Application for an ITIN & EIN • Formation of LLC
Application for an ITIN
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS). The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).
ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code. Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception. ITINs are for federal tax reporting only, and are not intended to serve any other purpose. IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs). IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN. Other examples of individuals who need ITINs include:
◦A nonresident alien required to file a U.S. tax return
◦A U.S. resident alien (based on days present in the United States) filing a U.S. tax return
◦A dependent or spouse of a U.S. citizen/resident alien
◦A dependent or spouse of a nonresident alien visa holder
Application for an EIN
An Employer Identification Number (EIN) is a nine-digit number that IRS assigns in the following format: XX-XXXXXXX. It is used to identify the tax accounts of employers and certain others who have no employees. The IRS uses the number to identify taxpayers that are required to file various business tax returns. EINs are used by employers, sole proprietors, corporations, partnerships, non-profit associations, trusts, estates of decedents, government agencies, certain individuals, and other business entities. Use your EIN on all of the items that you send to the IRS and the Social Security Administration (SSA). You should have only one EIN for the same business entity. If you represent a foreign business entity (Company) and you plan to do business in the USA, you might need an EIN for your company. The IRS will send you the corresponding EIN in 4 to 6 weeks since they received the application.
FORMATION OF LLC
A “Limited Liability Company,” or “LLC,” is a Type of Entity (company) which is often described as a hybrid between a Corporation and a Partnership. The LLC features the liability protection of a Corporation, in that the liability of all members is limited to their investments in the LLC, unless they personally guarantee other debt incurred by the LLC, but is more flexible in respect to management structure and is usually considered to offer greater ease of administration.
How are LLC’s Managed?
The management of a Delaware LLC is almost unlimitedly flexible. Delaware LLC’s can be managed by the Members (owners) or by Managers (employees or agents who do not hold an ownership stake in the company). Members can be divided into classes or can all hold the same voting rights or entitlements. Any degree of restrictions or rights can be assigned to a Member, Manager or Class of Members.
How are LLC’s Taxed by the IRS?
The LLC is the most flexible entity currently in existence. LLC’s can be taxed several ways. A one-Member LLC is, by default (unless the LLC elects otherwise), taxed by the IRS as a “Disregarded Entity”; which means the profits and losses of the LLC are reported on the Member’s personal income tax return and no Corporate Income Tax return is filed. An LLC with two or more members is taxed, by default, as a Partnership, which is also taxed as a Disregarded Entity: taxable income and losses “Pass Through” to its members. Although the income and losses are reported on each partner’s personal income tax return, a partnership must also file an informational report, form 1065 and Schedule K-1. An LLC may also be eligible to elect to be taxed as an S-Corporation. An LLC may even be eligible to elect to be taxed as a C-Corporation, if it desires. A C-Corporation may be taxed at a higher rate, but some Member’s prefer to fully deduct Health Insurance and Life Insurance Benefits as the Owner-Employee of a C-Corporation may do.
How are LLC’s Taxed by the Secretary of State of Delaware?
LLC’s pay a flat tax of $250 annually to the Secretary of State of Delaware to maintain their Delaware Charter. This tax has no relation to assets, income or activity level. The Delaware LLC tax is due before June 1st each year and is never pro-rated for any reason. If the Delaware LLC Tax is not received by the Secretary of State by the last day of March, a $200 penalty is assessed with 1.5% interest per month. If the LLC Tax is not paid for consecutive years, the Delaware Charter is declared VOID; the company becomes invalid and has no right to transact business or investments as an LLC.
Advantages of Delaware LLC’s
As of December 1997, all states, plus the District of Columbia, have passed laws governing the administration and operation of LLCs within their jurisdictions. But Delaware LLC’s do possess some unique benefits:
◦One person LLC’s are permitted by Delaware statute.
◦ Delaware LLC’s may have perpetual life, this means the company’s Charter does not “expire”.
◦Delaware LLC’s may be registered without including the names of the Members/Managers and are not required to file an Annual Report.
What are the advantages of operating as an LLC for non-resident non-citizens?
◦A Non-Resident Alien (NRA) usually is only subject to U.S. Income Tax on U.S. Source Income (please follow link for a table). Generally foreign source income received by a nonresident alien is not subject to U.S. taxation. Therefore, a non-resident non-citizen with no Operations (no business activity, no employees) within the US, and no property in the US, pays no US Federal Income Tax. Furthermore, if your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are not considered engaged in a trade or business in the United States.
◦A Delaware LLC is not required to disclose the names of the Members on the Certificate of Formation and does not file an Annual Report in Delaware. The identity of the Members is not public record.
◦ The Delaware Limited Liability Company Act does not require that a limited liability company agreement be in English.
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