Moving from UK to US and advice needed on setting up a new business please?
Hi there; I have recently moved form the UK to the US. In the UK, I ran a successful business, setup as a limited company that generated a reasonable income for myself and my wife. Because of the way the business was setup, we paid corporation tax on profits and then took out dividends on those profits, minimizing our personal tax and national insurance/social security liability.
What I need to know, is what is the best solution to do this in the US? I believe that I have a few options, but please so correct me if I am wrong:
1. Setup a new LLC or C Corp business - I Believe though that since LLC income just flows through to my personal tax return that we don't take out dividends and will have full exposure to social security and tax?
2. Can I keep my UK business and continue to work for that business in the US? If I do that, what are the implications on the earnings that I make here in terms of reporting them etc?
Essentially, I want to work and earn money in the US whilst reducing my tax and social security liability as much as possible.
Any advice very gratefully received!
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Feb 21, 2014
I moved from Australia to the US.
You need a Social Security Number, a Bank account, a Tax EIN. I recommend an S Corp if you decide to register a company rather than a C Corp.
If you are not a company then anyone who uses your services and pays you over $600 pa. has to give you a 1066 (?) which the IRS gets so they know you got the income.
If you keep your UK business and you are a permanent resident here the US will want you to declare its income on your US tax and you will then face the whole withholding tax thing. This also applies to any personal income e.g. rent from your home. So you will need an accountant.
They also require you to declare any overseas bank account that holds more than $10K.
Feb 21, 2014
Nobody gave the right answer or asked any of the important questions:
Start as an LLC until you have income regardless of anything else.
If you make a large amount of income, a C-Corporation may actually be more appropriate than an S-Corporation due to changes in tax law in the last couple of years.
If you are eligible to elect S-Corporation status due to residency, then you could consider the salary vs. dividend breakdown along with the additional complexities like other limitations on the expenses of 2% shareholders.
You can absolutely keep the UK business and run a US division. However, the implications of tax reporting for the related entities on either side may be a large factor in not pursuing that avenue.
To correct the other posters:
1. C-Corp is not always the highest tax rate
2. Insurance not solely incorporation will save you at the end of the day from liability. It's not if they have standing or whether they can pierce the veil, it's will they sue.
3. S-Corporation definitely does not give you flexibility on deductions, quite the opposite actually.
Feb 20, 2014
I would suggest C Corp The US can be brutal and if you get caught up in some litigation then Incorporating will save you from ruin. but honestly it depends on your type of business and income. Social Security will need to be paid either way so that is not a consideration. and if you use your home as a business you can still deduct a portion of that so the best best is C Corp
Feb 20, 2014
I would suggest that you open a business as an S Corp unless you are going to add employees right away.
Being an S Corp gives you more flexibility on deductions especially if you are going to work out of your house in the beginning.
Not knowing all the details I suggest before you start your business consult with an accountant or a business consultant first.
Feb 20, 2014
Are you going to be a US Citizen? If so, I'd set up a LLC and have it treated as a S-Corp. S-Corps cannot have foreign investors, however. Otherwise, set up a LLP or an LLC that is treated as a partnership.
The C-Corp set up is the highest tax-rate and I only recommend that to clients that really need the asset/creditor protection. The S-Corp is slightly better than the partnership if you are taking a W2 salary (some tax advantages on the wages and benefits visavis self-employment).
Send me an email. I am very familiar with not just setting up businesses, but making sure that the business accounting is simple and all tax/creditor/asset protection strategies are deployed correctly and diligently.
Feb 20, 2014
Paul: Jonathan has a great point regarding citizenship. I would normally have recommended an S-Corp because you can control the salary and dividend components and not be taxed on all your earnings but the IRS has to approve all S-Corps and the IRS website states, "To qualify for S corporation status, the corporation must meet the following requirements:
- Be a domestic corporation
- Have only allowable shareholders including individuals, certain trusts, and estates and may not include partnerships, corporations or non-resident alien shareholders
- Have no more than 100 shareholders
- Have only one class of stock
- Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation (PDF) signed by all the shareholders.
Best of luck working through our tax system.
Feb 20, 2014
Hi Paul,
Can I ask you where in the US you're planning to move?
My contacts in Florida, who specialized in this field, could help you out & walk you through it.
Best,
Julien
Feb 20, 2014
You are correct that through an LLC you don't take dividends and it just runs through your personal taxes.
I do not know about keeping the UK business, but I can't see why you couldn't, as long as you file the correct documents with the UK and US if you are doing the business from here.
You are going to need to contact UK tax department and find a lawyer to help walk you through the legal process of what to file and where to file the correct documents to make sure you are following the correct guidelines for running a business from overseas.
The big difference I found is that here in the US is even if you are a one person operation, if you run a company you are going to have to pay payroll tax, medicare, social security and numerous other taxes as both the company and as the employee. So you pay yourself a salary and as part of the pay all your taxes then on top of that your company also pays taxes.
So for instance to make $2500 in hand you would be paying yourself around $3200 and then the company would pay another $600 in company tax. The irony is that can include unemployment insurance which you can never actually claim if you own the company.
PM me if you want more advice based on my experience.