The understanding of the liability you have with regard to your taxes can be very confusing and hard. You can be fined in the event that you have neglected your taxes, or if they were improperly filed.
Consult a specialist in order to better understand tax procedures with regard to U.S. tax liability in conjunction with German tax liability.
The Employer Identification Number (EIN) or Tax ID
The EIN identification for your company is used to charge you for state and federal taxes.
Furthermore, with regard to most financial institutions, you are not allowed to open an account without an EIN.
Sole Proprietorships without employees are not required to possess an EIN. If a Sole Proprietorship does not have any co-workers, then the Social Security Number of the business owner is used.
If you have an American company that is registered as a Corporation, Partnership, Limited Liability Company, or as a Sole Proprietorship that has employees, you must have an EIN. In the event that you render services, then the owner is also an employee of the Corporation and must pay income taxes.
In the event that you are a new owner of an already existing business, it is important to know that you can use the EIN that was used by the former business owner.
Furthermore, an established company who wishes to expand operations can still use the same EIN for the new operations. A new EIN number is only needed if a business owner wants to establish a new line of business, one in which the purpose of the company changes.
Do not forget that it is important to declare a broad purpose of your business in the Articles of Incorporation or the Articles of Organization, correctly, so that they can be used for future business expansion.
You should fully understand whether you want to be taxed in Germany, whether you want to be taxed as a Shareholder or Member, and how you would like to be taxed with regard to your American company. You should do this in order to achieve the maximum tax benefits in Germany, as well as in the USA.
An employer, that has one or more employees, is liable for withholding federal taxes, state taxes and other applicable taxes, such as income taxes and fees.
Employers are furthermore, responsible for withholding Social Security and Medicare taxes, as well as for fees from their employees income. State and federal unemployment insurance payments must be paid by the employer alone. You cannot take such taxes out of the income of the employees.
Personal Income Tax
As a Sole Proprietor or as a General Partner taxes are paid on the company’s profit, through your personal tax return. This also applies to state and federal taxes. With regard to your personal tax return you must create a schedule in which you supply your company’s earnings and expenditures.
Along with your personal tax return, Partners must also supply a partnership tax return that requires you to record the company’s profits and losses.
Corporations, however, pay taxes on the company’s income on the basis of the Corporate Tax Rate. Shareholders and employees must pay individual taxes as well on received company earnings and dividends.
Furthermore, most companies must supply reliable prospective quarterly reports.
Sales, Use, and Withholding Taxes and Single Business Tax
The regulations with regard to sales and taxes vary by state. It is typically the case that a company or Sole Proprietor, who sells goods, must include a sales tax.
The Single Business Tax is a modified Value Added Tax, which also varies by state. The name of the Single Business tax sometimes varies by state and may also include, for example the Corporate Net Income Tax, the Franchise Tax, the Personal Property Tax.
Self Employment Tax
Company owners, that work for their own company, are taxed on their income as employees, and they must report their income to the proper authorities. You are self-employed if you are a Sole Proprietor or a Partner.
Local taxes are also regulated differently by state. The taxes vary locally, and it is important to understand that they may vary by city, township and county as well.