US tax compliance isn’t just complicated, it’s often misunderstood, especially for international founders, foreign-owned US businesses, and non-resident entrepreneurs. From federal and state tax filing to sales tax obligations and income tax nexus, misinformation can lead to serious consequences.
At FinStackk, we help businesses avoid costly US tax filing mistakes and stay compliant with all relevant regulations, across every state.
Let’s break down the most common business tax myths, and explain the real facts every founder should know.
Myth 1: Taxes only exist at the federal level
✅ Truth: Businesses must deal with federal, state, county, and city taxes in the US Proper multi-state tax planning is essential.
Myth 2: The only tax in the US is income tax
✅ Truth: Companies may also owe sales tax, payroll tax, property tax, and excise taxes, depending on their structure and location.
Myth 3: Federal tax rules apply automatically in all states
✅ Truth: Each US state has separate tax laws, including different rules for corporate tax, SaaS taxation, and nexus thresholds.
Myth 4: Only incorporated businesses owe taxes
✅ Truth: Even LLCs, sole proprietors, and unregistered businesses may owe business taxes based on income, location, and operations.
Myth 5: Once you file your taxes, you're done for the year
✅ Truth: Tax compliance is a year-round process. You must handle quarterly tax filings, payroll compliance, and 1099 reporting on time.
Myth 6: Nonprofits are fully exempt from all taxes
✅ Truth: Even nonprofit organizations may owe unrelated business income tax (UBIT) and must comply with IRS nonprofit rules.
Myth 7: E-commerce businesses don't have to collect sales tax
✅ Truth: If your online business crosses economic nexus thresholds in any state (like $100K in sales), you must collect and remit sales tax.
Myth 8: Sales tax is imposed by the federal government
✅ Truth: The US has no federal sales tax. Sales tax is governed by individual states, each with different rates and requirements.
Myth 9: Sales tax only applies to physical products
✅ Truth: Many states tax services, digital goods, and SaaS platforms. It's important to check sales tax rules for software and services.
Myth 10: SaaS and software are always exempt from sales tax
✅ Truth: Some states charge sales tax on SaaS, while others don’t. Cloud software taxation laws change often and vary by state.
Myth 11: A business must pay income tax in every state where it has customers
✅ Truth: State income tax depends on nexus laws, not just customer presence. Nexus may be triggered by employees, inventory, or revenue.
Myth 12: Having customers in a state creates tax nexus
✅ Truth: A nexus is established only if your business meets certain revenue or activity thresholds in that state, such as $500K sales or local agents.
Myth 13: Foreign shareholders in a US business pay higher taxes
✅ Truth: US corporate tax rates are the same regardless of ownership nationality. Foreign founders are not penalized at the entity level.
Myth 14: There is one standard income tax rate in the US
✅ Truth: The federal corporate tax rate is 21%, but state income taxes vary, up to 9% in states like California or New York.
Myth 15: Income tax is only paid in the state of incorporation
✅ Truth: You must pay taxes in states where your business has a physical presence, employees, or generates revenue, not just where you incorporated.
Myth 16: All business entities are taxed the same way
✅ Truth: Tax treatment varies. C-Corps pay taxes at the entity level. S-Corps and LLCs typically use pass-through taxation, impacting the owners' personal returns.
Whether you're an Indian founder registering a US LLC, a SaaS startup scaling to multiple states, or an eCommerce seller crossing nexus thresholds, understanding your tax compliance requirements can save you time, money, and stress.
Need help with your tax obligations?
Book a free consultation with FinStackk. We’ll simplify your US tax compliance, help with IRS filings, and ensure you're covered in all 50 states.