As an expat, working for yourself can actually simplify your life, since you’re able to move around wherever you please. In this day and age, participating in the sharing economy is a great way to earn an income while having the flexibility to enjoy your life anywhere you choose to reside. You’ll want to be sure you’re up to speed on the expatriate tax preparation implications of the sharing economy, though – so read on for the details you need to know!
What is the Sharing Economy, Exactly?
A recent phenomenon, the sharing economy is the shared creation, production, distribution trade and consumption of goods and services by different people and organizations. If you’ve ever rented a vacation home using Airbnb or hitched a ride via Uber, you’ve actively participated in the sharing economy. You can read a very specific breakdown of what the sharing economy entails in this article. If you’ve found yourself on the opposite end of the sharing economy, as the person who offers goods or services – or you’d like to consider it – then you should be aware of how your expatriate tax preparation will be affected.
Expat Taxes and the Sharing Economy
Generally speaking, participating in the sharing economy by offering goods or services means you’ll have an expatriate tax preparation requirement. It doesn’t matter if it’s only part-time, if you’re paid in cash or whether or not you receive a Form W2 or Form 1099 –you should be prepared to claim your income on your US Tax Return.
As you know, the US government taxes its citizens on worldwide earned income, so even if your business venture into the shared economy happens to be overseas, you will need to report your income on your expat tax return each year. Fortunately, there are several credits, deductions and exclusions you can take advantage of as Americans working overseas, such as:
- The Foreign Earned Income Exclusion, which allows you to exclude up to $101,300 of foreign earned income from your 2016 US taxes (and $102,100 from your 2017 US taxes),
- The Foreign Tax Credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
- The Foreign Housing Exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.
Implications of Renting Out Your Home
While living overseas, perhaps you’ve decided to rent out your home in the US so it won’t sit unoccupied and you won’t have to shell out the mortgage on your home while paying to live overseas as well. Likewise, maybe you decided to invest in a vacation rental property overseas and choose to rent it out all or part of the year. The amount of time the property is rented and whether or not you live in the home at all during the year will affect your expatriate tax preparation. You should keep very accurate records throughout the year in order to make the process of filing taxes simpler. There are also calculations to make, such as determining depreciation and deductible expenses for maintaining the home, once you offer the home for rent. Check out this article for the important details you’ll want to know when renting your home.
Understanding Estimated Payments
If you’re participating in the sharing economy by offering goods or services, you should be prepared to pay estimated taxes to the IRS. Because the US tax system is pay-as-you-go, you will need to make these payments throughout the year to cover your tax obligation. If you are a W2 employee, your taxes are deducted before you receive your paycheck, but self-employed or 1099 employees must take taxes out of their own paychecks and then make their quarterly estimated payments to the IRS. These payments will be due April 15th, June 15th, September 15th and January 15th. Learn more about estimated payments for your expat taxes in this article.
Choosing to join the sharing economy can be a great way to earn an income while having the flexibility to live anywhere in the world you choose, but just remember to be prepared for your expatriate tax preparation obligations. As always, keeping accurate records and ensuring you keep track of important tax deadlines will help you stay on track with the IRS.
Need Help with Your Expatriate Tax Preparation?
Our team of expat-expert CPAs and IRS Enrolled Agents are here for you – we’ll take the guesswork out of filing your expat taxes, so you can get back to enjoying your adventure abroad. Get started with us today and cross taxes off your to-do list ahead of the deadline!