US Tax Planning for Entrepreneurs

Learn more about US tax law and the US tax system on this page

As a rule, US tax rates are significantly lower than in Europe, at least when it comes to income tax. Social security contributions are much lower, too.

Of course, it depends on where in the USA you live. Someone living in New York will pay considerably more tax than someone living in Texas. Let's say you are married, have two children and pay yourself an annual salary of $400,000 from your company.

Capital gains are often taxed far more favorably in the USA than in Europe. The tax rate on long-term capital gains starts at just 0% and tops out at 20%.

1Preparation and execution make all the difference

That is why a move to the USA calls for careful planning that looks at each type of income and structures it in the best way for you. This naturally leads to the question of which US entity suits you best. Traditionally, a US LLC can be the most tax-efficient choice because, unlike a Corporation, it pays no tax at the company level; tax is paid only by the members.

Your EU company can also pay dividends to you, for example. Structured correctly, these foreign dividends can also qualify for the favorable US long-term capital gains rate, which is capped at 20%.

Imagine, for example, that you own a company in Malta and live in the USA. The Maltese company pays an effective 5% in tax, and you pay another 20% in the USA on the dividends you receive. That is a very acceptable tax burden, even if it is not a zero-tax solution.

2Mind your US filing obligations

Keep in mind that preparing tax returns in the USA can be extremely complex. So even if the tax rates work in your favor, your reporting obligations may be far more extensive. They also cover your income from abroad, for example from foreign shareholdings.

The catch: US penalties for late filing can be enormous. We are talking about minimum penalties of $25,000. This applies, for example, to Form 5472, which you use to report payments from your US company to related parties to the IRS.

Mount Bonnell Advisors is happy to help you with every aspect of your US tax planning. We bring plenty of hands-on experience and draw on highly qualified US tax advisors and tax attorneys from our network to give you comprehensive advice.

On this page you'll learn more about US tax types and the US tax system. To see what moving away means for your taxes at home, read our page on the tax consequences in your home country. You'll find every other topic in our overview of moving to the USA.

In short

• Income tax and social security contributions in the USA are usually much lower than in Europe, depending on the state: Texas levies no state income tax, while New York costs considerably more.
• Long-term capital gains in the USA are taxed at 0% to 20%.
• Good planning sorts your types of income and leads to the right entity; dividends from an EU company can also be taxed at the favorable rate.
• Filing obligations are extensive and also cover income from abroad; penalties for Form 5472 start at $25,000.

How we help you

• Tax structureA clean structure between parent company and US subsidiary, or between you and your US company, coordinated with your accountant.
• Your US Tax ReturnForm 1040 or 1040-NR, handled in English.
• Corporation tax returnForm 1120 and Form 5472 for your US corporation.
• IRS letters and penaltiesMail from the IRS? We reply, request penalty relief and put things right.
• US Tax ConsultationYour US tax question, answered by people who know both sides.