Federal Tax Information for New Business Investors in the US

A saying in English goes along the lines: “There is nothing more certain in life than death and taxes”. In the United States, tax is paid to two different authorities: the federal government as well as the state government. State regulations vary somewhat from state to state, although they also have a lot in common. For state regulations which are appropriate for the state you are likely to live in and run your business in, refer to that state’s own government website. This article provides some information about federal taxes which might help those foreign investors who wish to invest money in a business in the United States for the first tine and will therefore be in a position to pay tax.

E-2 visa applications must provide convincing evidence that the investor has done their homework when it comes to working out how profitable their new business is likely to be and understanding their tax obligations as well as any obligations they have to US citizens they employ as part of the package is an important aspect of a workable business plan.

Choosing a Business Structure

In the United States, like many other countries, there are a number of different business structures. When you buy into an existing business or start up a new business here, you will need to choose a particular business structure which will determine the way your financial contributions to the federal government are made. The choices are as follows:

• Sole proprietorship
  
• Partnership
  
• Corporation
  
• S Corporation
  
• LLC or Limited Liability Company.
  
  

The majority of E-2 investors choose to set up the first category in the above list: i.e. a sole proprietorship with smaller numbers choosing to go into a partnership with either another person from the same family as yourself or a US citizen.

Obtaining an employer identification number

As a business owner and employer you will have a number of responsibilities related to the fact that you are an employer and you will need to obtain an employer identification number or EIN. This will be used in any of your dealings with the federal tax agency or IRS (Internal Revenue Service). Note that your EIN must be obtained after receiving your visa – not beforehand. A new EIN is normally needed any time a business changes hands or changes structure i.e. from a sole proprietorship to a partnership.

Keeping Records

If you have run a business before in your own home country you will probably be used to keeping business records and you will certainly be required to keep careful records once your business gets off the grounds in this country after your visa application has been successfully granted. Generally, there is no specific type of record you must keep except that it should show details of all income and expenditure that your business has dealt with.

Employee responsibilities

You will be expected as an E-2 visa holder to employ at least 2 employees, although the actual number, like a lot of things in the E-2 visa process, is not spelled out precisely. Employees in the US pay their tax as they earn it and you will be responsible for withholding it from their wages and passing it onto the government. Taxes include payments for social security and Medicare as well, PAYG (pay as you go) federal income tax and federal unemployment tax (FUTA).

Business tax

You will be expected to pay federal tax yourself and usually this can be done when you fill in an annual tax return. Non US citizens who are business owners are not necessarily under the same rules as US citizens when it comes to tax, so when you get your visa and therefore the go-ahead to run your business, these and many other details which concern your responsibilities to the federal (and state) governments are things that you should ensure you know about.