Accountant for Self-Employed U.S. Expats
Dealing with the demands of the Internal Revenue Service can be stressful and confusing under the best of circumstances, but expatriates can wind up facing additional hurdles – especially when they also happen to be self-employed. This conflux of circumstances can create a very murky tax situation, as the differences between standard income and self-employment income complicate an expat’s ability to claim the exemptions, exclusions, and credits commonly used by Americans living abroad.
To navigate these thorny issues, expats are encouraged to retain the services of an experienced specialist with firsthand knowledge of international tax law. The experts at U.S. Tax Help can assist U.S. citizens and residents living abroad in filing their taxes on time and without costly mistakes. If you are a self-employed expat, trust in the skilled team at U.S. Tax Help. To learn more about all our services or to schedule your first consultation, visit us online or call (541) 923-0903 today.
Filing a U.S. Tax Return When Living Abroad
Many Americans who move overseas do so under the mistaken assumption that leaving the United States frees you of your tax obligations to the country; this is not the case. In fact, the U.S. is one of only two countries in the world (the other being Eritrea) that taxes based on citizenship rather than geographical location. This means that, even if you pick up and move to Beijing or Paris or the barren wastes of Siberia, you are still required to file a tax return with the U.S. government.
Fortunately, there are a number of exclusions, exemptions, and credits intended to relieve the American tax burden of expats who, in all likelihood, must also pay taxes in the country where they reside. The greatest of these is the foreign earned income exclusion, or FEIE. This provision of the tax code allows expats who earn their living in another country to exclude a significant portion of their income from taxation; the cap changes from year to year to adjust for inflation, but the amount that could be excluded in 2019 was $105,900. Additional deductions can be made if you have spent money on housing in your country of residence.
It should be noted, however, that these benefits do not come without a catch. Americans living abroad will likely have to file additional paperwork during tax season to follow the various reporting requirements that apply to anyone with foreign assets or financial ties. The biggest instances of this are the Foreign Account Tax Compliance Act, or FATCA, and the Report of Foreign Bank and Financial Accounts, or FBAR.
Each of these statutes requires that a separate form be filled out and sent to the proper authorities to notify those organizations of any foreign assets in accordance with the law. A skilled accountant with experience in international tax preparation can help you determine your individual filing requirements so you can avoid expensive fines and penalties.
Self-Employment Taxes While Living in a Foreign Country
Though common sense might suggest that income taxes and self-employment taxes are essentially the same thing for those who work for themselves, the reality is that the IRS treats each as a separate concern, although there is some overlap. Self-employment taxes are paid on net earnings to help fund Medicare and social security, and the government generally holds self-employed taxpayers to the same rules for this whether they live in the U.S. or elsewhere. In 2019, the tax rate is 15.3% on the first $132,900 you earn and 2.9% on any earnings beyond that cap.
If you are an expat who is subject to these taxes, be aware that excluding income from taxation through the FEIE does not affect the amount of income subject to the self-employment tax. Instead, ignore any exemptions or exclusions when calculating how much you owe in self-employment taxes to avoid making potentially expensive errors on your tax returns.
Fixing Mistakes on U.S. Tax Returns as an Expat
If you live abroad and are worried that you may have made a mistake on tax returns or reporting from previous years, know that you still have options. The IRS offers a set of steps – the streamlined filing compliance procedures – to allow taxpayers who may have erroneously reported income or assets in past years to quickly and easily come into compliance with the law while avoiding the majority of penalties and fees.
The process can be complicated and requires you to certify that any oversights were accidental, not willful; you also cannot already be under investigation by the IRS or owe outstanding penalties. However, if eligible, you can effectively sidestep a financially disastrous outcome by following one relatively straightforward procedure. Anyone who has submitted, or is worried that they may have submitted, an inaccurate tax filing should contact a qualified professional immediately.
Skilled Accountants Specializing in International Tax Planning and Preparation
Because the team at U.S. Tax Help has focused on international tax law for years, there is no one better qualified to handle an expat’s tax questions. Ted Kleinman, CPA, has more than 30 years’ experience in this area, and he and his staff are more than prepared to help you out of a tough tax conundrum or to simply ensure that this year’s filing goes smoothly. No matter where you are in the world, you can access the expertise at U.S. Tax Help today; just visit us online or call (541) 923-0903 to set up your first consultation.