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MenuDo I have to file a 'zero' Tax Return with the IRS?
I have a single member LLC set up in Wyoming. Actualy, this LLC is 100% shareholded by a Sechellois company of that I'm the only owner. I'm not US resident alien and the Wyoming LLC does not generate US-source income.
Answers
yes, if you have an LLC you probably already have to file quarterly or as per your state's regulations. Regardless of the frequency even if you are making zero sales, zero expenses, etc. you need to report them as the files are due.
Yes, you definitely have a U.S. tax filing obligation. A single member LLC is a disregarded entity for U.S. federal income tax purposes. Although the entity itself does not pay federal income taxes, the single owner is responsible for reporting the income and expense of the LLC on his/her income tax return and paying the requisite income tax, if applicable. If the LLC does not generate any U.S. source income, and you do not conduct business in the U.S. through a permanent establishment, then the LLC probably does not owe any U.S. federal income taxes. However, the IRS has recently implemented new regulations which require single member LLC's to file a Form 5472 to report the activity of the LLC. This form is filed alongside a proforma Form 1120. It is absolutely critical that you file these returns. The IRS can impose a $25,000 USD penalty for noncompliance. I highly recommend you consult a competent U.S. tax adviser that specializes in these filings.
You never have to file.
And if you don't the IRS may assign a tax bill to your company via random number generation or whatever crazy valuation they're using at the time for your type of business.
Best for very person (SS number) + every entity (EIN) should file a tax return, even if $0 tax is required.
If the IRS assigns a tax value, you will spend countless hours trying to straighten this out.
Also, if you have an entity which is fallow (no longer used), shut it down, so you can avoid undo paper work filings every year.
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Do I have to file form 5472 for "additional paid-in capital"?
Yes you should be reporting the capital contributions. Under the old Form 5472 rules, it's true that only items that impacted taxable income would be reportable transactions. So, a capital contribution by you to the corporation would not be reportable, unless the equity contribution was somehow below or above a fair value contribution in exchange for services that you might provide for the corporation - essentially an imputed reportable transactions. When the IRS changed the Form 5472 rules to require non-U.S. owned single member LLC's, they expanded the reportable transaction definition to include virtually everything. The term “transaction” is defined in Treas. Regs. Section 1.482-1(i)(7) to include any sale, assignment, lease, license, loan, advance, contribution or other transfer of any interest in or a right to use any property or money, as well as the performance of any services for the benefit of, or on behalf of, another taxpayer. So, for example, contributions and distributions would be considered reportable transactions with respect to such entities. These amounts can be reported on Lines 12 and 25 with an explanatory footnote that clarities the amounts are capital contributions and not amounts that impact taxable income.JK
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If your concern is from an ethical standpoint or a concern over a segregation of duties, there is no problem at all having your tax person handling your bookkeeping. The bigger issue is something that few people understand about accountants. There are different specialties within accounting, and you should go to the right specialist for the right task. Tax accountants are experts in tax law, filling out tax returns and finding ways to minimize taxes. They must immerse themselves in the field to maintain their expertise. Financial accountants (which include bookkeeping) are experts in debits and credits and keeping all your transaction straight in your accounting software so that you can get good financials each month. Financial accountants have to immerse themselves in your day-to-day accounting so that they can keep it accurate and up to date. Full disclosure, this is the work that my firm specializes in, we don’t do any taxes. Because each type of accountant must immerse themselves in their individual fields of expertise, they don’t have the time to focus on the other expertise. Not that they are both not great accountants, they just have a different specialty. Here’s a good analogy. If you developed a heart condition, would you go see a neurologist? No, you’d go see a cardiologist. They are both outstanding physicians and know a lot about the human body, but the cardiologist spends all their time thinking about, studying, and treating heart conditions and is going to be the best equipped and most knowledgeable about treatments for your heart condition. The last point I’ll make is that tax work is very seasonal and requires incredible focus and incredibly long hours leading up to major tax deadlines. This is not only during the period from January to April 15th, but also leading up to major deadlines on August, September and October 15th. Companies I have worked with that used tax accountants in the past for their bookkeeping find during these periods their tax accountants are forced to put all other work besides taxes on hold until their tax work is complete. What often happens in these situations is that these company’s bookkeeping falls three or four months behind. This can be devastating for a small business that needs to know if they are making money or losing money on a very up to date basis. So my suggestion is to find yourself a good bookkeeper that can handle your books. Your tax person may even be able to suggest a good resource, and deep down may be glad to do so because her first love is taxes, not bookkeeping. My firm could likely handle the work as well. Hope my thoughts above are helpful and addressed your question, but feel free to reach out to me if you have any follow up questions.CM
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