How to Incorporate a Business as Ecommerce Entrepreneurs in the US: A Comprehensive Guide
Introduction
“Do you know that 13 million out of the 26.2 million global eCommerce sites are headquartered in the USA? Plus, the US Census Bureau stated that 15.6% of the overall retail sales in the US, by the end of 2023, were generated from eCommerce sales.”
These aren’t rookie numbers. This clearly means the United States has always been an entrepreneurial hub for eCommerce businesses. So, why not you? Given that the eCommerce sector in the US is projected to hit a market volume worth $1881 billion by 2029, you should seize the opportunity and enter the US eCommerce market now.
However, it is obvious for any entrepreneur to worry about one thing first — the TAX laws! The US tax laws, especially those relevant to international entrepreneurs wishing to conduct business on US soil, can be somewhat tricky to understand. But do not worry; this guide will outline all the important US tax laws for eCommerce entrepreneurs planning to launch their business in the US.
Moreover, this article delves into other aspects, such as tax-saving solutions to make the most of your eCommerce profit in the US. But first, look at the eCommerce industry in the US market, what future it holds, how to start, and how an international entrepreneur like you can benefit from entering it. So, let’s start.
How To Launch Your Business In The US: Getting Started In The US Ecommerce Market
Now that you know the US tax laws based on entity type applicable for international entrepreneurs, it’s time to learn some pro tips to get started in the US eCommerce industry without hassle. Also, any professional US tax agency can effortlessly help you navigate the depths of the tax codes and other aspects (such as bookkeeping laws) to keep you up-to-date in the eyes of the US legal system.
Nevertheless, here are a few steps that will help you launch your eCommerce business smoothly in the US:
Step 1: Set Up For Your Business In The US
Now that you have a successful eCommerce business idea, it’s time to strengthen the basis for your success. Here’s what to do next:
Selecting a Business Organizational Structure Based On US Tax Slab:
Taxes and responsibility are affected by this decision. It's common advice for foreign business owners to form an LLC or corporation in the US. These arrangements offer more security by establishing a distinct legal entity from the owner. Speak with an attorney to weigh the pros and cons of each arrangement, including any tax ramifications.
Since LLCs transfer tax obligations to the owners, they prevent both commercial and personal double taxation, which is why many enterprises first choose to use them. However, C-Corporations are subject to an additional 21% corporate income tax.
Getting Your Company Registered:
To formally register your business name, visit your selected state's Secretary of State website. Verify its accessibility by contacting the USPTO, the US Patent and Trademark Office.
Although not required, registering a trademark with the USPTO can have strategic advantages, particularly for protecting a brand on online retailers like Amazon.
Getting Permits and Licenses:
You might need to obtain particular licenses or permits based on your products and region. This may include professional or trade licenses, sales tax permits, safety and environmental permits, and signage permits.
Also, try getting an EIN from the IRS. Although unnecessary, the US EIN distinguishes your personal and business finances. For business operations to run smoothly, it is essential to research and abide by these regulatory requirements.
Following these steps, you'll lay solid legal groundwork for your US e-commerce venture. Remember that seeking legal advice ensures you make well-informed selections customized to your business objectives.
Step 2: Understanding US Accounting Compliance For Ecommerce Businesses
Exploring the US market may be thrilling for international business owners like you. However, it's crucial to comprehend US accounting and bookkeeping laws before starting any eCommerce business. These rules safeguard your company and guarantee financial transparency.
Important laws to understand are as follows:
Sales Tax Nexus: Based on your physical location or sales volume within a state, this affects whether your business is required to collect state sales tax.
Income Tax Filing: It's important to know what taxes you have to file depending on the type of business you have (sole proprietorship, LLC, etc.).
Requirements for Recordkeeping: For taxation purposes, it is necessary to keep precise financial records for designated periods.
You can prevent potential legal or financial obstacles and ensure a smooth launch by becoming familiar with these requirements. Speak with an American accounting agency for more advice on how to enter the US market successfully.
Note: The next steps are obvious and easy for an entrepreneur like you to guess: product sourcing and marketing! Considering that you have been in the industry for some time, the sourcing and marketing strategies will remain the same for the US market. Consult your marketing team for more info.
US Tax Laws For International Entrepreneurs: Based On Entity Type
Before getting started, you must comprehend how US tax regulations relate to your business structure. Here's a summary based on entity type:
Solopreneur? Single-Member LLCs Keep it Simple.
Doing business as a one-person LLC without any US partners? You are treated as a "disregarded entity for US tax purposes."
Your tax return (Form 1040NR) is where your business income is submitted and comes straight to you. However, if you operate a business in the US regularly, you may also need to file Forms 5472 and 1120 (pro forma), among other forms.
Teaming Up? Partnership LLCs Require More Paperwork
Got partners? Your LLC is considered a partnership if it has more than one member. In order to disclose your total income and expenses, you must file Form 1065. Remember that you will probably need to withhold taxes on revenues distributed to overseas partners if you have US sales (Forms 8804, 8805, and 8813).
Going Big? C-Corporations Offer Separation But Complexity
C corporations and their owners are distinct legal entities. This provides protection but also results in double taxation: once on company profits (Form 1120) and again on shareholder dividends (which may be subject to withholding tax, as reported on Form 1042-S).
Note: Understand that this is only the beginning. It is strongly advised that you speak with a tax professional so that your tax plan is optimized and that you are compliant. With the correct setup, you can focus on expanding your eCommerce business and breaking new ground in the US market!
Tax-Saving Solutions To Know Before Launching Your Business In The US
As a fellow foreign business owner in the e-commerce industry, you’ll want to manage the US tax complexity. This is what you can do:
1. C-Corporation (Blocker):
Tax Benefit: The US has a low corporate tax rate of 21%, which may be less than in your native nation.
Perfect for: Companies headquartered in high-tax nations or those with a presence in the US (inventory, personnel).
Cons: There is a chance of double taxation because profits paid to foreign owners could be subject to additional taxes in their home nations. It takes careful planning to prevent this.
Submission: IRS Form 1120 must be submitted by April 15th every year.
2. Disregarded Entity (US LLC):
Tax Benefit: You won't pay US income tax if your company doesn't operate in the US (as in the case of dropshipping) and doesn't produce any "effectively connected income."
Perfect for: Small companies headquartered in low-tax nations that don't have a presence in the US. Provides a more uncomplicated tax structure.
Cons: Your native nation taxes your income at the applicable rate.
Submission: Informational Form 5472 must be filed by April 15th.
Remember that these are only the beginnings. Consult a US-based tax agency to select the best structure and reduce tax liabilities.
Ecommerce Sector and Its Future In The US
The future of eCommerce in the US is bright. With nearly 96.2% of Americans using the internet in 2023 over any kind of smartphone, convenience reigns supreme. Over three-quarters of Americans love the ease of shopping online from their smartphones, and that's not going anywhere.
Plus, the whole sector is on an upward trajectory with B2B sales – businesses selling directly to other businesses – also growing online. As someone who follows the industry closely and has expertise in tax laws, we believe international e-commerce entrepreneurs need not worry about US tax laws.
Although complicated, professional tax agencies can resolve those issues for you, leaving you only worrying about how to launch your business.
A Brief Case Study That Will Amaze You!
Defying all odds, visionary Parisian entrepreneur Pierre Omidyar founded eBay, the ground-breaking e-commerce behemoth, in the United States in 1995.
After initiating a basic online auction platform, he nurtured a flourishing virtual marketplace that currently hosts millions of buyers and sellers.
As a result of Omidyar's vision and the enduring power of bringing people together via trade, eBay is still the industry leader today.
So, overall, the outlook is fantastic – and this is the golden era to launch your eCommerce business in the US!
Want Help Incorporating Your Ecommerce Venture in the US? Call SamsCashFlow Agency
Are you an aspiring entrepreneur planning to pitch in your ecommerce venture in the United States? Need help with the launch, taxation, and bookkeeping processes? Book a call with Samscashflow agency today. Click on this link https://www.samscashflow.com/#book for a quick call!