What Are Taxes in the United States? Essential Guide for Entrepreneurs and Foreign Businesses

If you're planning to expand your business to the United States or open an LLC from Latin America, it’s crucial to understand one of the most important aspects of operating legally in the country: taxes.

Whether you sell physical products, offer services, or generate online income, paying taxes properly is key to avoiding penalties and keeping your business in good standing.

What Does "Taxes" Mean in the U.S.?

In the United States, “taxes” refer to the payments individuals and businesses are required to make to the government at the federal, state, and sometimes local levels. These taxes fund public services such as roads, education, healthcare, defense, Social Security, and more.

Unlike in many other countries, the U.S. tax system is not centralized—each state has the authority to establish its own rules, rates, and tax obligations in addition to federal regulations.

Main Types of Taxes in the U.S.

Here are the most common types of taxes you should know if you're operating or planning to operate a business in the U.S.:

1. Federal Income Tax

This is the most important and mandatory tax for both individuals and businesses generating income in the U.S.

• For individuals (freelancers, sole proprietors): progressive rates between 10% and 37%.
• For corporations and LLCs taxed as corporations: flat rate of 21%.

2. State Income Tax

Not all states charge this tax. States like Texas, Florida, and Wyoming do not have state income tax, making them attractive for foreign entrepreneurs. In states where it applies, it’s an additional cost to consider.

3. Self-Employment Tax

If you operate as a freelancer or own a single-member LLC, you’re responsible for this tax, which covers your contributions to Social Security and Medicare. The current rate is 15.3% of your net earnings.

4. Sales Tax

This is a state-level tax applied to the sale of physical products (and sometimes services). Rates vary depending on the state and city—from 0% up to over 10%.

Example: If you sell physical goods online, you might need to collect sales tax from customers in certain states.

5. Payroll Taxes

If you have employees in the U.S., you must withhold taxes from their salaries and also contribute as an employer. This includes Social Security, Medicare, and other federal and state withholdings.

6. Franchise Tax

Some states, like Delaware and Texas, charge a yearly franchise tax simply for being registered and operating in their jurisdiction. This has nothing to do with traditional business franchises.

What Forms Are Used?

Here are the most common tax forms used in the U.S.:

• Form 1040: For individuals, freelancers, and sole proprietors.
• Form 1120: For corporations.
• Form 1065: For partnerships.
• Form 1099: To report payments made to contractors.
• Form W-9: To collect taxpayer info from contractors or suppliers.

Who Needs to Pay Taxes in the U.S.?

You don’t need to live in the U.S. to have tax obligations. If your LLC is registered in the U.S. and generates income within the country, you’ll likely need to report to the IRS—even if you live abroad.

This applies especially if:

• You have U.S.-based clients.
• You sell on platforms like Amazon, Etsy, or eBay.
• You use Stripe or PayPal with a U.S. business address.
• You hire employees or freelancers in the U.S.

How to Calculate Your Business Taxes

The exact calculation depends on your business structure, the state your business is registered in, and your income/expenses. But in general terms:

1. Calculate your total revenue
2. Deduct eligible business expenses (like software, services, transportation)
3. Get your net income
4. Apply the appropriate tax rate

That’s why it’s so important to maintain clear accounting records and work with a CPA experienced in foreign-owned businesses.

Why Should You Pay Your Taxes Properly?

✅ Access to U.S. bank accounts and financial services
✅ Avoid IRS fines and legal issues
✅ Build trust with clients and investors
✅ Become eligible for business loans or financing
✅ Create a solid financial track record

What Happens If You Don’t File Taxes?

Failing to file or pay your taxes can result in automatic fines, issues with your U.S. bank, being blocked from using payment platforms, and in serious cases, legal actions or business closure.

Paying taxes in the U.S. doesn't have to be complicated if you have the right information and trusted partners. As a Latin American entrepreneur or business owner, staying compliant helps you grow safely and take full advantage of the U.S. market.

At Openbiz, we support you every step of the way—from forming your company and obtaining your EIN to handling your monthly bookkeeping and tax filings.

Get in touch today and make sure your business is fully compliant, backed by a team that speaks your language.

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