Frequently Asked Questions
Find all the information you need on US taxes abroad for business owners. From self-employment tax to the tax return process, get your questions answered.
- Can you help me structure my upcoming employment contract and make sure I am in the most advantageous position while living abroad?
- Do I need to pay estimated taxes?
- Do I need to pay Social Security or FICA taxes if I run my own business overseas?
- How do self-employment taxes work if my country does not have a totalization agreement in place?
- If all of my income is from the US and I am living entirely abroad, how does the tax return process work?
- Is the default for a foreign single owner LLC a disregarded entity? Or do I need to file Form 8828 to make that designation?
- What business structure should I use for my property investment?
Can you help me structure my upcoming employment contract and make sure I am in the most advantageous position while living abroad?
In short, yes! Our specialized team has helped hundreds of clients prepare for a new career abroad. Even if you have been living abroad for some time, your Greenback accountant can review your upcoming employment contract and ensure that it is set up in the most tax-advantageous way.
During your consultation, your accountant can also educate you on the exact liabilities you will face while working abroad. A consultation with one of our experts is a must for those working abroad![back to top]
Do I need to pay estimated taxes?
You may need to make estimated tax payments to the IRS if you are filing as a self-employed individual (including a sole proprietor, partner, or S Corp shareholder) and you expect to owe $1000 or more. If you have a US-based corporation and you expect to owe more than $500, then you should make estimated payments. Also, if you had a tax liability for the previous year, you may be required to make estimated payments during the current year.[back to top]
How do self-employment taxes work if my country does not have a totalization agreement in place?
Unfortunately, for those who are self-employed and living in a country without a US totalization agreement, double taxation is quite common. This is due to the fact that many have to pay self-employment taxes to the US, even if they have already paid them to their host country.
If you are in a situation like this, speaking to an expat accountant is imperative. Their expertise will ensure that you are taking all possible deductions, which will limit your tax liability as much as possible.[back to top]
If all of my income is from the US and I am living entirely abroad, how does the tax return process work?
Job flexibility is at an all-time high, so more and more people are finding themselves in positions they could do from literally any place in the world. The freedom is wonderful; understanding the tax implications is not. Fortunately, even if you are earning all of your income from the US, you can still qualify for many of the big exclusions and credits available to expats. The main reason is that, since you are living outside the US, you are technically earning all of your money outside the US as well, thus qualifying your income as foreign earned. The two major credits/exclusions we use for Americans living abroad are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).[back to top]
Is the default for a foreign single owner LLC a disregarded entity? Or do I need to file Form 8828 to make that designation?
A US LLC is by default a disregarded entity. Absent an election, it is treated as either a sole proprietorship for a single member or a partnership for more than 1 member.
The answer is a bit more complicated when the company is a foreign LLC. A foreign LLC needs to file Form 8832 in order to be treated as a disregarded entity if it has more than 1 member; otherwise, it is treated as a foreign corporation. The election must also be made within 75 days of the tax year.[back to top]
What business structure should I use for my property investment?
For the purposes of residential real estate, we recommend setting up a US domestic LLC. This is the optimum structure for small-scale foreign investors. Individual ownership is the easiest from a tax perspective but provides you no protection from legal responsibility – and your personal information will be on public record – which could prompt additional investigation into foreign transactions.
A limited liability company (LLC) is affordable to establish, easy to maintain and generally recommended to foreign investors. The best features of the LLC are the individual protection of liability, and it is also treated as a “disregarded entity” for tax purposes. Basically, this means the IRS doesn’t see it as a separate entity, and everything is taxed and reported at an individual level.
US domestic corporations are not recommended due to the double taxation that results. While foreign trusts have become popular options in recent years, trusts are being scrutinized more heavily by the IRS. If they get re-characterized by the IRS, they could end up being taxed as a corporation and that is not ideal![back to top]