How your US LLC is taxed

"In this world nothing can be said to be certain, except death and taxes," the great American statesman Benjamin Franklin wrote back in 1789 in a letter to Jean-Baptiste Leroy. Sadly, the same goes for your US company: the better business is for you, the better it is for Uncle Sam.

Established and aspiring US entrepreneurs can breathe a sigh of relief, though: at the end of 2017, Congress passed the 2017 US tax reform (Tax Cuts and Jobs Act), which cut taxes on business profits sharply. Its core elements were made permanent by the One Big Beautiful Bill Act of July 4, 2025.

Until 2017, the US had the highest corporate tax rate of any major industrialized nation at 35%. Since 2018, the federal rate has been 21% (IRC § 11), plus corporate tax in the state of incorporation. That makes business taxation in the US more favorable than in much of Europe for many setups.

On this page you will learn which taxes to expect on the business profits your US company earns.

For more on the US tax system, see our beginner's guide or the guide to US income tax and our compact introduction to US tax law for European entrepreneurs.

Find out here whether you need to fill in a W-8 form.

1The basics of how LLC profits are taxed

In principle, an LLC can choose whether to be classified for tax purposes as a partnership or as a corporation. 99% of all LLCs choose partnership treatment. The LLC then pays no tax itself; the taxes are paid by the members. The LLC still has to file its own return (Partnership Tax Return).

How to file a US tax return as a European, you can read here. Who has to fill in a W-8 form, you can read here.

The LLCs we form are trading partnerships whose profits are subject to US income tax at the member level.

If you are a foreigner and a member of an LLC, you must file a US income tax return (covering only your US income). You are then assessed like a US taxpayer. Expect a tax burden of typically 25% to 35%, plus state tax.

When it distributes profits, the LLC must withhold up to 37% in withholding tax (for individual members; 21% for corporate members, 30% on non-business US income). Members get any overpaid tax back once they file their income tax return.

Whether the profits of your LLC are then taxed again in your country of residence depends on your specific situation and country of residence. In some countries the profits of a trading LLC are not taxed again, but the tax authorities at home may also classify the LLC as a corporation, and that can get expensive.

2Single-member LLC (disregarded entity)

An LLC with only one member (a "single-member LLC") is what's known as a "disregarded entity". For tax purposes it is treated like a sole proprietorship: income and expenses go on the owner's personal tax return.

Single-member LLCs also have certain reporting requirements covering forms the company must file with the IRS.

For some years now, the IRS has also required disregarded entities to file the following forms:

1. FBAR: The Foreign Bank Account Report (FBAR) must list foreign financial accounts totaling more than $10,000. So the LLC reports as soon as its accounts exceed that amount. Since many LLCs now hold accounts with payment providers or other fintechs, these would need to be reported on the FBAR.
2. Form 5472: Every foreign-owned single-member LLC that had reportable transactions with its owner or other related parties during the year must file this form. It lists the LLC's transactions with its owner or other related persons or companies, in both directions, including contributions and distributions. Note too that Form 5472 cannot be filed on its own: a pro forma Form 1120 must be filed with it. That means Form 1120 can be a zero return.

It's important to note that these two forms are purely a reporting requirement.

There may also be situations where only part of the profits is taxable in the US. If a disregarded entity has both foreign and US income, the LLC's member or owner must file a 1040-NR, the income tax return for nonresidents. On it, they report only the portion of the profit that is taxable. For this they need an ITIN (the US taxpayer number for foreigners), which we apply for on your behalf through ITIN Express. It takes a few weeks to be issued: the IRS quotes about 7 weeks to notify you of your application status, and 9 to 11 weeks during peak season (January 15 to April 30) and for applications from abroad.

If the LLC has two or more members, a Partnership Tax Return must be filed. For more on this, see our page on taking profits out of your US LLC.

The state's business registry usually lists just one individual as the LLC's contact person. This can be a member, a manager or anyone else connected with the LLC.

3How the LLC becomes a tax trap

Put an LLC and a Corporation side by side and it quickly becomes clear: as a transparent entity, an LLC has clear tax advantages, especially when no further taxes are due in your country of residence.

But there's a risk of counting your chickens before they hatch:

The LLC becomes a tax trap if the tax authorities in your country of residence don't recognize it as a partnership.

An LLC makes sense, for example, for clients who live in the USA or are about to move there and expect no profits in the company until then.

4Income tax

As mentioned above, the LLC's profits are taxed through US income tax paid by the LLC member. Income tax is levied at both the federal and the state level.

You'll find more on income tax in our guide to US income tax.

4.1Federal income tax

Federal income tax is graduated as follows (single filers, tax year 2026):

• Income up to $12,400: 10%
• $12,401 to $50,400: 12%
• $50,401 to $105,700: 22%
• $105,701 to $201,775: 24%
• $201,776 to $256,225: 32%
• $256,226 to $640,600: 35%
• $640,600 and above: 37%

4.2State income tax

On top of the federal taxes above comes state income tax. It can be credited against the federal tax.

These states levy no income tax (if you live there, you only pay federal taxes):

• Alaska
• Florida
• Nevada (Gross Receipts Tax from $4 million in revenue)
• New Hampshire
• Texas (Franchise Tax from $2.65 million in revenue)
• South Dakota
• Tennessee (Hall Tax on investment income abolished in 2021)
• Washington
• Wyoming

Income tax in the other states ranges from 3% to 13%.

In 2026, top rates in the other states range from 2.5% in Arizona and North Dakota to 13.3% in California; on earned income, California adds a payroll levy that lifts the top rate to 14.6%. Fifteen states charge a flat rate with no brackets. For the current position in a given state, see our profiles of every US state.

4.3Gross Receipts Tax

LLCs taxed as partnerships are not corporations, so they pay no corporate income tax, even where their home state levies one.

But here's the catch:

Nevada, Ohio, Texas and Washington have no state corporate income tax, but they do have a kind of revenue tax (Gross Receipts Tax) payable on a company's revenue, LLCs included. In Texas it's called the Franchise Tax; it is levied on the margin at 0.375% (retail and wholesale) or 0.75%, and below the no-tax-due threshold of $2.65 million in annual revenue (report years 2026/2027) no tax is due. In Nevada the exemption is $4 million.

So if you expect revenue above the exemption in Texas or Nevada, it may be worth looking at forming in a state without a Gross Receipts Tax.

If you want to optimize for tax, form your LLC in a state with no income tax and no Gross Receipts Tax. The names to know: Florida, South Dakota and Wyoming.

5Up to 20% of LLC profits tax-free

Since 2018, a deduction of up to 20% on profits from pass-through businesses has applied (the Qualified Business Income Deduction under IRC § 199A, introduced with the 2017 US tax reform and made permanent by the One Big Beautiful Bill Act of 2025). The thresholds for 2026 are $201,750 for single filers and $403,500 for married couples filing jointly (Rev. Proc. 2025-32).

Example: Mr. Damm, a German living in Malta with non-dom status, holds an interest in a US LLC in Austin, TX that runs a B&B in Texas and distributes an annual profit of $100,000 to him. Thanks to the 20% deduction, only $80,000 of it is subject to US income tax. Mr. Damm pays $13,540 in US taxes, less than 13.5% of the total profit. And as noted above, thanks to his non-dom status, NO further tax is due on the profits in Malta either!

The formula above only applies without restriction to people with total US income up to $201,750 (the single-filer threshold for tax year 2026). If your annual share of the partnership's profit is higher, or you have other US income that takes your taxable US income above this threshold, limits apply.

The size of the deduction then depends on the total wages the business pays, or on the investments it makes during the tax year.

Here's an example with a very high profit:

Ms. Müller lives in Malta as a non-dom and is the sole member of a US LLC that runs a car dealership in Sioux Falls, SD, earning $1,500,000 in profit a year. The business has a few employees and pays $500,000 a year in wages. Because her total US income is above the threshold, Ms. Müller can only claim 50% of total wages (= $250,000) as a deduction, not 20% of total profit. She pays $428,190 in US taxes, roughly 28.5% (much higher than in Mr. Damm's example, because of the graduated rates). Thanks to her non-dom status, NO further tax is due on this income either.

Further limits apply to certain service providers such as consultants, lawyers and doctors, who benefit from the lower rates only to a limited extent, to prevent abuse.

Note: in these examples we deliberately chose a client living in Malta. Malta has no "totalization agreement" with the USA, so people living in Malta owe no social security contributions on profits from US partnerships. In Europe, at least, that's the exception: most other countries have such agreements with the USA. Add roughly another 10% on profits if you live in a country that has such an agreement.

6Sales tax

The states also levy sales tax (Sales Tax), which is only partly comparable to VAT. It isn't charged on services, only on the purchase of goods. For mail order and online sales into other states, the 2018 Wayfair ruling (2018) means: once you exceed a state's economic nexus threshold (usually $100,000 in annual sales; California, Texas and New York $500,000), you must collect and remit sales tax there too.

There is no offsetting of input tax against sales tax (no input credit). However, a reseller does not have to be charged Sales Tax (similar to the EU reverse charge). The tax collected is paid to the state monthly or quarterly.

Almost every municipality adds a local sales tax surcharge. In California, for example, the state sales tax is 7.25%, and local governments add another 2% on average.

A European-style federal VAT has been debated for years. Experts say it could be 1-2%, but it would come on top of existing sales tax.

These states levy no sales tax at all:

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

Sales tax in the other states ranges from 5% to 9% (combined state and local rate).

In 2026, combined state and local rates average 7.53%, weighted by population. The highest are Louisiana at around 10.1%, Tennessee at 9.6%, Washington at 9.6%, Arkansas at 9.5% and Alabama at 9.5%. California has the highest state-only rate at 7.25%. Details are on our page on sales tax in the USA.

7Payroll taxes

In the USA, social security contributions are due and, as is usual in Europe, are withheld directly by the employer and passed on to the IRS.

These are the payroll taxes:

• Pension insurance (Social Security): 12.4% on earnings up to $184,500 (2026 wage base). Split equally between employee and employer.

• Health care in old age (Medicare): 2.9% on total wages, split equally between employer and employee.

• Unemployment insurance (unemployment tax): levied at both federal and state level. At federal level, the employer pays 6% on the first $7,000 of annual wages per employee; the credit for state unemployment tax usually brings that down to 0.6%, so a maximum of $42 (!) per employee per year. At state level, rates vary widely. They depend on the industry and on how many of a company's employees have claimed benefits. In plain terms: if you cut jobs, your contributions go up. Rates for new employers range from 1% to 3% in all states. In some states they can rise to as much as 10%, but they are only due on annual wages up to around $40,000.

Learn more about the Social Security number in the USA.

7.1Social security for LLC members who are US tax residents

On top of the standard income tax rates (see above) payable on income from an LLC, LLC members who live in the USA or are US tax residents must also pay social security contributions, at the combined employer and employee rate. This is called "Self Employment Tax".

Social Security (the pension portion) accounts for 12.4%, but only on income up to $184,500 (2026).

Medicare (health coverage in retirement) costs 2.9%, with no income cap.

However, self-employed people can deduct 7.65% of taxable income before the tax is calculated.

LLC members who don't live in the USA or are only nonresident taxpayers there often still have to pay social security contributions on LLC profits, at least if you live in a country that has such an agreement with the USA.

8Quick tax comparison of the states we recommend

Further down this page, we present six US metro areas that we regularly suggest to clients as locations for their US company (though we support you in building your business anywhere in the US).

The table below shows the different tax rates in these states at a glance:

9Taking profits out of your LLC

Once you've built a successful business in the USA, the natural question is how to get the profits out of the company. We've given this topic its own page, which you'll find here.

How we help you

• LLC and LP Tax ReturnForm 1065 and K-1 for your LLC or LP.
• Form an LLCThe US LLC with a permanent establishment, turnkey in six states.
• Form a Limited PartnershipThe US LP for structures with a general partner and limited partners.
• Tax structureA clean structure between parent company and US subsidiary, or between you and your US company, coordinated with your accountant.
• Sales taxRegistration and returns in the states where you have nexus.
• US Tax ConsultationYour US tax question, answered by people who know both sides.