US llc using indian company for a service

[friend80]

Hi,

We opened a small business and also closed it as it was not going to have a market. The business opened 2023 Dec end but formally registered only in 2024 Jan. But we closed in Jan 2025. This is our first return.  We did have expenses but no income. It is a US multi member LLC and we had used a company from India and a separate freelancer from India to do our initial service work for which the work was performed outside US. Both the payments were done by the US company account bank. we did collect W 8BEN E form and W 8 BEN form and did not withhold any tax. We will be doing 1065 form. Thanks

My questions are

1)  Did I do it correctly by not deducting the withholding tax

2)Am I allowed to claim this business expense?

3) Could you let me know in which section I can claim it and do we need to upload the w 8 BEN forms

4) Will there be any issues if i do not file a return

[pk]

@friend80  My answers are shown in italic

It is a US multi member LLC and we had used a company from India and a separate freelancer from India to do our initial service work for which the work was performed outside US. Both the payments were done by the US company account bank. we did collect W 8BEN E form and W 8 BEN form and did not withhold any tax. We will be doing 1065 form. Thanks

My questions are

1)  Did I do it correctly by not deducting the withholding tax

That you collected  tax id of the  NRAs is correct but un-necessary. This is  because this was  contract work done in India, the income source for the recipient(s) is Domestic/India and as such reported on their ITR.   You also cannot withhold taxes  for this work on behalf of the  contractor  ( TDS does not apply here  because your entity is not an Indian entity.)

2)Am I allowed to claim this business expense?

Yes this is business expense ( at the entity level and reported on form 1065 ).

3) Could you let me know in which section I can claim it and do we need to upload the w 8 BEN forms

Note that form 1065  ( entity return   of a pass through entity ) just records all the  incomes and expenses of the entity and then issues k-1s to the partners for recognition  at the partner level.  You will have to use  TurboTax Business  for federal return and  Fiduciary  State for the State return.

4) Will there be any issues if i do not file a return

Yes ---  a pass through entity must file a form 1065 and a copy of the K-1s  ( using a K-3 )  to the IRS and the State.  This allows the partners to recognize incomes and pay taxes based on the K-1s.

Since  this is your first year  , it may be worthwhile to consider  professional help  IMHO.

Is there more I can do for you ?

pk

[friend80]

Thank you for that response. I still am trying to figure out under which head i should claim the business expense for using contractors from India. This is my first and would be my final return as the business is closed.  Currently I put it under payment to independent contractors. Also, can I also claim the state opening registration fees and closing business fees in the return

Thanks

[KristinaK]

Reporting contractor expenses under independent contractor or outside service category is acceptable and is the norm. 

The organizational fees are normally deducted/amortized over 180 months, and you can elect to deduct up to $5,000 in the first year. However, if it is your first and last year, you will be deducting the full amount in the same year.