If you’re a United States citizen or hold a green card, you are expected to report and pay taxes on the foreign business income that you make each year. Depending on what type of entity you have and where it’s located, your obligations may change. Here is what you should know about income tax reporting requirements for foreign businesses.
Know Your Business
The IRS has rigidly defined types of businesses, whether you operate a partnership or a limited liability company. Things get trickier when you think about foreign business structures. Many countries have structures that don’t easily translate to American tax reporting requirements, which means that you’ll need to work with your accountant to determine the best fit for your situation and classify your business based on IRS rules.
Do you have ownership in a foreign corporation? As part of your tax reporting requirements, you’ll need to plan on filing Form 5471. This form applies to people who:
- Were an officer or director in a foreign corporation and received or purchased stock in the company
- Owned 10% or more of a foreign corporation
- Had ownership in a CFC
If you make a transfer to a foreign corporation, your tax reporting requirements will likely also include more forms. Your accountant at MKS&H is here to help!
When you own 50% or more of a foreign partnership, your tax reporting requirements will include Form 8865. This form is fairly straightforward, and it will include things like a schedule of other owners, a profit and loss statement, and a balance sheet. Even if you do not own 50% or more in a foreign partnership, you will need to file Form 8865 if you change, acquire, or dispose of your interest in one.
LLCs are one of the most popular types of business entities, and things can get tricky when it comes to international filing. If you have a domestic LLC, the IRS typically does not require any extra filing. All of your profits are reported through your own personal tax return. However, when you own a foreign LLC, your tax reporting requirements will include Form 8832. This form can allow you to file the same way you would with a domestic LLC, but you may need to submit it every year. If you don’t submit this form, you’ll be treated as a corporation.
Master the Tax Filing Process with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to make taxes easily and avoid the most common mistakes. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.