US Expat Income Taxes: Top 5 Business-Related Questions

There are five business questions and answers that you must know. Are you operating a business outside the United States? Here are the answers to your questions. Get all the minute updates related to American expat taxes at USTAXFiling. So, stay tuned and continue to get the top 5 business-related questions related to US Expat income taxes.

For American expats who are trying to navigate American expat income taxes, that is daunting enough, but add to that the complex nature of having a small business and searching the proper sources that are restricted. We at USTAXFiling have made a list of the top 5 expat business tax questions to aid you in getting through the foggy landscape that is the US income tax system. 

Suppose anyone is a sole proprietor of a business outside the United States. Do you have to file a special form to put your business expenses and income on your personal income tax return, or is it an automatic designation?

  If you operate a business outside the United States and there are no other owners or partners, you are determined as a sole proprietor. If you are not designated to your company in another way in the country you are working in, you may automatically be determined as a sole proprietor, and your business expenses and income may be reported on a Schedule C on your US expat income taxes.

Your company might be determined as a disregarded entity by the Internal Revenue Service. It means that the Internal Revenue Service does not determine your business as a separate income-taxable entity from your other expenses and income. Your company taxes are paid on your personal income tax return.

Few countries provide business structures that offer you tax benefits as a sole proprietor. If you prefer to use a structured business style like a Foreign LLC, but you wish to keep your business categorized as a sole proprietorship in the United States, you have to file Form 8832 with your first US income tax return after the change.

If you prefer a foreign LLC-type business structure, it is necessary that you don’t add any other owners or members (even your kids or spouse), or you might claim the disregarded entity status with the Internal Revenue Service.

You might be categorized as a foreign corporation or a foreign partnership based on the similar type of entity you have and might have to file a separate income tax return for your company.

Do you have to pay estimated US expat income taxes?

The United States income tax system is a “pay as you earn” system. It means that you have to pay your income taxes as you earn the amount throughout the financial year. Several individuals with a salary or any kind of regular payments throughout the year pay their income taxes through withholding.

Another option is to pay your US expat income taxes throughout the year with estimated income tax payments. Estimated income taxes are a prepayment of your US income taxes, usually made in four payments throughout the tax year. If you think that you owe taxes when you file your income tax return, and you don’t have enough tax being withheld from your income during that particular year, then you have to make estimated payments to eliminate charges from the Internal Revenue Service.

If you have a business outside the United States and expect to owe income taxes, either self-employment taxes or income tax, to the Internal Revenue Service when you file, you have to make a specific tax payment to the Internal Revenue Service.

There are a few provisions in the income tax code for foreign companies that include the Foreign tax credit that prevents you from having to pay US expat taxes, but you must check with your income tax expert to ensure that you don’t have to make any estimated payments before foregoing them.

Do you have to pay self-employment income taxes on the income from foreign business?

If you are determined as a disregarded entity by the Internal Revenue Service and file a Schedule C form on your personal income tax return, you are subject to self-employment income taxes on your business income. When it comes to self-employment income taxes, they are the combined employer and employee portions of Medicare and Social Security income taxes for your business. As a sole proprietor, you are determined to be both the owner and employee, and so you should pay both sides of the Medicare and Social Security tax.

If you stay in a country with a social security agreement, also called a Totalization agreement with the United States, you might become eligible to only pay social income taxes to one country.

Here is a list of the countries with a social security agreement with the United States:

  • Chile
  • France
  • Germany
  • Italy 
  • Japan
  • Australia
  • Portugal
  • Netherlands
  • Switzerland
  • Denmark
  • Belgium 
  • Austria
  • Czech Republic
  • Norway
  • Finland
  • Ireland
  • Poland
  • Canada
  • South Korea
  • Spain
  • Brazil (Pending approval)
  • United Kingdom
  • Sweden
  • Greece
  • Luxemburg
  • Slovak Republic 

The social security agreement details which country you may pay totalization type taxes to, either your resident country or the United States. If you only have to pay the income tax to your resident country, you can exclude the self-employment income taxes on your US personal income tax return.

What forms do you have to file if you go into business with a non-US citizen?

Based on what kind of business structure you have, you may have to file informational returns for your company if you have non-US partners or co-owners. If your business is incorporated, you have to file form 5471 with your US expat income taxes every year. The form details your corporation’s expenses and income, specific transactions, and shareholder details between the shareholders and the corporation.

Specific types of foreign business structures are determined automatically to be corporations by the Internal Revenue Service. There are high charges for not filing the form on time. Make sure that you have this form attached to your income tax return if required.

If your company is not incorporated, but there are several owners or members, you have to file a form 8865 with your income tax return. The form details the expenses and income from your partner and business transactions and information. You might determine a partnership if you have a foreign Limited Liability Company or LLC with more than one member, even if the other member is your kid or wife.

Will your foreign business be subject to FATCA rules?

The FATCA (Foreign Account Tax Compliance Act) was designed to prevent income hiding from the Internal Revenue Service by depositing monies into FBA (Foreign bank accounts). The wide-flung net of FATCA (Foreign Account Tax Compliance Act) impacts US income taxpayers on business and personal levels. Foreign Account Tax Compliance Act rules require that US partners file FinCen Form 114 or FBAR form with the US treasury every financial year that their FBA (foreign bank accounts) total accounts balances reach more than $10,000 more at any point during the financial year.

It implies not only personal bank accounts as well as business accounts with any US individual. Also, accounts are owned by US individuals; any US individual who has a signature authority over a bank account has to report the account to the US treasury. A certified authority is when an individual has the right to withdraw funds and sign checks from a bank account but is not a direct partner or owner of the bank account.

Still, have doubts about your US expat income taxes pertaining to your organization or your business?

We are here to help at USTAXFiling. Our IRS and CPAs enrolled agents will point you in the proper direction related to US expat income taxes. You don’t have to worry about anything. We at USTAXFiling have a team of talented and committed experts who make sure to discuss your queries and resolve them as soon as possible. Also, our USTAXFiling experts are highly skilled and qualified and have all the updated information related to US income tax filing. So, you can enjoy your work while we take care of your income tax filing! Your wait is over, as your income tax filing consultant is here. Call us right away at USTAXFiling now! 

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