Are My Foreign Business Expenses Deductible on My U.S. Expat Tax Return?

Yes. Foreign business expenses that are ordinary and necessary for running your trade or business are fully deductible on your U.S. expat tax return, regardless of which country the expense was incurred in. You report them on Schedule C (sole proprietors) or the applicable business return.

Common deductible foreign business expenses include:

• Rent for foreign office space or coworking memberships
• Utilities, internet, and phone are used for business
• Professional services (local accountant, lawyer, translator)
• Marketing, website, and software subscriptions
• Business travel (flights, lodging, 50% of meals)
• Home office (if the space is used regularly and exclusively for business)
• Health insurance premiums for self-employed filers
• Foreign bank fees tied to the business account

Key rules to watch:

• Convert every expense to U.S. dollars using a consistent method (yearly average, monthly average, or spot rate per transaction). Document your method.
• Keep receipts and bank records for at least 3 years (6 years if you under-report income by more than 25%)
• Entertainment is generally not deductible since the TCJA
• VAT or GST paid on business inputs is part of the expense cost

Foreign expenses do not require a U.S. Form 1099 to be deductible, but they do need to be substantiated. A foreign contractor’s payment of $600 or more may trigger Form 1099-NEC if the contractor is a U.S. person, even if services were performed abroad.

For more details on deductions and recordkeeping, see our business expenses & deductions guide.