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American Freelancers or Sole Proprietors Abroad and US Taxes

Expat Tax Blog | Tax Tips for US Americans Abroad

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You are a US American living abroad, and officially a freelancer or sole proprietor working primarily from overseas. Sole proprietors have exclusive control over management decisions and operations, reports all profits and losses on their personal income tax return, and are personally liable for business debts and obligations.  Most self-employed folks abroad tend to be freelancers or sole proprietors per this definition – especially digital nomads!

Freelancer or Sole Proprietor?

Let’s say you already registered at the local office or town hall and are committed to abiding by your country’s laws and policies. While being an American sole proprietor or freelancer abroad may come with feelings of freedom, your relationship with taxes and the US is still important. Why? You still have some things to take care of for the states.

Despite being an American freelancer or sole proprietor abroad, you still need to report your worldwide income once a year to the IRS (but no fret if you use our software, as we take care of all that).

We have listed out 4 things to be aware of if you’re a US American freelancer or sole proprietor abroad:

FATCA – Report your Bank Account Overseas

According to our must-know tax terms list, The FATCA stands for Foreign Account Tax Compliance Act – a.k.a. why you need to sign a million US / IRS documents when opening a bank account abroad. This federal law requires foreign financial institutions to report any of their financial accounts owned by US citizens back to the states, while also requiring US citizens to disclose this information themselves on the FBAR and potentially Form 8983.

So if you’re making bank (i.e. have more than $10,000 combined in all your foreign financial accounts at any point in the year), then you have to report those accounts! 

Self-Employment Tax

According to the IRS, as a self-employed individual, you must pay self-employment tax AND income tax. Self-employment tax is essentially a social security tax. Normally, this tax is withheld from your pay, however obviously as a self-employed individual, you’re responsible for paying this tax after the fact.

Self-employment tax can really surprise an American freelancer or sole proprietor abroad since in some cases (i.e. when the US doesn’t have a Totalization Agreement with your host country), you CAN be double taxed. No stress though, most countries have this agreement and we’ll help you reduce your bill if not all of it.

Schedule C (freelancer)

For Schedule C, you will need to report your business loans and gains through this form as an American freelancer or sole proprietor abroad. This is because your business income passes through your personal tax return, unlike a foreign corporation.

Annual Reporting Obligations

There is, of course, the April 15 tax reporting deadline for US Americans, but those living abroad got it a little easier. They have some more time being able to complete their tax forms in time. June 15th is the official extension for Americans living abroad, but if you really need some more time, October 15th is the last extension date.

Need Help with US taxes?

If handling tax forms, and all the information we discussed above is still too confusing or complicated, no worries. That’s why we’re here. MyExpatTaxes can help sort out your freelance or sole proprietorship status and US taxes for you. Just sign up below and be ready to experience a new, fun, easy way to do your taxes.

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