Do You Owe U.S. Taxes as a Nonresident LLC Owner?

Many people who form U.S. LLCs while living abroad are told the same thing:

“If you’re not a U.S. resident, you don’t owe U.S. taxes.”

Unfortunately, that’s often wrong — especially if your LLC is receiving payments into a U.S. bank account. In this post, we’ll walk through what the IRS actually looks for when determining tax obligations, why it matters if you’re earning Effectively Connected Income (ECI), and how to avoid the common (and costly) mistake of assuming you’re off the hook just because you live overseas.

What the IRS Actually Looks At

The IRS doesn’t just care where you live — it cares where and how you’re doing business.

If you’re generating profit through business activity connected to the U.S., the IRS considers that effectively connected income (ECI).  If your US-sourced income is classified as ECI, it’s subject to US income tax at graduated rates that means the income is subject to U.S. income tax at graduated rates — just like a resident’s business income.

You might be thinking:

“If I don’t even step foot in the U.S., how can they tax me?”

Let’s break it down with a simple example:

💡 You’re based in Colombia, but you own a store in Cleveland, Ohio. You sell products to U.S. customers and receive payments into a U.S. bank account. The IRS sees this as running a U.S. business — even if you’re overseas. That’s effectively connected income, and it’s taxable.

Why Using a U.S. Bank Account Changes Everything

One of the first steps in setting up a business is opening a business bank account. For U.S.-based LLCs, that most often means a local U.S. bank.

When the IRS sees income flowing in and out of a U.S. bank account, especially from third parties (like customers and clients), it signals that you’re engaged in a U.S. trade or business.

So what does “engaged in a US trade or business” mean for taxes?:👉 Being “engaged in a U.S. trade or business” means you’re required to file Form 1040NR and pay taxes on your U.S. income.

What This Means For You

Regarding Section 26 U.S.C. 871 – 1040NR, the IRS states:

“You may need to file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, if you were a nonresident alien engaged in a trade or business in the United States, represented a deceased person who would have had to file Form 1040-NR, or represented an estate or trust that had to file Form 1040-NR.”

If your U.S. LLC is receiving income from U.S. sources and further is being deposited into your U.S. bank account, you’ll likely need to:

• ✅ File Form 1040NR
• ✅ Report your income on Schedule C
• ✅ File Form 5472 + a pro forma 1120

Failing to file the proper forms can result in steep penalties, including a $25,000 fine for not submitting Form 5472.

Where People Go Wrong

A quick Google search will give you tons of misleading articles that say something like:

“If you live outside the U.S., you don’t owe U.S. taxes.”

While that can be true, it’s only true if your LLC doesn’t have effectively connected income. and in reality, most nonresident LLCs do–especially when using U.S. platforms, vendors, or bank accounts to operate.

What You Should Do Instead

If you’re running a U.S. based LLC as a nonresident, the best thing you an do is:

• Work with a tax advisor who understands nonresident tax rules
• Don’t rely on general or surface-level advice
• Make sure you’re being compliant — especially if you’re receiving U.S. payments

Don’t Let Tax Rules Pass You By

The U.S. is a great place to do business, but the IRS plays by its own rules. If your LLC is receiving income through a U.S. bank account, it’s time to make sure you’re reporting and paying taxes the right way.