What You Need to Know About Local Taxes for IT Companies in the USA — Legal Talk
IT ClusterMany Ukrainian IT companies are either conducting business or planning to expand their presence in the American market. Therefore, there is an urgent need to deeply examine how to interact with American legislation and taxation systems. On November 17, a Legal Talk took place on the topic “Local Taxes for IT Companies in the USA: Analyzing Blind Spots for Operating and Opening an IT Company.”
The speaker of the event:
⭐️ Oksana Kobzar, Head of Legal INSART, Head of Legal Kharkiv IT Cluster.
The speaker addressed issues related to the main taxes and requirements for IT companies in the USA, explained how the “Nexus” tax works, and highlighted common mistakes that can be made when opening an IT company in the USA, providing a deeper understanding of this complex topic.
In the United States, there is a unique taxation system that includes three levels: federal tax, state-level tax, and local tax.
Federal Tax
Federal taxes are collected by the Internal Revenue Service (IRS) according to the Internal Revenue Code, regulating federal-level taxation. It’s important to note that the IRS does not regulate state-level taxes. Federal taxes apply to income at the national level.
Specialized consultations and regulations from the federal tax service cover only federal tax law. Tax law experts may specialize in either federal or state taxes, affecting their ability to provide limited information.
State-Level Tax
Each state has its own rules and rates for its state-level tax. Therefore, information about these taxes must be obtained directly from the tax departments of the respective states.
Local Tax
In addition to federal and state taxes, some local governments may impose their own local taxes, which must also be considered when planning tax compliance.
The risk of avoiding state taxes is significant, as it can lead to negative consequences. The corporate federal tax is 21%, paid by legal entities with C Corporation status.
Consideration of applicable local taxes is also a crucial element of corporate taxation. This tax system is complex, and even small companies must carefully adhere to tax rules and standards at the federal and state levels.
“Maintaining business in the States requires ensuring that all aspects of your company comply with local laws,” the speaker shared.
Important!
- If you already have a company in the States, it is recommended to conduct a check to ensure everything is in order with your business. If you plan to open a company in the States, it’s crucial to plan in advance who will handle accounting and choose an excellent CPA, as this can take a significant amount of time. When selecting a CPA, it is advisable to clarify all aspects related to serving clients in different states, including tax obligations and other legal issues.
- Additionally, it’s essential to note that criteria for conducting business may vary from state to state. For IT companies, it’s important to consider the absence of physical presence in some states, as this can impact legal issues and taxation.
“We recommend checking the states where your clients are located and where your company’s employees are based to timely identify all necessary aspects for successful business operations in the United States.”
📹 If you were unable to join the meeting in person or want to review the event and learn more about taxes in each state, follow the link. The Kharkiv IT Cluster YouTube channel has a recording of the meeting.
We would like to express sincere thanks to our speaker, Oksana Kobzar, Head of Legal INSART, Head of Legal Kharkiv IT Cluster, for supporting our Legal Talk event and facilitating the webinar.
ℹ️ Legal Talk is implemented by Kharkiv IT Cluster with the support of the USAID program “Competitive Economy of Ukraine” and serves as a platform for professional discussion, promoting an understanding of the importance of balancing banking requirements and business rights in the IT sector.
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