As an accountant for US expats, we have come across many self-employed expats that don’t know where their US tax obligations start and finish.
If you are a US Expat entrepreneur thinking of starting a business or going self-employed your expat taxes will be more complex than the average expat. Below is our guide on the tax implications of going self-employed or starting up a business as a US expat.
Filing requirements for Self-Employed US Expats
Without trying to state the obvious: you will need to file a tax return in the country you are operating in. Taking a step forward: your US tax obligations as a self-employed US expat. The there threshold at which you are required to file a US tax return as an expat is different for those who are self-employed.
If you earn over $400 during the tax year, you will be required to file a tax return.
Alongside your tax return, you must file a Schedule C or C-EX. This is to report the net profit from your business.
Self-employment tax rates currently stand at 15.3%. 12.4% covers Social Security, and 2.9% goes towards Medicare. If you are a higher earner you may be subject to additional Medicare taxes; the threshold is $200,000 for single filers and $250,000 for those filing jointly.
The amounts of corporation tax you are required to pay to depend on the country you reside in. This amount can be anything from 0% to 40%.
As a business owner, you can deduct certain business expenses to minimize your self-employment tax. These expenses can include anything from advertising to travel expenses.
An FBAR (Foreign Bank Account Report) is a fundamental part of your filing obligations as a self-employed U.S. expat. If you have an amount that totals to $10,000 or more in foreign bank accounts you are required to file an FBAR.
How corporate structure affects self-employment
The type of business you run can have significant implications on your US taxes. An LLC is automatically considered as ‘disregarded’, this means that you can report the company on your personal tax return. However, in the case of foreign LLC’s, for the company to be considered ‘disregarded’ you must file a Form 8832 and then file a Form 8858 annual.