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Bank account in America and Taxation Hi, I run a small

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Bank account in America and...
Bank account in America and Taxation

Hi,

I run a small software company in New Delhi. Currently we get all our payments via Paypal. Anyway, lately RBI (reserve bank of India) has made some very strict rules about the number of transactions, amount, etc because of which we want to open up a bank account in America and then wire transfer the money from it to our Indian bank account?

1) Will we have to pay taxes in America for this income?
2) If we pay taxes in America, will we have to pay again in New Delhi?

Please advice

Thanks!

P.S. To open a bank a/c I've learned we are required to open a LLC and get a TIN # (since individuals outside US cannot open a bank account).
Submitted: 6 years ago.Category: Tax
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11/3/2011
Tax Professional: CGCPA, CPA replied 6 years ago
CGCPA
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Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

If you form a US based LLC, that LLC will be able to open a US bank account. It will be obligated to file tax returns in the US and, yes, there will be US tax returns due from the owners of the LLC. The LLC itself will not owe taxes but will only have a reporting requirement. The reporting is required to reflect the totality of the financial activities of the LLC and the distribution of US based profits to the members of the LLC.

You will also need to report and pay taxes on the income in India. However, the tax treaty between the two countries provides for a credit to be claimed on the India returns for the taxes paid to the US so as to avoid/minimize double taxation. Here is a link to the tax treaty between India and the US. Paragraph 25 provides for the relief from double taxation.

http://www.irs.gov/businesses/international/article/0,,id=169600,00.html

To help you better understand the tax reporting here in the US I am also including the following statement from the Internal Revenue Service about LLC taxation. Since you are not US residents/citizens the S Corporation filing will not be permitted and the partnership filing will be needed. The forms and instructions can be viewed on line at the IRS web site which is www.irs.gov The main form is form # XXXXX The TIN application can also be obtained at that web site. The article below also contains links you may find useful. I recommend that you print the article as well as the tax treaty in their entirety for your records.


<table border="0" cellspacing="0" cellpadding="0">



Limited Liability Company (LLC)










A Limited Liability Company (LLC) is a business structure allowed by state
statute. LLCs are popular because, similar to a corporation, owners have limited
personal liability for the debts and actions of the LLC. Other features of LLCs
are more like a partnership, providing management flexibility and the benefit of
pass-through taxation.

Owners of an LLC are called members. Since most states do not restrict
ownership, members may include individuals, corporations, other LLCs and foreign
entities. There is no maximum number of members. Most states also permit "single
member" LLCs, those having only one owner.


A few types of businesses generally cannot be LLCs, such as banks and
insurance companies. Check your state's requirements and the federal tax
regulations for further information. There are special rules for foreign
LLCs.


Classifications


The federal government does not recognize an LLC as a classification for
federal tax purposes. An LLC business entity must file a corporation,
partnership or sole proprietorship tax return.


An LLC that is not automatically classified as a corporation can file Form
8832 to elect their business entity classification. A business with at least 2
members can choose to be classified as an association taxable as a corporation
or a partnership, and a business entity with a single member can choose to be
classified as either an association taxable as a corporation or disregarded as
an entity separate from its owner, a "disregarded entity." Form 8832 is also
filed to change the LLC's classification.


Effective Date of Election


The election to be taxed as the new entity will be in effect on the date the
LLC enters on line 8 of Form 8832. However, if the LLC does not enter a date,
the election will be in effect as of the form's filing date. The election
cannot take place more than 75 days prior to the date that the LLC files Form
8832 and the LLC cannot make the election effective for a date that is more than
12 months after it files Form 8832. However, if the election is the "initial
classification election," and not a request to change the entity classification,
there is relief available for a late election (more than 75 days before the
filing of the Form 8832).


References/Related Topics


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