A practical guide for non-U.S. founders, ecommerce sellers, consultants, and foreign companies using a U.S. LLC (Wyoming/Delaware/Colorado/etc.).
Educational only (not legal or tax advice). Your result depends on facts (where work is performed, where inventory sits, who is acting for you in the U.S., contracts, and state nexus).
The “big idea”: A U.S. LLC does not automatically mean U.S. income tax
Foreigners often hear “You have a U.S. LLC, so you must pay U.S. tax.” That’s not how U.S. tax works.
The U.S. generally taxes non-U.S. persons on:
- U.S.-source passive income (FDAP) (often collected through withholding), and/or
- Effectively Connected Income (ECI) — business income connected to a U.S. trade or business.
If you operate from outside the U.S., perform services outside the U.S., and have no meaningful U.S. business activity, you may owe $0 U.S. federal income tax — but still have filing obligations.
Quick self-check: most common “foreign-owned U.S. LLC” scenarios
Scenario A — “I run everything from outside the U.S.”
Examples:
- Dropshipping: you manage sourcing/ads/customer support from abroad; suppliers ship from China/UK/EU; no U.S. staff/office.
- Online services: coaching, consulting, software support performed entirely abroad.
- U.S. LLC used mainly for Stripe/PayPal/banking convenience.
Common outcome (federal): Often no U.S. income tax, but U.S. information returns may still be required.
Scenario B — “We have a U.S. person working for us (even as a contractor)”
Examples:
- A U.S.-based “general manager” negotiating contracts, running operations, or acting as your ongoing U.S. business presence.
Risk: This can create U.S. trade or business / ECI exposure (and state tax exposure too). This is where “it depends” becomes real.
Scenario C — “We have U.S. inventory / warehouse / fulfillment”
Examples:
- Amazon FBA inventory in U.S. warehouses
- A U.S. 3PL shipping your products
Risk: U.S. nexus and U.S. trade or business arguments become more likely, and state sales tax issues often show up first.
FAQ 1) “If I’m not a U.S. resident, do I automatically pay 0% U.S. tax?”
No — nonresident doesn’t mean “never taxed.” It means you are generally taxed only on certain U.S.-connected categories (FDAP/ECI).
Many foreign-owned LLC owners owe no U.S. income tax because their facts don’t create ECI and their income isn’t U.S.-source FDAP.
But the U.S. can still require information filings even when tax due is zero.
FAQ 2) “Does having a U.S. LLC, U.S. bank account, or Stripe automatically create U.S. income tax?”
Usually, no. A U.S. entity/bank/payment processor is not, by itself, what creates U.S. income tax.
What matters more:
- Where the work is performed (services)
- Whether there are U.S. employees/agents doing core revenue-generating work
- Whether there is U.S. warehouse/office presence
- Whether contracts and operations are effectively being carried on in the U.S.
FAQ 3) “Which return do I file: 5472, 1065, 1120-F, 1040-NR?”
It depends on (1) your LLC’s tax classification and (2) who owns it.
A. Foreign-owned single-member U.S. LLC (disregarded entity)
Most common filing:
- Form 5472 + “pro forma” Form 1120 (information return package)
Why it exists: the IRS treats many foreign-owned disregarded entity reporting rules through the Form 5472 framework.
B. Foreign-owned multi-member U.S. LLC (default partnership)
Most common filing:
- Form 1065 (partnership return)
- Partner statements like K-1, and often international schedules (commonly K-2/K-3 depending on facts)
Even if you owe no U.S. income tax, the partnership often still has filing obligations.
C. The owner is a foreign corporation (e.g., UAE/Lithuanian/Chinese company)
Possible filings (fact-dependent):
- 1120-F (U.S. Income Tax Return of a Foreign Corporation) if the foreign corporation has U.S. ECI or files protectively
- Plus U.S. entity-level information filings (like 5472 packages) for the U.S. LLC(s), where applicable
FAQ 4) What exactly is Form 5472 for foreign-owned LLCs?
Form 5472 is an information return used to report “reportable transactions” between the U.S. entity and related parties (often the foreign owner or foreign affiliates).
Typical reportable transactions include:
- Owner funding/contributions
- Distributions/withdrawals
- Intercompany payments
- Loans between owner and LLC
- Payments made on behalf of each other
It is generally filed annually for each tax year where reportable transactions exist, attached to a pro forma Form 1120.
Due date
The Form 5472 package is due the same date as the income tax return it is attached to (including extensions).
Extension
A timely extension is typically requested using Form 7004 (where applicable to your filing posture).
How it’s filed
For foreign-owned U.S. disregarded entities, the IRS instructions have historically required specific submission procedures; notably, the instructions state that a foreign-owned U.S. disregarded entity may not file Form 5472 electronically.
FAQ 5) “I’m late. Is the penalty really $25,000?”
Potentially, yes.
The Form 5472 instructions describe a $25,000 penalty regime tied to failures to file or failures to maintain/furnish required information, and additional penalties can apply if the failure continues after IRS notice.
Real-world note
Enforcement patterns can vary. But do not assume “they don’t enforce it.” The safe approach is: file, get compliant, and respond properly if a notice arrives.
FAQ 6) “We got a 5472 penalty notice. What should we do first?”
General best-practice sequence:
- Stop guessing and read the notice carefully
- Confirm what was filed and when
- Respond in writing
- Build a “reasonable cause” record
- Preserve evidence about your preparer
Important: A big avoidable problem in penalty cases is messy documentation (no proof of extension filed, no proof of submission, unclear preparer responsibility, etc.).
FAQ 7) “What if the IRS letter says we ‘agreed’ to pay, but we didn’t?”
This is where careful representation matters. In general, the response often involves:
- Requesting clarification of what the IRS relied on
- Re-stating your position clearly in writing with supporting documentation
- Escalating through the IRS’s administrative channels as appropriate
FAQ 8) “Our return says ‘self-prepared’ but we paid someone. Is that a problem?”
It can be.
If you pay for preparation, you generally want:
- A clearly identified paid preparer
- Proper preparer signature/identifiers where required
- Clean engagement documentation
The IRS specifically recognizes “ghost” or non-signing preparer situations (returns showing “self-prepared” even though someone prepared them) as a form of preparer misconduct concern, and it describes documentation that can substantiate what happened (including evidence such as Form 8879, receipts, emails, etc.).
Practical takeaway: If you offshore U.S. tax prep, your risk isn’t only “wrong numbers.” It’s also bad process that makes disputes harder to win.
FAQ 9) “Stripe will issue me a 1099-K. Does that mean I owe U.S. tax?”
Not automatically.
A 1099-K is an information report about payment processing volume — it is not, by itself, a legal conclusion that the income is taxable in the U.S.
Also, 1099-K rules and thresholds can change. The IRS’s 1099-K FAQ page (updated in late 2025) notes that legislation reinstated the $20,000 and 200 transactions reporting threshold for certain years.
What matters more than the form:
- Your tax status (U.S. person vs non-U.S. person)
- The underlying sourcing/ECI facts
- Whether you should file a protective return to align IRS matching systems with your position
FAQ 10) “What about U.S. sales tax?”
Sales tax is not IRS (it’s state-level), and it’s one of the biggest blind spots for foreign sellers.
Key points:
- You can owe sales tax collection duties even when you owe no federal income tax
- States apply economic nexus rules (thresholds vary by state and can change)
- Tools like sales tax automation software can help track state-by-state exposure, but you still must register where required.
FAQ 11) “What bookkeeping should we have before tax filing?”
If you want clean filings and fewer IRS headaches, treat bookkeeping as step one.
Minimum reports to maintain:
- Profit & Loss (Income Statement)
- Balance Sheet
- General ledger detail (or transaction listing)
- Owner contribution/distribution detail (critical for 5472 reporting)
“App dashboards” are not always true accounting systems. If a platform is auto-categorizing via AI, you still need a human who understands the difference between:
- owner contributions vs revenue,
- distributions vs expenses,
- loans vs capital,
- cost of goods vs operating expenses, etc.
If you want a professional review of your structure, filing obligations (5472/1065/1120-F), and risk areas (U.S. agents, inventory, 1099 matching, sales tax nexus), book a paid consultation here:
https://oandgaccounting.com/appointment-booking-form/
