United States
Accounting and Tax Compliance in the United States
From US GAAP bookkeeping to federal, state and sales tax filings. Full-service support for foreign-owned LLCs and corporations in the American market.
Contents
- •US GAAP and Bookkeeping Obligations
- •Entity Choice and Federal Income Tax
- •State Taxes, Franchise Tax and Annual Reports
- •Federal Filings and the Tax Calendar
- •Sales Tax Instead of VAT: Nexus After Wayfair
- •Payroll, Contractors and Employment Taxes
- •Foreign Ownership: Form 5472, FBAR and FATCA
- •Treaties, Withholding and Transfer Pricing
- •Accounting Method, Software and Audits
- •Conclusion
The United States offers the deepest consumer market in the world, but its tax system is layered rather than centralised: federal rules sit on top of fifty separate state regimes and thousands of local jurisdictions. There is no VAT and no single national filing portal. For a foreign founder the compliance map therefore looks nothing like the European one, and the penalties for getting it wrong - particularly the information returns required of foreign-owned entities - are among the highest anywhere.
1.US GAAP and Bookkeeping Obligations
US financial reporting follows Generally Accepted Accounting Principles (US GAAP), codified by the Financial Accounting Standards Board. Unlike most European systems there is no statutory chart of accounts, and a private company does not file its accounts on a public register.
What a small entity must actually do:
• Maintain books and records sufficient to support every figure on its tax returns - an Internal Revenue Code requirement, not a best practice
• Keep source documents: invoices, receipts, bank and merchant statements, contracts, payroll records
• Reconcile bank and payment-processor accounts monthly
• Retain records generally for at least three years from filing, and longer for employment taxes, asset basis and loss carryforwards
Where GAAP still matters privately: loan covenants routinely require GAAP-basis statements, investors and acquirers expect accrual numbers in due diligence, and revenue recognition under ASC 606 and lease accounting under ASC 842 materially change reported results for subscription and equipment-heavy businesses.
Many small companies keep books on a tax basis and convert to GAAP only when raising capital. That conversion is far cheaper if the underlying bookkeeping was disciplined from day one.
2.Entity Choice and Federal Income Tax
How a US business is taxed depends on its entity classification, not on its commercial activity.
C-Corporation: taxed as a separate taxpayer at a flat federal corporate income tax rate of 21%, unchanged since the 2017 Tax Cuts and Jobs Act. Profits distributed as dividends are taxed again at shareholder level - the classic double taxation. A C-Corp remains the standard vehicle for venture-backed startups and for groups retaining earnings in the US.
Pass-through entities pay no entity-level federal income tax; income, deductions and credits flow through to the owners:
1. Single-member LLC - by default a "disregarded entity", reported directly by the owner
2. Multi-member LLC / partnership - files an information return and issues a Schedule K-1 to each partner
3. S-Corporation - an election available only where every shareholder is a US person, which generally closes it to foreign founders
Section 199A may give an eligible individual owner a deduction of up to 20% of qualified business income, subject to wage, asset and service-business limits. Entity choice also drives withholding, state registration and information-return exposure, so it should be settled before formation rather than corrected afterwards.
3.State Taxes, Franchise Tax and Annual Reports
Federal tax is only the first layer; each state sets its own policy and the differences are substantial.
State corporate income tax:
• Rates run from roughly 2.5% to around 11.5% depending on the state
• South Dakota and Wyoming levy no corporate income tax at all
• Nevada, Ohio, Texas and Washington impose a gross receipts or margin tax instead - a levy on turnover, payable even by a loss-making business
• Multi-state businesses apportion income between states, most commonly by a single sales factor
Franchise tax and annual reports are charges for the privilege of existing as a registered entity, independent of profit. Delaware is the best-known example (as of 2025):
- A Delaware LLC pays a flat $300 annual tax, due 1 June
- A Delaware corporation files an annual report with a $50 fee plus franchise tax, due 1 March; the minimum under the authorised shares method is $175, while the assumed par value capital method usually produces a far lower bill for startups with many authorised shares
Beneficial ownership: after FinCEN's 2025 rule change, entities formed in the United States are exempt from BOI reporting; the obligation now falls on foreign-formed companies registered to do business in a US state.
4.Federal Filings and the Tax Calendar
The IRS works to fixed statutory deadlines tied to the entity's tax year. Most companies use the calendar year; C-Corporations may adopt a fiscal year, while partnerships and S-Corps generally follow their owners' year.
Core annual returns:
| Entity | Form | Deadline | Extended |
|---|---|---|---|
| C-Corporation | Form 1120 | 15 April | 15 October |
| Partnership / multi-member LLC | Form 1065 + K-1s | 15 March | 15 September |
| S-Corporation | Form 1120-S + K-1s | 15 March | 15 September |
Extensions are requested on Form 7004 and extend the time to file, never the time to pay.
Estimated tax: federal income tax is pay-as-you-go. Corporations remit quarterly instalments through EFTPS on the 15th day of the 4th, 6th, 9th and 12th months of the tax year; individual owners of pass-throughs pay on 15 April, 15 June, 15 September and 15 January. Underpayment triggers interest-based penalties even when the return is filed on time.
Every entity needs an EIN before it can open a bank account, run payroll or file; foreign owners without a Social Security Number obtain an ITIN where a personal filing obligation arises.
5.Sales Tax Instead of VAT: Nexus After Wayfair
The United States has no VAT. Instead, forty-five states and the District of Columbia levy a sales tax, administered at state level and frequently supplemented by county, city and special-district rates - more than twelve thousand taxing jurisdictions in total. Sales tax is charged once, at the final retail sale, with no input-credit mechanism: a buyer purchasing for resale presents a resale or exemption certificate instead. The NOMAD states - New Hampshire, Oregon, Montana, Alaska and Delaware - impose no statewide sales tax, though Alaska permits local ones.
Economic nexus: in *South Dakota v. Wayfair* (2018) the Supreme Court held that a state may require a seller with no physical presence to collect its sales tax. Every sales-tax state now applies a threshold - commonly $100,000 of sales into the state, sometimes combined with a transaction count, and as high as $500,000 in the largest states.
In practice:
1. Monitor sales by state continuously; nexus can be crossed mid-year
2. Register for a permit before collecting - collecting without one is itself unlawful
3. File on the state's assigned cycle, including zero returns
4. Marketplace facilitator laws make Amazon, eBay and Etsy responsible for collecting on their platforms, but sales through your own website remain your obligation
6.Payroll, Contractors and Employment Taxes
Hiring in the US creates federal and state obligations from the first payroll run, not at year end.
Employer taxes on wages:
• FICA - Social Security: 6.2% employer and 6.2% employee, up to an annual wage base ($176,100 for 2025, indexed each year)
• FICA - Medicare: 1.45% each with no cap, plus an Additional Medicare Tax of 0.9% withheld from employee wages above $200,000
• FUTA: 6.0% on the first $7,000 of each employee's wages, reduced by a credit of up to 5.4% for state unemployment contributions - an effective 0.6% in most states
• State unemployment insurance at an experience-rated percentage, plus state income tax withholding where the state levies one
Key forms: Form 941 (quarterly return of withheld income tax and FICA), Form 940 (annual FUTA), Form W-2 (furnished to employees and filed with the SSA by 31 January) and Form W-4 (collected from each employee to set withholding).
Independent contractors: collect a Form W-9 before the first payment and issue Form 1099-NEC by 31 January to anyone paid $600 or more in the year. Misclassifying an employee as a contractor is among the most frequently audited issues in US payroll.
7.Foreign Ownership: Form 5472, FBAR and FATCA
Foreign-owned US entities face information reporting with no European equivalent, and penalties are assessed per form rather than as a percentage of tax.
Form 5472 - the critical filing. A foreign-owned single-member LLC is treated as a corporation for this purpose alone and must file Form 5472 attached to a pro-forma Form 1120, reporting every reportable transaction with its foreign owner and related parties: capital contributions, distributions, loans, management fees, even formation costs. This applies even where the LLC had no income and no US tax to pay. The penalty for failing to file, or for filing a substantially incomplete form, is $25,000 per form per year, with further amounts if the failure continues after IRS notice. The same form is required of a US corporation that is at least 25% foreign-owned.
FBAR (FinCEN Form 114): a US person - including a US company - with a financial interest in or signature authority over foreign financial accounts whose aggregate value exceeds $10,000 at any point in the year files electronically with FinCEN, due 15 April with an automatic extension to 15 October.
FATCA (Form 8938): filed with the income tax return where specified foreign financial assets exceed threshold values, beginning at $50,000 for an unmarried filer resident in the US. FBAR and Form 8938 overlap, but neither replaces the other.
8.Treaties, Withholding and Transfer Pricing
Withholding at source. US-source dividends, interest, royalties and other fixed or determinable annual or periodical income paid to a non-US person carry a statutory withholding rate of 30%. An applicable treaty usually reduces that rate materially, but only if the recipient documents its status.
Documentation: a non-US individual provides Form W-8BEN and a non-US entity Form W-8BEN-E to the withholding agent before payment. These remain valid for three calendar years and must be refreshed. Without a valid form the payer must withhold at the full statutory rate, and recovering the excess means filing a US return.
Treaty network: the United States has income tax treaties with more than sixty jurisdictions. Under the US-Türkiye treaty, withholding on dividends is generally capped in the 15-20% range depending on the level of ownership, interest in the 10-15% range and royalties in the 5-10% range. Treaties also allocate taxing rights over business profits through the permanent establishment article and contain limitation-on-benefits provisions that must be tested before a rate is claimed.
Transfer pricing: related-party transactions must be priced at arm's length under IRC Section 482. The IRS may reallocate income between a US subsidiary and its foreign parent, and contemporaneous documentation is the only reliable defence against accuracy-related penalties of 20% or 40% of the underpayment.
9.Accounting Method, Software and Audits
Choosing a method. A business elects the cash or accrual method on its first return; changing later normally requires IRS consent on Form 3115. Cash basis recognises revenue when collected and expenses when paid. Accrual basis matches revenue to the period earned and is mandatory for larger taxpayers - the small-business exception permits the cash method where average annual gross receipts fall below a threshold of roughly $30 million, indexed annually. Businesses carrying inventory should consider accrual regardless, because it is what lenders and buyers expect.
Systems that scale: QuickBooks Online and Xero cover the majority of small and mid-sized US companies, with NetSuite taking over at scale. Around that core most foreign-owned businesses add a payroll provider such as Gusto or ADP that files 941s, W-2s and state returns automatically; sales tax automation such as Avalara or TaxJar to track nexus and file across states; and strict separation of entity and owner bank accounts, which is also what preserves limited liability.
Audit: there is no statutory audit requirement for a typical private US company. Audits arise contractually - from lenders, investors or an acquirer - or on SEC registration, where PCAOB standards apply. The more likely event is an IRS or state examination, won or lost on the quality of the underlying documentation.
The United States rewards businesses that treat compliance as infrastructure rather than an annual scramble. A foreign-owned LLC that misses a single Form 5472 faces a $25,000 penalty whether or not it earned a dollar, and a growing e-commerce seller that ignores economic nexus can accumulate uncollected sales tax across a dozen states before anyone notices. Astropel provides monthly bookkeeping, federal and state return preparation, payroll administration, sales tax registration and filing, and the international information returns that foreign-owned structures require - through one accountable point of contact.
The scale of the market. The United States is the world's largest economy, with a gross domestic product of roughly $29 trillion and more than 335 million consumers whose household spending alone accounts for close to 70% of national output. No other single market offers comparable depth or willingness to adopt new products quickly.
A federal system, not one jurisdiction. Doing business in the US means choosing where, not just whether. Delaware dominates entity formation thanks to its specialised Court of Chancery and predictable corporate law; Texas, Florida and Tennessee attract operations with no personal income tax; California and New York remain unavoidable for capital and talent despite heavier tax burdens.
Capital and infrastructure. The US hosts the deepest venture capital and private equity markets in the world, and its banking, payment and logistics networks are built for national-scale distribution from day one. Access to that capital generally presumes a US entity, US bank accounts and financial statements a US investor can read.
Trade position. The US remains a major trading partner for Türkiye and the European Union, and a US subsidiary is frequently the most efficient way to serve American customers: it removes importer-of-record friction, simplifies payment collection, and gives buyers a domestic counterparty under familiar law.