let’s define what Non resident LLCs are; Non resident LLCs are LLCs that are owned by members who do not reside in the United States.
Every LLC registered in the United States has an obligation to file the annual income tax returns, this obligation is required even if the LLC does not owe income tax or even if the LLC is eligible for a tax refund.
Every LLC has to file income tax returns to the IRS every year within the annual deadlines. Not filing your annual returns on time a result in expensive fines.
Filing annual federal income tax returns consists of filling out some IRS forms to report the existence of your LLC, reporting your US source income and any expense deductions and payment of any income tax owed to the IRS, you can also claim tax refunds if you are eligible for tax refunds.
Non residents LLC can file their annual income tax returns by themselves using the guide in this Article. It is free to file income tax returns. However it’s also possible to put filing income tax returns to a US Certified Public Accountant (CPA) at a nominal cost.
Now let’s go into the details of this Article.
Single member non resident LLC; necessary forms to fill out and file to the IRS for federal income tax return
In the United States non resident single member LLCs are required to file IRS form 5472 and 1120 annually before the April 15 deadline to report the existence of the non resident single member LLC.
it’s noteworthy that On Form 1120, the non resident single member LLC only needs to complete the LLC name, address (2 lines), Fill the LLC Employer Identification Number (B), and check any applicable boxes (E). For example, if you are filling for the first time, check the “Initial return” box.
Form 5472 is available on the IRS website, you can also find detailed instructions on how to fill out the form on the IRS website.
Form 1120 is available on the IRS website, you can also find detailed instructions on how to fill out the form on the IRS website.
Multi member non resident LLC; necessary forms to fill out and file to the IRS for federal income tax return
In the United State, multi member LLCs are required to file form 1065 and Schedule K-1 annually before the March 15 deadline ( or the 15th day of the third month after the end of your Business tax year) to report the existence of the non resident multi member LLC.
If the LLC does not have US sourced income, it can include a statement on the Schedule K-1 that there was no profit.
Form 1065 is available on the IRS website, you can also find detailed instructions on how to fill out the form on the IRS website.
1065 Schedule K-1 is available on the IRS website, you can also find detailed instructions on how to fill out Schedule K-1 on the IRS website.
Form 1040 NR Filing Requirement for Single and Multi-Member LLC Owners
Single member LLC Owner and Multi member LLC Owners should each file form 1040 NR included in their federal income tax returns if;
- The non resident LLC Owner (Owners) has US source income that was not withheld at source.
- or if the non-resident LLC Owner’s US source income was withheld at source but the LLC Owner (Owners) wants to claim a tax refund because the “withheld at source income tax rate” (which is required to be 30% rate) is higher than the Owner (Owners) actual US income tax bracket.
For clarity, we will define what US source income means, we will also explain in the next few paragraphs what the federal income tax rates are in the United States and what it means for income to be withheld at source.
US federal income tax; What is US Source income?
US Source income refers to the portion of income attributed to services done in the United States.
US source income includes income attributed to services done by Owner (Owners) of the LLC in the United States or by a dependent agent of the LLC in the United States.
It’s very important to distinguish between a dependent agent and an independent agent. A dependent agent is an agent that is directly answerable to the LLC, for example a direct employee of the LLC. Therefore, if an LLC has a direct employee in the United States, the LLC will be said to have US sourced income, which is the income attributed to services done in the United States by the dependent agent (i.e direct employee).
On the other hand, an independent agent is an agent that is not is not directly answerable to the LLC. For example an independent contractor or Business that has its own internal management and clients. Income attributed to Services carried out by an independent agent of the LLC is not a US source income.
For example if an LLC is dropshipping products in the US using a US based ecommerce drop shipping Supplier or 3PL, if the LLC is promoting the products digitally from a office that located outside of the US, the income earned by the LLC from the sale of products which are delivered by a US dropshipping Supplier to their US customers will not be said to be US source income.
This is because the LLC performed its own service of promoting products digitally from an office located outside the US and the service of fulfilment of the products and its delivery to their US customers was done by an independent agent (and not a dependent agent).
A dropshiping supplier or 3pl is seen as an independent agent because a dropshipping supplier or 3pl is an independent Business that is not directly answerable to the Dropshiper LLC. The dropshipping Supplier or 3pl has its own internal management and clients.
US federal income tax; What is income withheld at source?
In the United States when some members of an LLC are US residents and others are non US residents or when all members of the LLC are non US residents but the non US resident LLC have joined a partnership with a Business partner that is resident in the United States.
In the above instances, the law warrants the US resident partner to withhold 30% of the income tax of the non US resident partner and remit to the IRS. This is called income withheld at source.
If the non US resident partner does not want his income to be withheld at source and is resident in a Country that has double tax exemption treaty with the United States, the non-US resident partner may claim a double tax exemption treaty by filling out the appropriate IRS form (Form W8-BEN (if the non resident partner is an individual), Form w-9 (if the non resident partner is a non US resident LLC) for filling to the IRS and consequently 30% of his income will no longer be required to be withheld at source.
If the non US resident partner income is not withheld at source but the non US resident partner has US source income, they will be required to file form form 1040 NR included in their federal income tax returns to report their US source income.
On the other hand, the non-US resident partner is resident in a Country that does not have any double tax exemption treaty with the United States and for which 30% of his US source income must be held at source by the US resident partner for remittance to the IRS.
It’s important to note that the United States presently employs a progressive federal income tax system comprising seven brackets. These brackets are structured with corresponding rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. It’s important to note that these tax rate brackets are applicable to individual income, and the rate increases as one’s income moves into a higher bracket. This progressive system aims to impose higher taxes on higher levels of income, reflecting a tiered approach to taxation.
In the case that 30% income tax rate is withheld at source from the non US residents, the 30% rate is high up in the US federal income tax bracket, so if the non US resident is making significantly less US income and does not fall under the tax bracket for 30% income tax rates, the non US resident can still file form 1040 NR on their annual income tax returns to the IRS and claim a tax refund for any excess withholding given their actual income tax bracket.
If the LLC Owner (Owners) is filing non resident income return form 1040 NR for the first time, the LLC Owner (Owners), it will be necessary for the LLC Owner to also file an Application to the IRS to obtain the US Individual tax identification number (ITIN).
Form 1040 NR is available on the IRS website, you can also find detailed instructions on how to fill out the form on the IRS website.
Now that you know what forms to file for your US federal income tax returns as a single member non resident LLC (remember form 5472 and 1120. Additionally the LLC member should file form 1040 NR depending on certain situations) and multi member non resident LLC (remember form 1065 and Schedule K-1. Additionally the LLC members should file form 1040 NR depending on certain situations).
We have also discussed above in this Article where to find the forms on the IRS website and where to read up on instructions on how to fill out the forms on the IRS website.
Now that you know what forms you need to fill out, where to find the forms on the IRS website, where to read up on the instructions of filling the forms on the IRS website, now let’s discuss how you can submit (file) the forms to the IRS.
The IRS offers different ways to submit your US federal income tax returns. You can either;
- Submit by mail; You can download the relevant forms from the IRS website, read the instructions for filling it out on the IRS website then submit the form by mailing it to the IRS
The IRS notes that submission by mail takes the longest processing time of 6 months. Therefore, we do not recommend submitting my mail. Longer processing time implies that any tax refunds you are qualified to be paid, will not be paid out to you until the long processing period is completed.
- submit by e-filing your income tax returns; the IRS has a few e-filling options, which has a processing time of about 3 weeks. There is the option to use the The IRS offers several e-filling options.
We shall be discussing the e-filling options offered by the IRS bellow;
- IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs;
The IRS partners with several centers which offer VITA and TCE programs, these programs offer free tax help to people who need assistance in preparing their own tax returns, including:
- People who generally make $60,000 or less
- Persons with disabilities; and
- Limited English-speaking taxpayers
The VITA and TCE programs centres are across the United States and may require an in-person appointment at the center; in-person appointments are not particularly suited for non-resident LLCs tax payers.
- IRS Free file;
The IRS partners with a lot of e-filling sites which provide free guided tax preparation service for you if you have an annual income of $73,000 or less. These IRS partner sites will guide qualified taxpayers on how to fill out and file their income tax on the site. (often done entirely online)
If your annual income is greater than $73,000, the IRS also partners with a lot of e-filling sites that offer Free File Fillable Forms, in this case, the IRS partner sites provides free fillable electronic forms, equivalent to the forms which you can download from the IRS website, you will need to able to know fill out your tax forms (i.e study the form filing instructions), you can then fill out the electronic forms on the partner sites (that’s online) and submit your federal income tax returns on the partner sites.
You can learn more about IRS free filling options on the website of the IRS.
The IRS free filing Partners sites and options can be particularly confusing for non resident LLC as most of the Partner sites and information seems to be tailored towards US resident taxpayers and also have information regarding filling other types of taxes in the United states, that is not just limited to filing federal income tax alone.
Our recommendation for non resident LLC tax payers is to file their income tax returns via an IRS partner e-filing site that offers tax filing services tailored for non resident LLC.
H&R Block offers tax filing services that are tailored for both US residents and non resident tax payers. They offer free guided tax preparation service for low income earners, they offer free fillable electronic forms which you can use to file your taxes. If you are using the free fillable form, you should have read the instructions on how to fill the forms on the IRS website and know how to fill out the forms.
Optionally H&R Block offers paid services like using their live support and guided software to fill your taxes no matter how much income you earn. You can even book an online meeting with a US Certified Public Account (CPA) that can discuss your specific business situation with you and help you file your income taxes. How shall further discuss the option to schedule a virtual appointment with a CPA and source your income tax filing to a CPA.
Non US resident single member and multi member LLCs can Outsource filing income tax returns to affordable to a U.S Certified Public Accountant
While non resident LLCs can download the relevant income tax returns form the IRS website, read up the IRS instruction guide for filling out each form and file the relevant forms to the IRS at no cost, it’s also possible for non resident LLCs to outsource filling the income tax returns to a US Certified Public Accountant (CPA) for a nominal fee.
We recommend H&R Block which is an online tax filing service that can help non-resident LLC Owners connect to a virtual CPA who can discuss the LLC’s specific business situation, fill the LLB income tax returns and obtain any eligible income tax refunds for the LLC. H&R Block charges only a nominal fee of $85 to connect with a US Certified Public Accountant (CPA) online.
Conclusion
It’s very important for non resident LLC to comply with the IRS requirement for filing income tax returns within the relevant annual deadlines else the LLC may face stop penatary fees. This Article serves as a simplified guide to help non US resident single member and multi member LLC file their income tax returns, avoid penatary fees and stay compliant.
