If you are a hard-working American living overseas that wants to establish or is already running a business, then it is critical to understand the fundamentals of managing the US expatriate taxes. Read on for some business guidance for Americans living outside of the United States.
Keeping Small Business Records
By keeping records as an American citizen living overseas and running a small business, you aid not only you, but also the IRS. The IRS understands what revenue calculations are validated based on record-keeping. In addition, what your tax deductions are.
Open a bank account exclusively for your business to keep records of business costs. Then, only utilize the account for business transactions. Remember that you will very certainly need to complete out more documentation and complete the FBAR or FATCA Forms each year. This is indeed a tax liability meant for IRS tax authorities with overseas account holders.
Keeping Track Of Gross Receipts
Gross receipts are the total amounts an institution collected from any and all sources throughout its annual financial period, without deducting expenditures or expenses.
As an American small business owner abroad, you must track all gross revenue.
Gross receipts could be defined as:
- deposits in a bank
- invoices
- receipts for sales
- receipts from the cash register
- card payment receipts of your company and customers
If you’re a US-based independent contractor and your payments surpass $600, you may get a 1099-MISC.
Most crucial, continue collecting payments as well as archiving gross receipts as your firm grows. Income first before business costs, deductions, and taxes = gross receipts plus income!
Deductions For Business Travel
Each travel expense must occur outside of the taxable property in order to always be eligible for deduction. Furthermore, assuming your travel costs are directly related to your company, they are almost certainly deductible. For instance, if you run a startup and attend a summit related to your business to network as well as promote your business, it will almost certainly be a valid travel expense which the IRS lets you deduct.
When deducting food expenses in conjunction with travel expenses, it is vital to understand that not all meal expenses seem to be deductible. The deductible business meal expenditure is defined as the percentage of your total business meal costs or regular meal allowance.
Important Filing Deadlines For Owners Of Small Businesses
Since we all understand, it is critical to register your global income on schedule in order to avoid paying huge penalty penalties.
If your company is among the following:
- sole-proprietor
- someone who runs a business in another country or who is involved in international cooperation
- someone who is the owner of a foreign limited corporation
You are required to report the income from your business on the appropriate date as part of your personal income.
This indicates that American citizens living outside the country in the year 2022 have until April 18th to submit their tax returns. The deadline has passed. However, you could also request a deadline postponement till October 15th.
You are required to notify the existence of any trusts associated with your overseas business or foreign firm by the 15th of March using Form 3520-A. Despite this, it is feasible to get a deadline extension until the 15th of September or October depending on the activity level of the firm.
Your tax categorization will be different if you are an American who owns a limited liability business but lives outside of the United States. On June 15th, when returns for individuals are due, you can submit yours together with those of other taxpayers.
Your limited liability company is considered to be a corporation by the IRS if it has been disclosed to them. You will be required to comply with the deadline for filing corporate documents, which is on March 15th.
Specific Tax Forms Designed For Your Particular Business
Not every company is the same. Various tax forms must be completed depending on the type of business you own. If you’re working as an Orlando criminal defense attorney, you need to pay the particular type of tax that applies to lawyers and legal practitioners.
If you run your firm as a lone proprietor, you are considered to be self-employed and do not have limited liability coverage. Freelancers, consultants, and even digital nomads can all be classified under this umbrella term. For this purpose, you will need to complete Schedule C on Form 1040 in order to record the profits and expenditures from your firm.
In addition, if you are not covered by a Totalization Treaty, you may be forced to give self-employment tax payments to the United States in order to maintain your eligibility for Social Security as well as Medicare.
Your personal income tax return (Form 1040) can be used to report the revenue that your limited liability company generates, so there is no need to file any additional paperwork in this regard.
Form 8832
Form 8832 is only required to be submitted if you possess a foreign entity that is analogous to a limited liability company (LLC) in another country. This is the Entity Classification Election form that is provided by the IRS. It demonstrates to the IRS that you have more than one tax status or account associated with your name.
After that, you will have to complete additional forms on an annual basis in order to be granted your internationally disregarded organization, partnership, or corporation. The specific papers you have to turn in will be determined by the classification you gave your business on Form 8832.
In the case of a foreign corporation, you must file Form 5471 if you hold more than ten percent of that company.
If you formed a partnership with somebody and possess an international business, the IRS considers you to be in a “partnership.” Schedule K-1, which details financial activities from your partnership, must be filed. In addition to that, you will be required to submit Form 8865 to the Internal Revenue Service. This form is used to tell the IRS of the particular foreign partnerships in which you participate.
Expat Tax Advantages For Small Business Owners
You can benefit from two expat tax breaks as an American living overseas and running a business. The Foreign Tax Credit and the Foreign Earned Income Exclusion are their official names. The location of your place of employment and the amount of taxes on foreign income that you pay will determine whether or not you are eligible for these benefits.
You’ll be able to save even more cash if the nation with which the country you’re staying has a Totalization Agreement. The Totalization Agreement has been a law enacted by the United States and numerous other nations to protect US residents from double taxes. The United States is doing everything possible to reduce the hardship of double taxation on its people living abroad.
Remember that when you’re a sole owner living in another country, you still owe US FICA tax rates. If you are unable to claim the Totalization Treaty, this amounts to 15.3 percent of your salary.
Foreign Bank Account Reporting For American Business Owners Overseas
It makes no difference whether you are a taxpayer as a person or a business owner when you are living outside the United States. Whatever country you live in, you will have to do the following.
As long as you earn more than the threshold, you must file an FBAR every year. This means that you have more than $10,000 spread throughout all of your overseas bank accounts, including your personal accounts, at any one point in the year.
If you and your company reach specific filing thresholds, complete FATCA Form 8938. One example of this would be if you filed your taxes as a single person but had more than $200,000 at the end of the year.
Conclusion
Being an American owner of a small business in a country that isn’t your own might sound like a difficult thing to do. However, things can definitely be easier if you find an expat tax consultant. No matter if you do it on your own or with help, your small business will become not so small in no time.
