Business Financial Matters

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1. Business Formation and Registration – Businesses in the U.S. can be formed using several different legal entity types. The most common are: corporations, partnerships, limited liability companies or proprietorships. There are advantages and disadvantages to each type. Businesses looking to establish U.S. operations should consult with an accountant or attorney in the U.S. to determine the optimal legal structure for the business. Businesses are also required to be registered in the various jurisdictions where business operations are located. As part of the formation process, a company selects a calendar (December 31) or fiscal reporting year. Fiscal year reporting is not available for all types of entities.

2. Sales and Use Taxes – In many parts of the world, Value Added Taxes (VAT) are imposed on the transfer of goods and services. In the United States, a system of sales tax is used instead. The rates and requirements vary by location. Each state has its own system for determining the taxability of a transaction, and for reporting and remitting the tax. In some situations, such as online purchases, transaction may be subject to sales tax, but the vendor does not collect the tax. In this case, the buyer is responsible for remitting “use tax” on their own.

3. Income Taxes – Income taxes are imposed by the Federal government, as well as by states and localities. The assessment and payment of tax is dependent on the legal structure the business. The U.S. holds tax treaties with many countries which may impact the reporting of business income.

4. Financial Statements –The U.S. government does not require financial statements prepared by an outside accountant; the tax return generally includes the information required to be reported to the government. Financial statements are required for a company whose stock is listed on an exchange, and are frequently required by lenders as part of the loan compliance. Outside accountants can issue financial statements under different levels of service; compilation, review and audit. U.S.-based businesses typically report under U.S. generally accepted accounting principles, but International Financial Reporting Standards are becoming more common. Closely held business may also opt to report using the tax or cash basis of accounting.

 

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