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Sole proprietorships and disregarded entities
Sole proprietorships and disregarded entities
Updated over a week ago

For individuals who form businesses as single owners, the income on your entity will be reported primarily through your individual tax return.

For individuals forming single-member LLCs, your LLC will be treated as a disregarded entity for tax purposes, meaning that your LLC will be treated as if it was a sole proprietorship for tax purposes.

Applicable forms to report profits from your business will be the Schedule C that is attached to your personal Form 1040.

If you are paying yourself from your business, you will owe self-employment taxes in the form of Social Security and Medicare. The IRS expects Form 1040-SE to be filled by individuals who pay themselves in this manner, as there is no ‘employer’ withholding these taxes on a regular basis.

To estimate and pay taxes owed, the IRS wants single-owner businesses to use Form 1040-ES to pay tax on income that is not subject to withholding. In the event of single-owner entities, the income you pay yourself is not subject to withholding, and the IRS holds you responsible to pay the estimated taxes on a quarterly basis.

If you forget to file OR are late for filing Form 5472 and Form 1120 as a Foreign-Owned Single-Member LLC, then the fine from the IRS is $25,000. Read more about it here

If your U.S. corporation is at least 25% owned by a foreign entity or person, then you're required to file Form 5472 and Form 1120, which will report any business you had that was involved in US Trade or Business as well as let you know how much income tax liability you have.

However, generally speaking, as long as you don't have a physical presence in the US and are a purely online business, you will only need to make an informational filing in the US and not pay US income taxes (you'd then pay income taxes only in your home country).

Physical presence = you are in the US, your employees are, you have a physical office, etc! If none of these apply then you don't have a physical presence.

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