Want to Start a Business in the U.S.? Must-Know Tax Tips!

Everything You Need to Know About U.S. Corporate Taxation Before Starting a Company in America

As globalization accelerates, more and more Chinese entrepreneurs and investors are setting their sights on overseas markets-particularly the United States, one of the world’s largest economies. For those planning to establish a business in the U.S., tax considerations rank among the most critical factors alongside legal structure and operational models.

Recent media reports indicate that new business registrations in the U.S. surged by over 12% year-over-year in the first quarter of 2025, with a significant portion backed by Asian investors. Despite cultural and institutional differences, the U.S. remains a top destination for global entrepreneurs. However, managing a company successfully without understanding the local tax system is like riding blindfolded-risky and unsustainable.

I. The Basic Structure of the U.S. Tax System

The U.S. tax framework is complex, structured into three main levels federal, state, and local taxes. Key tax obligations for U.S.-registered businesses include

1. Federal Income Tax

This is the primary tax on corporate profits. Traditional C Corporations C Corps are subject to federal income tax under the Internal Revenue Service IRS guidelines. Since the 2017 Tax Cuts and Jobs Act, the flat rate has remained at 21%, making the U.S. an attractive jurisdiction for foreign investment.

2. State Income Tax

Tax rates vary significantly across states. For example, California imposes a maximum corporate income tax rate of up to 8.84%, while Texas does not levy a corporate income tax but may impose gross receipts taxes. Location choice should factor in these state-level tax burdens.

3. Sales Tax

There is no national sales tax in the U.S. Instead, each state sets its own rules. Businesses involved in selling goods or services must collect and remit sales tax based on both their location and the customer's state. Several states, including New York and Illinois, have recently tightened enforcement on e-commerce platforms to ensure fair taxation.

4. Employment Taxes

If your business hires employees in the U.S., you must pay Social Security, Medicare, and unemployment taxes. These are typically shared between employer and employee, but employers are legally required to withhold and remit them.

II. Impact of Business Structures on Taxation

When registering a company in the U.S., entrepreneurs can choose from several legal structures, each with distinct tax implications

Limited Liability Company LLC

An LLC itself does not pay federal income tax. Profits and losses pass through to the individual owners' personal tax returns, avoiding double taxation. This structure is ideal for small to medium-sized enterprises.

S Corporation S Corp

Like an LLC, an S Corp is a pass-through entity. However, it comes with restrictions on shareholder numbers and share classes, making it suitable for closely held companies seeking tax efficiency.

C Corporation C Corp

Best suited for large corporations or those planning to raise capital or go public. While subject to double taxation-at the corporate level and again when dividends are distributed-C Corps offer advantages in fundraising and investor appeal.

Branch Office of a Foreign Company

A U.S. branch of a non-U.S. company is taxed on its U.S.-source income and may face stricter regulatory scrutiny. Choosing the right structure depends on business goals, ownership plans, and tax strategy.

III. Common Tax Incentives and Key Considerations

To encourage investment and job creation, the U.S. offers various tax incentives

RD Tax Credit

Encourages innovation by allowing qualifying companies to reduce their federal tax liability based on eligible research expenditures.

Opportunity Zone Fund

Investors can defer or even eliminate capital gains taxes by investing in designated economically distressed areas.

Small Business Tax Deductions

Certain expenses such as equipment purchases or office renovations may be fully deductible in the year they occur.

In addition, the IRS has intensified oversight on cross-border transactions. According to updated guidance issued in early 2025, all companies engaged in international financial flows must provide detailed disclosures to prevent offshore tax evasion.

IV. Ensuring Tax Compliance and Strategic Planning

For newcomers entering the U.S. market, maintaining tax compliance is crucial. Here are key recommendations

1. Hire a Professional Accountant or Tax Advisor

U.S. tax law is intricate. Experienced professionals can help avoid pitfalls and optimize your tax position.

2. Use Accounting Software

Tools like QuickBooks or Xero streamline bookkeeping and ensure timely filing of tax obligations.

3. Conduct Regular Audits and Update Financial Statements

Maintain transparent, accurate records to meet annual reporting and quarterly tax requirements with confidence.

4. Stay Updated on Tax Law Changes

U.S. tax policy evolves frequently, especially following federal budget announcements. Proactive awareness helps ensure timely adaptation.

Conclusion

The United States remains one of the world’s most dynamic business environments, drawing entrepreneurs from around the globe. Yet amid the pursuit of opportunity, the complexity of the U.S. tax system cannot be underestimated. A thorough understanding of the tax landscape-and proactive planning-is essential for long-term success. Only by navigating this terrain wisely can foreign businesses truly thrive in the American market.