Should I File My US Expat Tax Return as an Individual or as a Business?
IJ Zemelman Mar-15-2015
As an American Expat and entrepreneur, deciding whether to file your US expat tax return can be difficult. If you consider how your business is set up, however, this decision becomes more simplified.
Are you a US Expat and an entrepreneur? Are you wondering if you should file your US expat tax return as a business or as an individual? In order to answer this question adequately, you need only to consider whether your business is set up as a corporation, an LLC, or some sort of pass-through entity.
If your business is set up as a foreign corporation, you will need to file one US expat tax return as a corporation and another personal US expat tax return.
If you own a foreign corporation, you will need to report its income and losses on Form 5471. Filing Form 5471 as a foreign corporation relieves you of your requirement to pay a self-employment tax. That doesn’t mean you don’t need to file a US expat tax return as an individual; it just means that your corporation is a completely separate entity.
If you have a foreign LLC or a pass-through entity established in the United States, you will be required to pay a self-employment tax and should file an individual US expat tax return and include your business income and expenses.
If your business is set up as an LLC or another type of pass-through entity, then you are considered to be a sole proprietor. As such, you will be required to pay a self-employment tax on your income. In cases like these, it’s best to file a US expat tax return as an individual. You will be able to claim your business income on and deduct your losses when you file your US expat tax return as a sole proprietor.
An important note about self-employment income: You must pay the self-employment tax before you deduct your foreign earned income using the FEIE.
If you are a sole proprietor, you are required to pay the self-employment tax. This is true even if you qualify for the Foreign Earned Income Exclusion. Make sure to speak with an experienced US expat tax professional if you are unsure how to file your US expat tax return.
I.J. Zemelman, EA is the founder of Taxes for Expats