Tax considerations and taxes in the United States

Understanding the United States tax system can seem complex for those unfamiliar with how it works. For those who want to learn more about local taxes, it is crucial to obtain information. Our firm, Merritt USA, based in Orlando, is here to assist you with setting up your company and explain the various local taxes that could affect your situation. This guide was designed to simplify understanding of a tax system that is often unfamiliar to the general public.

General Overview of Taxes in the USA

In the United States, there are many taxes that may apply to businesses, including the following:

1. Federal Income Tax applicable to businesses, with possible variations depending on local taxes.: Federal personal income tax, with rates that can reach up to 37%, is one of the most notable taxes.
2. State Income Tax applicable in certain states, but not in Alaska, Delaware, and New Hampshire.: This tax, levied at the state level, varies from one state to another. However, the state of Florida stands out because it does not impose it.
3. State Sales Tax: Imposed at the state and county levels in Florida, sales tax is 6% on goods sold, stored, or leased in Florida. The tax amount may be affected by local taxes.

Liability for Federal Income Tax depends on your company's involvement in commercial activities in the United States. The amount of tax owed varies depending on these activities. If you are considered "Engaged in a Trade or Business in the US" (ETBUS), you will therefore be subject to this tax.

What Taxation Applies to a Company in the USA?

1. No Taxation in the USA: Companies classified as "disregarded entities" are not taxed in the United States, provided that they have a single owner and the owner reports the income individually.
2. Partnership Taxation applicable in certain states may vary depending on local rates.: With this option, the partners pay tax individually, thereby benefiting from significant tax advantages, including the absence of state income tax in Florida, Delaware, Alaska, and New Hampshire.
3. Corporation Taxation: Companies are taxed at a federal rate of 21%, supplemented by a state tax rate of 5.5%, still with no state income tax in Florida, Alaska, or New Hampshire.

Passive Income

Passive income, which includes dividends, interest, and royalties, is subject to a 30% withholding tax. Some states offer reduced rates. However, this rate may be reduced or even eliminated under tax treaties. The tax amount may vary depending on specific agreements. The existence of tax treaties preventing double taxation is a major advantage for entrepreneurs who wish to establish themselves in the state of Florida.

Partnership Taxation or Corporation Taxation?

Generally speaking, the Partnership Taxation structure offers much greater tax advantages than Corporation Taxation. However, if profits are not distributed, Corporation Taxation may prove more advantageous, with reduced taxation of only 21% and no double taxation on undistributed income. It is possible to switch from one tax regime to the other every five years, depending on the rates in effect at that time. Our SM-LLC company formation offer provides attractive tax advantages for those seeking to establish themselves in Florida. It is important to learn more about local taxes in order to optimize profits. For more information, contact us.