(UNITED STATES) — A Limited Liability Company (LLC) is a state-law business entity that can give you liability protection and flexible U.S. tax treatment, but the tax result can change sharply based on who owns it and which IRS elections you file.
Immigrants and foreign founders often pick LLCs because they are widely available in the United States, can be owned by non-U.S. persons, and can be taxed in more than one way. That flexibility is helpful. It can also create filing traps.
What you’ll need before you form an LLC
Gather these items first. Doing so speeds up formation and reduces tax and immigration risk.
- Your intended ownership plan (1 member vs 2 members or more)
- Your immigration status and what work is permitted day-to-day
- A state choice for formation (often your home state; sometimes Delaware)
- A registered agent with a physical in-state address
- A basic operating agreement outline (even for a single-member LLC)
- A plan for an EIN and banking (SSN or ITIN questions may come up)
- A tax classification plan (default vs Form 8832 or Form 2553)
Step-by-step: How to form an LLC (state basics)
LLCs are created under state law, not federal law. You form the entity by filing with the state’s Secretary of State (for example, the Delaware Secretary of State or the California Secretary of State).
- Choose a compliant name
Check naming rules and availability in your state. Some states allow or require name reservation. -
Appoint a registered agent
Every state requires one. The agent receives legal notices and must be reachable during business hours. -
File Articles of Organization
File online or by mail, depending on the state. Once accepted, the state issues confirmation that your LLC exists. -
Draft an operating agreement
Many states do not require it, but banks, investors, and co-founders often do. Put voting, profit sharing, and management roles in writing. -
Get an EIN from the IRS
An EIN is commonly needed for banking, payroll, and federal tax filings. Foreign owners may need extra steps if they do not have an SSN. -
Register for state taxes and local licenses
Sales tax permits, payroll accounts, and city licensing can apply depending on your activity.
State formation and ongoing compliance (sidebar)
| State | Initial Filing/Formation | Ongoing Filing | Typical Fees |
|---|---|---|---|
| Delaware | File LLC formation documents with the Delaware Secretary of State | Ongoing state requirements vary by activity | Varies |
| California | File LLC formation documents with the California Secretary of State | Statement of Information; minimum franchise tax | $800/year |
| Washington | Form LLC with the state | Initial report and annual reporting | Varies |
| Mississippi | Form LLC with the state | Annual statement filing window | Varies |
How LLCs are taxed: defaults, elections, and why it matters
Federal tax treatment usually follows IRS “check-the-box” regulations. The same legal LLC can be taxed as a disregarded entity, a partnership, a C-Corporation, or an S-Corporation. Your immigration status does not determine the tax result — ownership and elections do.
Default federal tax classifications (no election filed)
- Single-member LLC (1 member)
By default, it is a disregarded entity for federal income tax. Business income is typically reported on Form 1040 (or Form 1040-SR) using Schedule C, E, or F, depending on the activity. -
Multi-member LLC (2 members or more)
By default, it is taxed as a partnership. The LLC files Form 1065, and the members report their shares on their own returns.
Elections: changing your LLC’s tax status
You can choose corporate-style taxation, but it requires filings:
- C-Corporation election: file Form 8832
- S-Corporation election: file Form 2553 (if eligible)
Important S-Corporation limits for immigrants and foreign founders:
- Maximum 100 owners
- Non-resident alien owners are not allowed as S-Corporation shareholders
The 60-month limitation rule
Once you change classification, you generally cannot change it again for 60 months without IRS approval. That is 60 months of being “stuck” with the choice. Plan before you file.
Compare tax treatment by LLC classification
| Classification | Default Federal Tax Status | IRS Forms | Notes on Eligibility |
|---|---|---|---|
| Single-member LLC (no election) | Disregarded entity | Form 1040 or Form 1040-SR (Schedules C/E/F) | Common for solo founders; still separate for some payroll/excise taxes |
| Multi-member LLC (no election) | Partnership | Form 1065 | Standard default for 2 members and up |
| LLC taxed as C-Corporation | Corporation | Form 1120 | Elected using Form 8832; may cause entity-level tax |
| LLC taxed as S-Corporation | S-Corporation | Form 1120-S | Elected using Form 2553; non-resident alien owners not permitted; max 100 owners |
Foreign owners: U.S. source rules, ETOB withholding, and Form 5472
Foreign ownership can change what gets taxed in the United States, even if you formed the LLC in a U.S. state.
- Start with sourcing and activity location. In many cases, a non-resident alien is taxed mainly on U.S.-source income and income that is effectively connected to a U.S. trade or business (ETOB). Foreign-sourced income from services performed outside the United States may be treated differently than U.S.-source income. Facts drive the result—small details matter.
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ETOB can create withholding duties. If a partnership has a foreign partner and the business is engaged in a U.S. trade or business, the LLC may have a withholding obligation on the foreign partner’s share. One common figure discussed for this scenario is 35%, often handled through quarterly payments and related filings.
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Foreign-owned single-member LLC reporting is a major trap. Even when the LLC is a disregarded entity for income tax, a foreign-owned single-member LLC generally must file Form 5472 with the IRS as an information return. Penalties for non-compliance can be severe, including $25,000 in many cases.
✅ If you are a non-resident foreign owner: assess whether U.S. source income or U.S. trade or business activities apply, and determine withholding and filing requirements (e.g., Form 5472, ITIN considerations).
- Cross-border tax still matters. Your home-country tax rules may tax LLC profits, management fees, or distributions even when U.S. tax is limited. A tax treaty may help, or it may not apply to your situation.
Self-employment tax: a common surprise for new founders
Many LLC members are treated as self-employed for U.S. purposes. That can mean Social Security and Medicare taxes through self-employment tax.
- Residency for tax purposes matters. U.S. citizens and many U.S. tax residents typically cannot “avoid” U.S. reporting by using an LLC.
- Non-resident aliens may have different results depending on ETOB and sourcing.
2025 tax law changes that can affect LLC planning
Tax rules change often, and entity choices can lock you in for 60 months.
A major package signed on July 4, 2025 made several provisions permanent that LLC owners often care about:
- The Qualified Business Income (QBI) deduction: up to 20% of net business income for eligible taxpayers
- 100% bonus depreciation for qualifying purchases
- Section 179 expensing limits increased and made permanent
- Inflation indexing for tax brackets
These changes may affect whether you prefer default pass-through treatment or an election. The best choice depends on your income, payroll plans, and owner residency.
Immigration status and LLC activity: formation is not the same as “working”
Forming an LLC is often legally allowed even without employment authorization. Running it day-to-day can be different.
Use these checkpoints before you start operating:
- Confirm what “work” means for your immigration status
Passive ownership is not the same as active management. -
Match your activity to your category
– H-1B: Side ventures may be possible, but active work can violate status if not structured correctly.
– F-1 (OPT/STEM-OPT): Activity must fit program rules and authorization.
– E-2: Commonly used for founders from treaty countries who invest and direct the enterprise.
– L-1: Can be used for intracompany transfers tied to a qualifying foreign company.
- Set governance roles in the operating agreement
Define who manages. Write it down. It can matter later. -
Align tax filings with real operations
IRS filings should match the actual facts, including where services are performed.
⚠️ Consult qualified immigration and tax professionals before forming or restructuring an LLC, especially for foreign nationals navigating visa restrictions and complex tax obligations.
What to do next (short checklist)
- Decide whether you will have 1 member or 2 members at launch.
- Pick a tax path: default treatment, Form 8832, or Form 2553 (if eligible).
- If any owner is foreign, plan early for Form 5472, possible ITIN needs, and ETOB withholding exposure.
- Put the operating agreement in place before money moves. Then file and stick to the recordkeeping.
This article discusses tax and immigration considerations related to LLCs for immigrants and foreign founders. It is not legal or tax advice.
Readers should consult qualified immigration and tax professionals to address their specific circumstances.
This guide explains the formation and taxation of U.S. LLCs, specifically for immigrants and foreign founders. It covers the necessity of choosing between default and elected tax statuses, such as C-Corp or S-Corp, and highlights the 60-month restriction on changing these elections. Additionally, it addresses critical compliance areas like Form 5472 for foreign owners, self-employment taxes, and the intersection of business activity with immigration visa restrictions.
