If there’s one word that can send anyone into a panic, it’s “taxes.” You can add an extra layer of anxiety when you have to handle the tax liability for a business. But we enter a whole new world when it comes to navigating taxes in an entirely different country.
While expanding into the U.S. can mean great things for your U.K.-based business, all the profit and growth in the world doesn’t make tax season any easier. Before you even learn what you’ll owe, you first have to get a grip on the different tax terms that your accountant may throw at you.
That’s why we’re taking you through some of the common U.S. tax terms so you can head into tax season without blowing a gasket.
Common tax terms in the U.S.
While we’re going to make this as simple to understand as possible, consider this your heads-up: U.S. taxation language involves a lot of acronyms and numbers.
IRS
The U.S. Internal Revenue Service, equivalent to the U.K.’s HM Revenue & Customs, is responsible for administering and enforcing U.S. federal tax code.
EIN
This is your employer identification number. You’ll file to receive this number once you incorporate your business in the U.S.
Your EIN is required to allow you to:
- Hire employees
- Operate as a partnership or corporation
- Pay sales or excise tax
- Administer certain retirement plans and estates
Tax Return
Your tax return is a form filed through the IRS that reports your income, expenses, and the amount of tax liability you or your business owes. As an incorporated business, you’ll typically file this annually, even if your business structure requires you to pay quarterly taxes.
Payroll Tax
Payroll tax covers Social Security and Medicare (FICA) and is taken out of your employee’s wages each pay period. Rates can vary depending on who pays these taxes.
- Businesses with employees pay 12.4% total, split evenly between employers and employees at 6.2% each
- Employers pay federal unemployment at 6% of an employee’s taxable wages
- Self-employed people pay 15.3% of their net profits
W2 forms
Wage and tax statements show an employee’s earned income and employer-withheld taxes. You must file W2s for each of your employees with the Social Security Administration and provide a copy to each employee.
1099 forms
1099 forms report non-employees income paid throughout the tax year. You’ll use these for those on your payroll who you don’t withhold taxes from, such as contractors and freelancers.
Income tax
These are federal, state, and local taxes that you’ll personally owe each quarter or year. The rates vary based on income and can apply to your wages, dividends, interest, and other income you earn during the tax year.
Reporting taxes as a small business
Depending on your business structure, you’ll have to worry about a few forms:
- Form 1120-F: As a foreign corporation, you’ll file this form to figure out your U.S. income tax liability and report your income, gains, losses, deductions, and credits.
- Form 1065: If you’re structured as a partnership, you’ll file this form to report the same financial data as an 1120-F.
- Schedule C: You’ll file this form to report income or loss from a business you operated.
Tax deductions and credits
You can use tax deductions and credits to lower your tax or increase your refund. The IRS keeps close track of these, so you’ll want to have a clear paper trail to prove you qualify for these in case of an audit. (If you lost a few receipts along the way, there are still ways to claim deductions.)
Deductions
Tax deductions reduce your amount of taxable income. As a business, these can include items like:
- Rent expenses
- Phone and internet costs
- Contract labor
- Health insurance premiums
Credits
Tax credits reduce your amount of tax due. As a small business, you can take advantage of several credits that relate to:
- Work opportunities
- Increasing research activities
- Sustainability efforts
- Paid employee leave
Retirement accounts
As the name implies, these are financial accounts that set aside part of an employee’s wages to accrue interest for the future. Employees can choose between different types of retirement accounts, with some being more common than others.
401(k)s
A 401(k) is a type of workplace retirement plan that lets employees contribute a portion of their wages to an individual account.
- Traditional 401(k): Contributions are made from pre-tax earnings, so withdrawals are taxed.
- Roth 401(k): Contributions are made from earnings after taxes are taken out, so withdrawals are tax-free.
Both types of 401(k) are only available through employers. As an employer, you can choose to match a percentage of your employee’s contributions, up to 25% of their income. All the money you match is 100% tax deductible and will affect the numbers you report during tax season.
BOI reporting
This requires most companies in the U.S. to report information about their beneficial owners to the FinCEN.
If you established your business in 2024, you must file within 90 days of receiving your incorporation. If you create your business after January 1, 2025, or need to report changes to your business, you only have 30 days to file.
Good news, though!
Due to a recent court filing, BOI reporting is currently suspended, meaning you don’t have to worry about reporting or dealing with any penalties – although we do recommend staying compliant in case things change last minute. With the Department of Justice appealing, this may change, and we’ll keep you posted with updates.
File your taxes with finesse
Clearly, U.S. tax language involves a lot of numbers to remember. 1099 and 1065 and 1120-F…is your head spinning?
The hard truth is that, even if you think you’ve filled out all the proper forms and reported to all the correct regulatory bodies, one accidental misfiling can get you smacked with heavy financial and legal penalties.
We’re here to help. Hiline’s dedicated U.S. Expansion Team works with you to ensure you’re compliant with all federal, state, and local tax liabilities and payroll regulations. From setting up your business in the U.S. and prepping your taxes to advising on your financial strategy, you can rely on us to handle all your financial needs.
Let’s partner to scale your business for U.S. success.
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