Bookkeeping is a cornerstone of financial management for any business. Bookkeeping helps LLC owners manage finances easily. It helps to ensure compliance with regulations and informed decision-making when managing an LLC from overseas. In addition, proper bookkeeping greatly simplifies US tax reporting for foreign-owned US LLCs. 

In this article, we’ll look at the main bookkeeping considerations for foreign US LLC owners, and also offer practical tips for how to do bookkeeping for a US LLC as a non-resident.

Table of contents

What US LLC owners should know about bookkeeping

Bookkeeping involves tracking all of your LLC’s financial transactions. It includes documenting every item of business income, expenditure, and investments, separately from your personal finances. Establishing a clear system early on prevents complications further down the line.

This is essential not just for you to keep track, but to prepare for tax reporting. 

A couple of other concepts you should be aware of are:

  • Functional currency (USD) – if the LLC operates business in multiple countries and currencies, you’ll have to convert transactions into US Dollars for reporting purposes. We help identify how, when and what conversion rates should be used.
  • Audit Support – it makes sense to use a bookkeeping service that provides audit support, in case the IRS has an inquiry or decides to audit your business.

What does bookkeeping have to do with IRS tax form 5472?

Foreign-owned US LLCs must file Form 5472. This is an informational tax form to report the business’ reportable transactions with foreign owners or other foreign parties. 

Not every financial transaction is a reportable transaction. And to make it complicated, you can have reportable transactions even without having any revenue. For example, paying for LLC expenses with your personal funds is reportable on Form 5472.

Having a bookkeeping and tax provider “under one roof” makes this reporting very easy and streamlined. At Entity Inc., our inhouse bookkeepers identify all reportable transactions for Form 5472 and work directly with the tax team to report those properly.

Form 5472 requires foreign-owned LLCs to report transactions with related parties (that includes you, the owner!), for example:

  • Capital contributions
  • Loans
  • Payments

Failure to file Form 5472 accurately or on time can result in penalties, which can be costly for foreign-owned LLCs. Maintaining detailed and accurate records ensures that you have the necessary data for this informational form readily available. This reduces the risk of errors and compliance issues.

Do I need a US bank account for my LLC bookkeeping?

While not mandatory, having a US bank account simplifies bookkeeping for a US LLC. A dedicated business account helps maintain the separation between personal and business funds, preserving the LLC’s limited liability legal protection for you, the LLC’s owner. 

Non-US resident owners often face challenges opening a US bank account. Therefore, seeking expert advice can help you navigate the process smoothly. (We at Entity Inc. have trusted banking partners and long experience in opening US bank accounts remotely.)

Can I use a non-US bank account for my US LLC?

US LLCs can have a foreign bank account, or both a US and a foreign bank account. LLCs normally have a foreign bank account if they have business activities in another country. If your LLC has a foreign bank account, you’ll also might have to report details about the account and its maximum balance to the US Treasury by filing an FBAR form. Having a non-US bank account can also result in new local tax liabilities in the country where the bank account is.

Which bookkeeping method is best for foreign-owned LLCs?

Foreign-owned LLCs can choose between cash or accrual accounting methods, depending on the business’s complexity: 

  • Cash accounting: Transactions are recorded when you receive or pay out the funds.
  • Accrual accounting: Income is recorded when earned and expenses are recorded when incurred, regardless of when the related payments happen. 

Example:

Your LLC provides consulting services and invoices a client in December, but they pay in January. Cash accounting records the income in January, accrual accounting records the income in December.

The cash method is obviously simpler. However, the accrual method may be better for businesses with significant inventory, big payments, or long-term contracts. Consulting a tax professional can help determine the most suitable method for your business.

Bookkeeping categories

Foreign-owned LLCs must categorize transactions correctly to ensure clarity and compliance. Common categories include:

  • Operating expenses (e.g., rent, utilities, software subscriptions)
  • Employee or contractor wages
  • Marketing and advertising costs
  • Professional fees (e.g., legal, accounting services)
  • Travel and business-related expenses

Maintaining receipts and invoices for all transactions is essential for supporting tax filings and audits. Many bookkeeping software solutions simplify this process by allowing digital storage of records.

Using bookkeeping software

Cloud-based bookkeeping software is a great tool for foreign-owned LLCs. These apps automate transaction tracking, generate financial reports, and help you prepare for tax filings. They also make it easier to manage payroll, invoices, and other financial records. This increases efficiency and compliance. 

The remote access to cloud-based solutions allows business owners to manage their finances from any country. 

However, doing bookkeeping yourself can also have some drawbacks:

  1. Irregular reconciliations can lead to missing or duplicate transactions
  2. Integration issues: Cloud bookkeeping apps have great integrations, but they need to be monitored and updated regularly. Failing to do this can lead to irregularities in the financials.
  3. A professional bookkeeper can help you to claim all the eligible expenses, which DIY bookkeepers may not know about. For example, some personal expenses can also be included as business deductions.
  4. DIY bookkeepers might miss out reporting some transactions for year-end tax forms other than the tax return, such as 1099’s.

In general, DIY bookkeeping is fine when:

  1. There are limited transactions, such as just a few vendors and clients.
  2. There are no employees or contractors.
  3. There is a single bank account and bank cards, and no foreign currency transactions.
  4. You have some knowledge of accounting fundamentals and experience working with a cloud accounting app.

Common LLC bookkeeping mistakes to avoid for foreign-owned LLCs

A few common bookkeeping errors to watch for include:

  • Mixing personal and business finances: Keep finances separate to avoid accounting issues and protect personal assets.
  • No reconciling regularly: Regularly reconcile your bookkeeping with bank statements to ensure accurate records and avoid discrepancies. 
  • Overlooking small transactions: Document all transactions, no matter how small, to maintain financial accuracy.
  • Failing to report business assets and claiming depreciation. 
  • Incorrectly categorizing transfers from one business account or card to another, leading to incorrect reporting of balance information.

Avoid these mistakes to ensure you keep accurate and compliant financial records.

Staying compliant with US tax laws

Compliance with US tax laws is a primary concern for foreign-owned LLCs. Bookkeeping practices must align with federal, state, and local tax regulations. These include:

  • Calculating and remitting sales tax if applicable,
  • Filing annual tax returns (including Form 5472),
  • Reporting payroll taxes, if the LLC has US employees.

Filing taxes for an LLC involves more than just submitting a form once a year. For example, you may have to make estimated tax payments quarterly, as well as payroll taxes. 

Staying on top of these deadlines is essential to avoid penalties and fines. It’s important to mark the calendar with dates for estimated tax payments, annual filings, and payroll taxes. 

Accurate bookkeeping is key to tracking these deadlines and ensuring compliance, reducing last-minute stress.

Benefits of professional bookkeeping, integrated with tax services

For foreign owners unfamiliar with US accounting practices, outsourcing bookkeeping to professionals offers several advantages. Experienced bookkeepers understand the nuances of US regulations and can provide tailored support. Outsourcing your bookkeeping also reduces the risk of making errors (and so incurring penalties), saves you time and hassle, and provides peace of mind that your records will be accurate and compliant.

Even more, when you integrate your bookkeeping and tax services, you can greatly streamline your yearly tax filings. Our in-house bookkeeper can identify all reportable transactions and work directly with our tax team to file Form 5472. No need for the LLC owner to go through all the transactions and mark the relevant ones for their tax accountant.

How much does a bookkeeper cost?

Hiring a bookkeeper may seem like an avoidable expense. But it can save you time and ensure you are in compliance with US regulations. Bookkeeping fees depend on a variety of factors, including:

  • Number of accounts, 
  • Number of transactions,
  • Accounting method,
  • Reporting frequency, 
  • Multi-currencies,
  • And more.

Entity Inc. offers bookkeeping packages tailored to businesses in various stages of growth. If your LLC doesn’t seem to fit into these packages, our bookkeeping manager can provide a custom quote.

How to get started with bookkeeping

No matter whether you have done your books yourself with an app or haven’t really paid attention to bookkeeping so far, getting started is easy.

If your books are not in good shape, you will first need a clean-up and a year-end reconciliation for your tax filing. 

A cleanup involves reviewing, correcting, and organizing your financial records to fix any  errors, update missing data, and ensure compliance.

Reconciliation meanwhile is the process of comparing the transactions in your accounting software data with your bank statements to ensure they match and resolve any discrepancies. 

In general, here are the steps you’ll need to follow:

  1. Open a business bank account
  2. Choose your accounting software, and connect it to your bank account
  3. Track your expenses
  4. Establish a bookkeeping system
  5. Determine how you’ll get paid in consultation with a tax professional
  6. Set up a payroll system
  7. Determine your tax obligations

Why foreign-owned LLCs should hire a bookkeeper

Effective bookkeeping is a vital element of managing a foreign-owned US LLC. It provides clarity on the business’ overall financial position, helping business owners make informed decisions. It also significantly streamlines the yearly tax reporting process.

With assistance from an experienced foreign-owned LLC bookkeeping firm, you won’t have to worry about financial record keeping or compliance, and instead focus on expanding your business.