Accounting and reporting of companies in the USA

The US as a business jurisdiction is popular thanks to a stable legal system and favorable corporate legislation. At the same time, the owners of the companies have a number of responsibilities, including accounting in America, reporting to IRS (US tax service) and tax payments. Failure to fulfill such duties may result in negative consequences in the form of fines and penalties. In particular, the grounds may be late submission of tax returns, incomplete or inaccurate information, late payment of taxes, etc. Thus, it is worth to learn more about the peculiarities of accounting in the USA to avoid conflicts with IRS.

Bookkeeping in the USA

Each company registered in the United States, regardless of its organizational and legal form (LLC/C-corp), is obliged to maintain primary accounting. It is carried out on the basis of statements on corporate accounts of the company from payment systems and/or bank accounts. Thus, at the end of the year, you should have three financial reports that reflect the company’s financial activity for the previous 12 months.

Balance sheet – a report that reflects the financial status of the company at any moment of its activity. In particular, it points to the assets, liabilities and own capital of the company, showing the real condition of affairs on its finances.

Profit & Loss – a financial report that shows the company’s net profit for a certain period of time or reporting period. This document is filled in by comparing the company’s revenues and expenses. And the final amount serves as the basis for tax calculation.

General Ledger is the main financial document in which all financial operations of the company are sorted and summed up.

These reports are tools for accounting in the US, because they not only help to see the company’s financial results over a period of time, but also serve as a basis for preparing annual tax returns to IRS. It is possible to carry out their preparation just once a year, at the end of the reporting period, and monthly, at the request of the owner of the company.

Annual federal tax returns of the company

Upon completion of the accounting preparation, each company in the United States is obliged to submit an annual tax returns to the IRS, as well as to the tax administration of the state in which it is registered. The terms of filing and forms of declarations depend on the organizational and legal status of the company.

LLC Sole Member (LLC with one participant) is obliged to submit the form 1040 till April 15, the next reporting year. In this form, the owner of the company reports as an individual, because the income from LLC activity is his personal and it is taxed by individual income tax at a progressive rate from 10 to 37%.

LLC Partnership (LLC with several participants) has a slightly more complicated reporting procedure, since in this case it is necessary to submit the form 1065 till March 15, next year. This form is an information declaration, which informs about income, loss of partnership, but the partnership does not pay corporate income tax, because it is distributed among its founders. Therefore, as in the first case, the founders of the partnership should additionally submit the form 1040 to each and report as individuals.

C-corp (the corporation) is obliged to submit the form 1120 till April 15, next year. In this way c-corp reports about its profits, losses, etc. and deducts the amount of the company’s income tax at the rate of 21%.

In addition, the LLC may choose a C-corp tax form. In this case, the type and rate of the tax, as well as the form of the tax return, will be similar to that of C-corp.

The forms of tax return and the terms of their submission at the local level are determined individually by each state.

Form 1099 NEC

Since 2020, IRS has implemented NEC Form 1099 for companies that pay compensation to non-officially employed persons (e.g. self-employed persons, independent contractors). At the same time, IRS explained the conditions under which it is required to report on this form:

• if the company pays compensation to a person who is not an official employee of the company;

• the payment is made for services within the framework of the company’s business activities;

• the amount of payment is $600 or more per year.

NEC Form 1099 was introduced to identify the income that is subject to taxation as income of self-employed persons. The deadlines for submitting the form are till January 31 without the right to extension.

Zero tax return

In case your company does not conduct active business, i.e. does not receive/send payments to corporate accounts, the owner of the company is still obliged to submit zero reporting. Such reporting is informative and notify IRS about the current status of the company. Timely submission of zero tax return will deprive the founder of fines and penalties.

Annual tax report

Every year, companies in the United States have a duty to fill in and submit an Annual tax report to the state of registration and pay a franchise tax. Its amount is determined individually by each state and depends on the form of the company. As a rule, LLC pays a fixed amount of tax, whereas for C-corp it is calculated on the basis of the issued shares (the larger the number of shares, the larger amount of tax). For example, LLC in Delaware should submit a report and pay $300 annually no later than June 1. Failure to comply with this requirement will impose a fine of $200 and 1,5% of the amount of the tax and fine monthly.

Accounting and tax reporting of companies in the United States is a very important aspect. Only by adhering to all requirements and rules, the business owner will be able to avoid penalties and not spoil the image of his company. It is worth entrusting such an important component of business management only to a professional accountant (CPA). Since only the local bookkeeper knows all the nuances of reporting and the specifics of communication with IRS. Thus, having chosen a reliable specialist, you will not need to worry about the forms, terms and payment of taxes, because all processes will be adjusted.