"I'm an American living in London and I am shortly going to launch my own part-time coaching business here, probably in April after I receive indefinite leave to remain. I'm looking for help understanding the tax implications in the US as well as the UK if I set up as an LLC or as a sole trader, and once that decision is made, ongoing support with filing tax returns in both places. Is this something you can help me with?"
As a sole trader, you will pay UK taxes on net income from your business. Additionally, you must charge your customers and subsequently pay Value Added Tax (VAT) to the HMRC. If you set up as a sole trader, you are personally liable for all business debts you may incur. Additionally, US expats must pay self-employment tax. This includes a 12.4% Social Security tax on income up to $124,000, and another 2.9% Medicare tax on all income.
If you choose to set up your business as an LLC, you will pay taxes in the same way you do for a sole trader. Income will simply flow through the business and be treated as normal income for UK taxes purposes, avoiding any corporate tax (be sure to file Form 8832 to take advantage of this). However, you will not be personally liable for any business debts. Once again, you will have to charge and pay VAT.
No matter how you set up your business, you must fill out both a UK and US tax return for their respective taxable years (UK is April 6- April 5, US is Jan 1- Dec 31). However, you can take a tax credit on your US return for the amount of tax you pay to the UK. So even though you report the income in both countries, you are only really paying UK tax.
Finally, you may be able to take advantage of the Foreign Earned Income Exclusion once you live outside the US for a full year. This allows you to exclude $99,200 from your taxable income on your US tax return each year (NOTE: you must calculate Self-Employment tax on income before taking this exclusion). This deduction combined with the Foreign Tax Credit mentioned above will greatly reduce the amount of US tax you will have to pay.
As an accountant with over 10 years experiences accounting for US Expats and non-resident aliens based in the UK, we are expert in advising about all matters surrounding US tax.
This article is aimed to break down the US tax rates, penalties and interest US Expats and non-resident aliens should be aware of.
Succeeding President Donald Trump’s signing of the Tax Cuts and Jobs Act (TCJA) in 2017, the US transfer tax system has seen its most significant reform in over 30 years. Transfer tax comprises gift tax; on property transferred during lifetime, and estate tax; imposed on property transferred at death, and under the TCJA, the exclusion rates of these taxes have doubled from $5.49 million to $11.18 million for individual US citizens. These increased tax inclusions are very generous to US citizens, protecting the majority of them from transfer tax, but these new laws do not apply to non-US citizens or those non-domiciled (non-US persons for ease of reference) meaning they remain subject to estate and gift tax.
Following on from yesterdays article ‘Do you need to file a US Tax Return? (For those living outside of the U.S.’, we progress to break down the filing and paying aspects of US tax as a US expat or resident Alien.
U.S. Tax can be a daunting subject for Americans within the U.S.A, let alone for those living outside of America with U.S. tax obligations. This article aims to help you establish whether you are required to file a tax return.
With the passing of the recent US Expat tax deadline in mind, we have put together an article summarising some of the main penalties that Americans living in the UK may be subject to if they are not compliant. We also offer advice on how to avoid these penalties.
The Tariffs introduced on imported goods, by President Trump back in March, have shaken the fashion world.
US expats are required to file a US federal tax return in order to disclose their worldwide income. If you’re a US expat who lives in a low-tax country and earns above the Foreign Earned Income Exclusion threshold, you are likely to owe US tax.
Donald Trump's 2017 tax reform has had and will continue to have huge implications for US expats who have an investment in non-US businesses. The two main new laws in place relating to Controlled Foreign Corporations (CFCs): any non-US business that is at least half owned by US shareholders, each of whom owns at least 10%.
Many actors are considered self-employed when it comes to filing their taxes. When filing your regular year-end 1040 income tax file, you will also be required to file a 'Schedule C' and state all the 1099s you received throughout the year. There are many unique deductions actors are allowed to take advantage of - these should be reported on the 8829 form for home office deduction. Further to this, you will liable to self-employment tax in addition to federal income tax. Paying estimated quarterly taxes may be necessary on Form 1040-ES for some, but even if this isn't mandatory (your tax liability does not exceed $1,000), it can be a great way to budget throughout the year.