US trade or business (USTB)
A US tax concept that triggers US income tax on income effectively connected with that trade or business.
Definition
US trade or business (USTB) is a key tax concept for non-resident-owned LLCs. If LLC operations rise to the level of a USTB, income effectively connected (ECI) with that USTB is subject to US graduated income tax. The IRS evaluates regularity, continuity, and substantiality.
Context
Most non-resident-owned single-member LLCs serving non-US clients do not have a USTB. Service work performed entirely outside the US is typically not USTB.
Example
A non-resident LLC owner doing remote consulting for European clients does not have a USTB. The LLC owns no US property, has no US employees, and conducts no US activity. No ECI; no US tax on the income.
Common pitfalls
- US employees, US office, US warehouse, or substantial US-based activity can create USTB.
- Amazon FBA inventory in US warehouses is a high-risk USTB-trigger area.
- Once USTB exists, income tax filings become required.