Expatriate Tax Tips for the Self-Employed Americans Living Abroad

Expat Tax Survey

If you’re a US expat, you may have decided to forgo working for someone else and have instead branched out on your own. While being self-employed and working for yourself, as an independent contractor, or owning your own business may be a liberating experience, it can also add some financial weight to your shoulders. Since you may not have your own accounting department, you must be cognizant of the various tax implications. To help with these issues, the IRS has six tax tips to offer the self-employed.

6 Tax Tips for US Expats who are Self-Employed

The following tax advice for the self-employed is provided by the IRS:

  1. Self-employment income can include pay that you receive for part-time work you do out of your home. This could include income you earn in addition to your regular job.
  2. Self-employed individuals file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040.
  3. If you are self-employed, you generally have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. You figure this tax using Schedule SE, Self-Employment Tax.
  4. If you are self-employed you may have to make estimated tax payments. People typically make estimated tax payments to pay taxes on income that is not subject to withholding. If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return. The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.
  5. When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business. You can deduct most business expenses in full, but some costs must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years.
  6. You may deduct only the costs that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.

As a US expat, there may be several advantages to being self-employed in a foreign country. Lower tax rates, an untouched client base and even reduced competition are just a few of the possible benefits of self-employment while living abroad. However, it’s important to remember that no matter where you are living, you are still required to file US taxes.

Need Help with Your US Expat Self-Employment Taxes?

If you have more questions about expatriate tax returns as a self-employed US expat, check out this blog post. If you have questions about self-employment taxes or if you would like help completing your US expat tax return, please contact us.