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What's the purpose of filing a tax extension if you still have to pay by the deadline?
So I'm looking at my calendar and realizing April 15th is coming up fast. I know I can file an extension for my taxes, but I'm really confused about one thing... If I still have to pay what I owe by the original deadline anyway, what's the actual benefit? Like, doesn't that mean I'd need to calculate everything to figure out what I owe by April 15th regardless? If I'm doing all that work anyway, why wouldn't I just finish filing the whole return instead of getting an extension? I feel like I'm missing something obvious here about how extensions work. Is there some advantage I'm not seeing? Or is it really just delaying the paperwork part while still needing to do most of the calculations anyway?
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Setting up an LLC as a foreigner - Tax implications for non-US citizens
Hey everyone, I'm a software developer who's completely tired of the corporate grind and want to venture out on my own. For context, I'm not a US citizen or resident, but I'm looking to establish a company in the US primarily for smoother payment processing and better banking options (the systems in my country are a nightmare to deal with). I'm planning to create a software development LLC that will provide services mainly to clients outside the US, at least initially. My team and I will be doing freelance contracts remotely. From what I've researched online, it seems that forming an LLC in Wyoming or Delaware might mean I wouldn't have to pay US income taxes? But honestly, the information I've found is confusing and sometimes contradictory. I could really use some guidance on the tax and legal implications of this setup. What should I be prepared for? Are there specific requirements or pitfalls I should be aware of as a non-US person establishing a US business entity? Any resources, personal experiences, or advice would be incredibly helpful as I'm really not familiar with US regulations beyond some basic Google searches. For additional context - we're a team of 4 founders, all non-US residents looking to set this up together. Thanks so much for any insights!
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One important consideration that hasn't been mentioned yet - even if your Wyoming/Delaware LLC doesn't owe US federal income tax because you have no US clients or operations, you WILL most likely need to file: 1. Form 5472 (Information Return of a 25% Foreign-Owned US Corporation) 2. Form 1120 (even if it's a zero return) or potentially 8832 + Schedule C on your personal return depending on election Failing to file these, especially Form 5472, results in a $25,000 penalty PER FORM. I learned this the hard way. And the IRS is getting much stricter about foreign-owned LLCs because too many people were forming them without proper compliance.
Thank you for highlighting this! That $25,000 penalty sounds terrifying. Do you recommend using a registered agent service that specializes in foreign-owned LLCs? And did you find any particular state to be easier to deal with than others for the ongoing compliance?
Yes, absolutely use a registered agent that specializes in foreign-owned LLCs - they'll keep you compliant with state requirements and help ensure you don't miss filings. I personally found Wyoming to be slightly easier than Delaware for ongoing compliance as a foreign owner. Wyoming has simpler annual reports and lower fees. Most importantly, work with a US accountant who specifically handles international clients. Regular CPAs often don't understand the nuances of foreign-owned LLCs and may miss critical filings. I'd recommend setting aside at least $1,500-2,000 annually for proper tax compliance services - it's much cheaper than those penalties!
Has anyone considered using a pass-through structure with an offshore holding company instead? My team (all non-US residents) formed a BVI company that owns our Wyoming LLC. This way: 1. The LLC is treated as a disregarded entity 2. We file minimal US paperwork (still need Form 5472) 3. Banking is managed through the Wyoming entity 4. Tax obligations remain primarily in our home countries This creates an additional layer of separation while maintaining the benefits of a US business presence for payment processing.
This is actually a smart structure, but be careful with substance requirements. Many offshore jurisdictions now require real economic substance (office, employees, etc.) to maintain good standing. The OECD's BEPS initiatives have made pure "paper companies" increasingly problematic.
Need advice for my upcoming Canada Domestic Tax secondment - 2 months enough time?
I've been with an accounting firm for almost 2 years working in Audit/Assurance, and I've gotten some exposure to Canadian domestic tax work. Mostly I've dealt with trust returns and had discussions about corporate structures, capital gain strips, and GAAR during client engagements. I just got offered a 2-month secondment with our office's domestic tax group! While I know 2 months isn't super long, I want to make the absolute most of this opportunity to better understand Canadian domestic tax and help me decide if I should stick with audit or make the switch to tax. My manager wants me to tell them what areas I'd like to focus on during the secondment, but honestly, I don't have a comprehensive understanding of everything the domestic tax department handles. I'd love some suggestions on specific areas I should try to get exposure to during my time there! One thing I really enjoy about tax is how each situation requires a unique approach - no cookie-cutter solutions. Every problem makes you really think and use different parts of your skillset. Any advice would be appreciated! Happy to answer questions about my background if that helps with recommendations.
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One area you might want to focus on during your secondment is owner-manager taxation. This is a huge part of domestic tax practice in Canada that involves integration of corporate and personal tax planning. Ask to sit in on meetings with business owners where the tax team discusses compensation strategy (salary vs dividends), timing of distributions, purification strategies for QSBC status, and estate freeze transactions. These areas combine technical knowledge with practical business advice. Also, pay attention to how tax professionals communicate complex concepts to clients who don't have accounting backgrounds. The ability to translate technical jargon into actionable business advice is what separates great tax practitioners from average ones.
That's a great point about owner-manager taxation! I've had limited exposure to this through some of the trust work, but haven't seen the full picture of how it integrates with corporate planning. Is there a particular industry you think would give the best exposure to these concepts during a short secondment?
Professional services firms (doctors, lawyers, dentists) typically offer the richest learning experience for owner-manager taxation because they have more flexibility in their structures than capital-intensive businesses. They often have complex structures with holding companies, family trusts, and professional corporations all working together. Real estate is another good sector if you want to see how capital gains planning works in practice. The strategies used for property developers versus long-term holders are quite different, and you'll learn a lot about timing strategies for triggering gains or losses.
Quick tip: during your secondment, make sure you understand the difference between tax PREPARATION and tax PLANNING. Many firms keep these functions somewhat separate. Tax preparation is more compliance-focused and involves working with historical data to prepare returns accurately. It's detail-oriented but can be repetitive. Tax planning is forward-looking and strategic, helping clients structure their affairs to minimize tax within legal boundaries. This involves more client interaction and creativity. Based on your comment about enjoying unique problems and solutions, you might gravitate more toward the planning side. But both skills are essential for a well-rounded tax professional.
Totally agree with this distinction! I'd also add that if you're someone who likes definitive answers, tax preparation might be more satisfying. Planning work involves a lot more gray areas where you're dealing with probabilities rather than certainties.
Self-employed, earned below standard deduction as Head of Household for 2023 - will I still get tax credits?
So I'm stressing out because my income this year was really low as a self-employed person. I only made about $10,500 in profit after expenses for 2023, which is below the standard deduction amount. Last year my accountant mentioned something about this potentially being an issue, but I ended up making more so it wasn't a problem. I'm filing as Head of Household since I'm single with one dependent child. What I'm really confused about is whether I'll still qualify for any tax credits with my income being so low? I'm especially worried about the Head of Household benefits - do I lose those if my income is under the standard deduction? I didn't make any quarterly estimated tax payments this year because cash flow has been so tight. With my self-employment taxes, I'm worried I'll owe a bunch but have no way to pay it. Are there any credits I might qualify for that could help offset what I owe? I've been stuck in this self-employment situation because my entire industry basically works this way. I'm a single mom trying to support my kid with no family help, and this year was especially rough with business setbacks and health issues. I'm planning to retrain for a different career eventually, but right now I'm just trying to keep us afloat.
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I was in the exact same situation last year (self-employed, Head of Household, income below standard deduction). Just want to share a couple things that helped me. 1) File for the Earned Income Credit!! With one child and income around $10k, you could get back around $3,700 which would more than cover your self-employment taxes. 2) If you use your home for business AT ALL, claim the simplified home office deduction. It's $5 per square foot up to 300 sq ft, so potentially $1,500 of deductions with zero documentation needed. 3) Track ALL your business mileage. Even short trips add up with the 65.5 cents per mile deduction. Don't be ashamed of your income level. The tax system is actually designed to help people in your exact situation, especially with a dependent.
Thank you for the encouraging words and practical tips! I do work from home so the home office deduction sounds perfect. For the mileage - does that include driving to meet clients or pick up supplies? I haven't been tracking that at all.
Yes! Mileage includes ANY driving for business purposes - client meetings, picking up supplies, going to the post office for business mail, driving to the bank to deposit business checks, etc. Basically anything except your regular commute (which you don't have if you work from home!). Start tracking immediately for 2024 - there are free apps like MileIQ that make it super easy. For 2023, you can reconstruct a reasonable estimate using your calendar, email confirmations, receipts from supply stores, etc. Just be realistic with your estimates in case of an audit.
I'm seeing some confusion in these comments so I want to clarify: being under the standard deduction doesn't affect your filing STATUS, but it does affect your tax LIABILITY. With $10,500 in self-employment income, you: 1) Can still file as Head of Household 2) Likely won't owe INCOME tax (because under standard deduction) 3) WILL owe SELF-EMPLOYMENT tax (15.3% of 92.35% of your self-employment income) 4) Can still get REFUNDABLE credits like EITC and Child Tax Credit The self-employment tax would be about: $10,500 × 92.35% × 15.3% = $1,479 But your EITC with one child at that income level could be $3,000-3,500 So you'd likely get money BACK overall, not owe money!
Wait I'm confused about the math. If the standard deduction is like $20k for Head of Household, and she only made $10,500, how does she owe any taxes at all? Isn't the first $20k tax-free?
Received CP503 notice unexpectedly - what's the correct 'reason for payment' option when paying online?
I just opened my mailbox yesterday and found a CP503 notice from the IRS for tax year 2018 completely out of nowhere. The notice says the payment deadline was January 15, 2025, and I only got the notice on January 13th! I never received any previous notices about this issue. I'm trying to pay this immediately through the IRS website, but I'm stuck at the "reason for payment" dropdown menu. There's no specific option for CP503 payments and I don't want to choose the wrong one and have my payment misapplied. Which reason for payment should I select when paying online for a CP503 notice? I'm in California, and this is for my federal taxes. The amount they're saying I owe is around $3,200 including penalties and interest. I'm worried because the notice mentions further collection actions if I don't pay right away, but I want to make sure I'm selecting the right payment reason.
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Everyone's talking about services but nobody mentioned the simplest solution - just select "Tax Due on Return" as your reason for payment. I've paid several CP notices this way and never had an issue. The system just needs to know what year and form, the specific notice type doesn't actually matter for payment processing.
Are you sure about this? I've read conflicting info online and don't want my payment to get misapplied. Would "Amount Owed on Notice" be more appropriate than "Tax Due on Return" since this is from a notice?
I've paid three different CP notices this way over the years and never had any issues. The key is making sure you enter the correct tax year and form number along with it. However, "Amount Owed on Notice" would also work fine. The most important thing is that you include your SSN, the correct tax year (2018), and the form number referenced on your notice. The payment system will attach the payment to your account regardless of which of these two options you select. The IRS cares more about identifying YOU correctly than the specific reason code you choose from their dropdown.
Has anyone had a CP503 sent to collections? I just got one for 2019 taxes and I'm worried about my credit score if I can't pay the full amount immediately.
The IRS generally doesn't report to credit bureaus directly, but tax liens used to show up on credit reports. However, since 2018, the three major credit bureaus no longer include tax liens on credit reports as part of their National Consumer Assistance Plan. That said, you should still address it ASAP. If you can't pay in full, set up a payment plan on the IRS website under "Pay" and then "Payment Plans." This shows good faith and stops most aggressive collection actions.
Lucas Turner
One more thing about extensions that no one mentioned - they're super helpful if you contribute to an IRA! You can make IRA contributions for the previous tax year until April 15th, but if you file an extension, you still only have until April 15th for the IRA contribution. The extension only applies to the filing, not to things like IRA contribution deadlines. I messed this up last year thinking I had until October to make my IRA contribution for the previous year. Just don't want anyone else to make my mistake!
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Aaliyah Reed
Wait, I'm confused. Are you saying the extension doesn't extend the IRA contribution deadline? Or that it does? Sorry, your wording was a bit unclear to me.
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Lucas Turner
Sorry for the confusion! The extension does NOT extend the IRA contribution deadline. Even if you file an extension giving you until October to file your tax return, you still must make any IRA contributions for the previous tax year by April 15th (the original filing deadline). The filing extension only gives you more time to complete and submit your tax forms - it doesn't extend other tax deadlines like IRA contributions, estimated tax payments, etc. That's the mistake I made thinking I had until October for my IRA contribution.
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Kai Rivera
Has anyone used TurboTax to file an extension? Is it free or do they charge for that too? Their pricing confuses me.
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Anna Stewart
You can file a federal extension for free using Form 4868 directly on the IRS website. Don't pay TurboTax for something that's free! State extensions might be different depending on where you live though.
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