Navigating the US tax system as a non-resident is notoriously difficult. “Common wisdom” says US LLCs are tax-free for foreigners, but the reality is more nuanced and the penalties for getting it wrong are severe.
Use this calculator to determine if your US business income is “Effectively Connected” (taxable) or “Foreign Source” (tax-exempt), and identify exactly which IRS forms you must file to avoid fines.
How This Calculator Works
- Enter Your Basics: Provide your name and company name to start.
- Answer the “Nexus” Questions: The calculator will ask about your physical presence in the US, your employees, and where your services are performed.
- Get Your Determination: You will receive an estimate of your:
- Federal Income Tax Liability: (Often $0 for remote digital businesses).
- Filing Requirements: (e.g., Form 5472, Form 1120-F).
- Compliance Status: Alerts for “High Risk” tax triggers.
Important Warning: Even if you owe $0 in taxes, you likely still have a mandatory filing requirement. Failure to file Form 5472 on time carries a standard penalty of $25,000 per year.
The 3 Main Tax Scenarios for Non-Residents
Most international founders fall into one of three categories. This calculator helps determine which one applies to you.
1. The “Tax-Free” LLC (Foreign Source Income)
This is the most common scenario for digital nomads and remote entrepreneurs. If you have a single-member LLC and:
- You are not a US citizen or resident;
- You have no physical office or employees in the US; and
- You perform all your work/services from outside the US;
Then your income is generally not considered “Effectively Connected Income” (ECI).
- Tax Due: $0.
- Forms Required: Form 5472 and pro-forma Form 1120.
2. The “US Trade or Business” LLC (ECI)
If you have “boots on the ground” in the US (like a warehouse, a dependent agent who signs contracts for you, or an office), your LLC is “Engaged in a Trade or Business in the US” (ETBUS).
- Tax Due: Your net profits are taxed at graduated US individual rates (10%–37%).
- Forms Required: Form 1040-NR (Non-Resident Individual Return).
3. The C-Corporation
If you chose to form a C-Corp (often to raise venture capital), the rules are simpler but more expensive. C-Corps are distinct legal entities and are taxed separately from you.
- Tax Due: Flat 21% federal corporate tax on all profit.
- Dividend Tax: If you pay yourself dividends, you may face a 30% withholding tax (FDAP income), unless your country has a tax treaty with the US that lowers this rate.
