An Expat’s Guide to Self-Employment Overseas and Foreign Self-Employment Income

An Expat’s Guide to Self-Employment Overseas and Foreign Self-Employment Income
June 26, 2019

For US residents, self-employment overseas is not very different from self-employment stateside. Taxes become a bit more complicated in either scenario; so, find out what expats need to know before you decide to become your own boss.

Self-Employment Overseas: Tax Thresholds, Schedules, and Structures

For expats who are employees, the thresholds for being required to file an annual Federal Tax Return (even if you don’t owe!) are $12,200 for single filers, $24,400 for those who are married filing jointly, and just $5 for those married filing separately (for individuals under 65). But for self-employed expats, the threshold is $400, which is undeniably low.

In addition to your tax return, you’ll need to file a Schedule C or Schedule C-EZ for sole proprietorships. The Schedule C is how you report the profit or loss from your company to the IRS. Small businesses that incur less than $5,000 in operating expenses, used cash-basis accounting, did not have an inventory, and did not have a net loss may be eligible to file the Schedule C-EZ instead. But you may not use the Schedule C-EZ if you had employees, need to deduct business use of your home, have prior year unallowed passive activity losses from this business, or are required to file Form 4562 to report depreciation and amortization on the business.

Don’t forget: the way your corporation is structured will have an impact not only on the taxes you pay but also on which forms you’ll need to fill out. Foreign corporations may need to fill out Form 5471, while Foreign Partnerships are more likely to be on the hook for a Form 8865.

Additional Taxes Assessed

Since self-employment essentially means you are both employer and employee, you will be responsible for paying both parts of the Social Security and Medicare taxes that your employer typically withholds from your salary. The maximum amounts due change annually based on wage levels and price fluctuations, so be sure to check with the Social Security Administration to see the current thresholds.

Country of Residence

The country you currently live in has its own set of foreign self-employment income rules, too. You’ll want to investigate income tax, corporate taxes, Social Security (if your country of residence doesn’t have a Totalization Agreement in place with the US), and any other taxes, social programs, or fees that could reduce your bottom line.

Estimated Payments

Estimated payments may be in your future if your self-employment overseas has left you with a tax debt. Those who can reasonably expect to owe $1,000 or more to the IRS at the April deadline will need to file estimated payments on a quarterly basis. If you fail to do this, the IRS can assess an underpayment penalty on the balance owed. So, if you’re new to the self-employment game, estimating payments may be your safest bet in order to ensure you pay the least when tax season rolls around.

Greenback Can Make Self-Employment Overseas a Breeze

Greenback uses a flat-rate pricing structure so that you know what you’re paying up front and are not surprised by your bill. This comes in especially handy for self-employed expats, whose taxes are usually a bit more on the complex side. Get started with Greenback today!

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.
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