Are you filing a U.S. corporate tax return? On this page you will learn about income tax filing obligations, types of forms, and more. Keep read the following article to fully understand the subject.
Expanding business activity to the international level is no longer reserved for tycoons and has long since become a matter of routine. But with all the high hopes of international business activity (new market segments and unique business opportunities), this activity also entails quite a few risks – high tax charges and exposure to sections and fines for failing to comply with strict tax rules.
This is especially true when it comes to business activities in the United States. Despite being the “land of unlimited possibilities,” U.S. tax rules are among the most complicated in the world and include thousands of provisions of the law. This bureaucracy in itself may deter potential investments.
The good news is that rigorous pre-investment tax planning and professional tax advice throughout the activity will ensure that you avoid unnecessary exposure and allow your business to become a huge success. So, what are the things you should know before investing? Keep reading to find out.
The income tax filing obligations
Conducting business activity in the United States, whether it is a start-up or a real estate investment, can be done through a number of legal structures. Thus, investment can be made, among other options, directly, through a partnership or company with limited liabillity.
The choice of the appropriate legal structure is critical as it determines how the investment will be taxed and the tax rules that will apply to it. Many of the investments are made by a corporate company, C-CORPORATION.
Types of forms
C-CORP
A C-CORP is a registered association for profit-making purposes, in which the association is a separate legal entity from its shareholders who hold it through shares that reflect their relative share of the corporation. Since the corporation has a separate legal entity, the shareholders’ warranty is limited only to the total investment of their investment. Accordingly, the tax obligation applies independently to the corporation, not to its shareholders.
The U.S. tax system establishes a widespread tax reporting obligation as far as corporations are. Each corporation must file an annual tax report on its worldwide income each year. The date for submitting an annual tax report is April 15 of the following year. An extension can be obtained to submit the report until October 15.
The reporting obligation also does not extend to foreign associations that have any business activity within the United States. This means that each corporation, even a corporation incorporated under the laws of another country, must submit an annual report to the U.S. Tax Authority regarding its income originating from within the United States. Foreign corporations will submit the tax report by June 15 of the following year, but they may request an extension to submit the report by October 15. In special cases, a foreign corporation will be given a special extension to submit the report by December 15.
And so, whether you are investing through a local corporation or investing through a foreign corporation – you have an obligation to submit an income tax report to the tax authorities.
Form 1120 and Form 1120F
Corporate annual tax reporting is done by using designated forms.
Form 1120
Form 1120 (U.S Corporation Tax Return) will be used to report local corporations.
Form 1120F
Form 1120F (U.S Corporation Tax Return) will be used to report foreign corporations.
The principle of both forms is the same – the corporation must report its income, expenses, profits, losses, deductions, and credits, provide all relevant details for its business activities, and clarify its tax liability. The difference between the forms is that a local corporation declares its worldwide income on the form, while a foreign corporation will declare its income in the United States only.
U.S. corporate tax return – filling out the forms it’s crucial
The information transmitted within the framework of the above forms is used to clarify the tax liability, and therefore constitutes a very important document. Sometimes filling out the reporting forms can be a bit challenging and complicated, but it is of great importance to fill it out in a very rigorous manner. Failing to reporting or reporting inaccurately or incorrectly (even if these mistakes are made due to a misunderstanding) may expose the corporation to severe, sometimes even criminal, sanctions.
At MasAmerica, we have extensive experience and knowledge of U.S. taxation, both in terms of tax planning and in the practical aspect of filing tax reports.
