United States International Taxation for Small Business

United States international taxation  for small business has changed.  The tax laws are better than ever. Understanding the new 2018 laws on United States international taxation is essential to avoid paying more than your legal share of taxes.

These new laws allow a permanent avoidance of tax on many types of offshore.    

United States international taxation for a small business is not the same as it is for a publically traded corporation.

The average dividend rate of publically traded companies is only 2.5%.  While small businesses distribute a large portion of the profits to their owners   Publicly traded companies’ profits are taxed twice. While small business only pays tax once on their profits.  What you find on the internet is tax planning for publically traded companies.  This tax planning does not work for small business. 

Thus, small business uses a United States international taxation strategy that:
1. avoids double taxation,
2. allows for a large foreign tax credit and
3. allows for long-term capital gain on the sale of the foreign business.

United States International Taxation that Avoids Double Taxation

Surprisingly, the U.S.Treasury designed a special type of corporation for small business and their United States international taxation issues.

It works like this. Jim, an American, forms a French corporation for a new French business.    The French income taxes paid by the corporation are not available to Jim as a foreign tax credit.  This is because the French corporation is not a passed through. 

The only type of passthrough corporation are those taxed under Subchapter S.  This is where the U.S. Treasury stepped in to help small business by allowing any foreign corporation to obtain a second corporate charter.

Ideally you would do this in the first year. Don’t do this yourself.  You should hire an attorney and a tax CPA.

United States international taxation is less complicated as a Subchapter S corporation.  You also can pay less in taxes because you are allowed a larger foreign tax credit.  The foreign tax credit is a dollar for dollar reduction of your Federal income tax. 

A dual resident corporation has a second corporate charter in one of the fifty states.    Once the corporation has two charters, Jim can elect subchapter S for the corporation.

A second advantage is the complex U.S. international tax forms are not filed.  Instead, a simple form 1120S is filed.  

Now, assume the French/U.S. corporation earns $1,000,000.   The French income tax is $330,000.  Jim reports the $1,000,000 on his income tax return.  His U.S. tax is $350,000. However, he reduces the amount he owes by the French tax of $330,000.

After this reduction, Jim’s total U.S. income tax is $20,000.

A few years later, Jim sells the business.  He sells the shares of the French/U.S. corporation.  His gain is long-term capital gain.

What is international tax law for the small business?

I have included my video on the United States international taxation regarding the small business dual resident corporation.

You can learn more about United States international taxation on this link.

If you need help with your United States international taxation issues, then please contact me, Brian Dooley, CPA, MBT at [email protected]