Similar to what is standard in Israel, active businesses that operate in the American market are required to submit tax reports in the United States. Although there are some differences between corporate tax reports in Israel and the United States, especially when it comes to taxation percentages.
In the following article we will expand on submission dates to the IRS – corporate reports and explain the importance of using an American accountant in Israel or an American tax consultant in this matter.
What Are the Dates to report to the IRS – corporate reports and individual reports?
American citizens and green card holders are required to submit yearly tax reports in the United States using a 1040 form, to be submitted until the 15th of April of the following tax year. When the tax – payers are not residents of the United States they receive an automatic extension until the 15th of June. Either way every tax – payer is entitled to request an extension by submitting a 4868 form. An approved request will grant an extension until the 15th of October.
Individuals who are not citizens but do have financial dealings in the United States, are required to submit the report to the IRS using an NR1040 form by the 15th of June. In the case of a request for an extension they could get approval to hand the form in by the 15th of December.
When it comes to submission dates to the IRS – corporate reports will be submitted by the 15th of March, or the 15th of October if an extension is granted. Reporting on a foreign account in FBAR should be synchronized with the submission of tax reports, and will be submitted by the 15th of April, or the 15th of October given an extension.
Reporting to the IRS and the classification of a company for tax purposes
In general, the American law recognizes different types of corporations – a company, an S corporation for tax purposes, an LLC company, and other types of business classifications. For each type, different rules apply when it comes to taxation. For example, when the source of the company is outside the United States, but operationally it works in the United States, it will be recognized as a foreign company.
This is in reference to a company whose purpose is making profits, and that is a legal entity separated and consolidated by shares that reflect ownership of the company. Every foreign company must report to the IRS. That being said, they are required to report only about taxes and profits made within the United States.
In order to manage the reports legally and safely to the IRS the MasAmerica team has compiled the following guide where the main laws that deal with taxation in the United States in general, and corporate taxes specifically.
How is corporate tax collected in the United States?
In many aspects, and in spite of being a federation made up of many states, the United States is actually a single entity. There are certain differences between the different states when it comes to taxes.
| Cycle tax | This tax hinges on the cycle of the business. There are states that put a low tax on sales taxes but make exemptions for companies who have not reach a certain minimum amount of sales cycles. Most states in the United States do not tax cycles. |
| Corporate tax | This tax is applied in some countries on the profits the companies make, in addition to the calculated income tax. |
| Branch tax | This tax in enforced on non – American companies who operate within the United States. The tax applies directly to the shareholders continuing overseas. The treaty to prevent double taxation in the United States limits the tax on Israeli companies to only 12.5 percent. |
Tax percentages on company profits and the differences between Israel and the Unites States
There are many differences between the United States and Israel, in the percentages of tax put on companies in their region and many other areas. In Israel the income tax for companies stands at 23 percent while in the United States it is only 21 percent.
In addition, the shareholders are required to pay taxes on dividends. In Israel the dividend tax for shareholders stands at 25 percent and the dividend tax given to decision makers is at 30 percent. The system is similar in the United States. In the next portion we will go deeper into tax payment, with an emphasis on advances on American income tax.
Tax deduction in the United States
One of the main concerns of the IRS is preventing tax fraud by foreign companies and entities working within the United States. In order to prevent a situation such as this the law in the United States requires anyone transferring income to a foreign company operating in the United States, to deduce 30 percent of the income tax.
The deductions are used as an advance for the tax payment of the foreign company. With that, a correct classification of the income could lower or prevent the deduction. That is why it is extremely important to use the help of an accountant who is familiar with the tax system in the United States. If the tax that was collected is higher than what is required, tax refund can be requested.
Capital gains tax in the United States
Much like local companies, the tax on capital gains applies to the income itself, and on the next stage on the dividends shared between the board of director or shareholders. Allegedly, the IRS in the United States do not enjoy the dividend sharing of foreign companies to the shareholders.
In fact, every foreign company operating in the United States of America pays branch tax, that can reach up to 30 percent of the shareholders profits being transferred out of the United States. Following the treaty between Israel and the United States, these taxes get lower to only 12.5 percent.
Types of forms for tax reports to the United States tax authority (IRS)
There are a number of forms worth being familiar with, when dealing with taxation of businesses or individuals:
| The F1120 form | This form is used by foreign companies operating in the United States to report their profits. The company will use this form to declare its’ earnings, expenses, deductions, and refunds. This form unifies the reports of all of the foreign companies operating within the United States. |
| The 1040 form | This form is used by American citizens and green card holder to report on their total earnings. |
| The NR1040 form | This form in used by no – citizens of the United States who have financial activities in the United States. For example – the owner of a company operating in the United States who is withdrawing dividends from it. |
An American accountant and their importance in properly calculating United States taxes
The United States is a paradise for businesses in every sense. The regulation there is very allowing, and it is relatively easy to do business there. That being said, the IRS has a reputation of extreme care when calculating the correct amounts of taxes and the payment being in full and on time.
Not reporting on taxes could lead to big sanctions, with an emphasis on every company that did not report correctly or on time. An American accountant can aid a company in following the law, because of their extensive knowledge and familiarity in tax laws and the different regulations.
The more significant the activity of a company is in the United States, and the bigger the profits made by the company are, the bigger the need for experienced and professional American accountants is for the business. Accountant work towards providing reports and information about the company operating in the United States on time, and by the book.
How to do tax planning and save on paying taxes in the United States?
The good relationship between Israel and the United States shows also in different treaties concerning tax payments. Whoever has a business that operates in the United States as well, needs to plan their tax payments wisely. Correctly planning taxes requires the involvement of excellent American tax consultants, who know all there is to know about the subject.
The consultants will operate in order to get the tax payments made to best help the interest of the business owners, while also following the law in the United States. As mentioned, the IRS is known for its meticulousness and motivation to work against anyone not following the rules and regulations. This is why only professional can best approach the issue.
