Company ownership – If you are a US citizen or Green Card Holder and own a business outside the US, you may have separate filing requirements to go along with the filing of your personal US Tax Returns. Certain U.S. individuals who own more than 10% ownership in a foreign corporation must include additional filing of Form 5471 (and related forms) to report financial position of the company, which in fact can be lengthy and sometimes, confusing. If the U.S. person is a partner in a foreign partnership, then the requirement is to file Form 8865 to report income and financial position of the partnership. There are various material penalties associated with non-filing / reporting of the business with the tax returns and hence it is important to fully understand and report the required documents on a timely basis annually.
Self-Employment – If you own a business but you are working for yourself (i.e. self employed with no company set up), there are different set of requirements. You have to file Schedule C (Profit or Loss from Business) with your US Personal Tax Return to report income and expenses earned from your self employment business. It is to note that the filing threshold for the self-employed individuals is low and if you are earning $400 or more in a tax year, you are required to file a US tax return.
Here are additional guidelines for American expats living abroad.
Record keeping of your business – Whether you are running a company or are a self employed individual running a small business, record keeping of all the business transactions such as income and expenses and receipts of the business are critical for reporting purposes. Accurate record keeping makes it simpler to prepare your tax returns and calculate taxes due, if any, and also are used as supporting documents in case of any queries from the IRS.
Different tax forms for different types of businesses
We all know that every business is not the same. There are specific tax forms that you need to fill out depending on the type of business that you have.
- Sole proprietorship – when we say sole proprietorship, this type of business means that you’re self-employed without the limited liability coverage. Digital workers fall under this category, as well as freelance workers and consultants. Schedule C on Form 1040 is the tax form that you need to fill out.
- Corporation – if a US person has more than 10% of a foreign corporation, then the tax form that should be used and filed is Form 5471.
- Partnership – if a US person is a partner in a foreign partnership, then the tax form that should be used and filed is Form 8865.
Filing deadlines for business owners
The filing deadline for US persons with businesses abroad is the same as filing of their personal US tax returns. Business forms are supplemental forms submitted along with personal tax returns.
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