Taking a freelance gig and living outside of the United States is a wonderful way to experience another culture and to broaden your portfolio. However, it is essential to know your tax obligations, including the deadline for filing your U.S. taxes from afar. This year, non-resident U.S. citizen tax returns on extension are due on June 15.
Keep this in in mind, though: The IRS automatically gives a 60-day extension to those filing U.S. taxes abroad, but your taxes are still due to be paid on the day recognized by the IRS as Tax Day (April 18 this year).
Since the United States is one of just a few countries that collects income tax on its citizens’ income, no matter where it is earned, there are other important things to know about your freelance taxes before moving abroad. Here’s a quick list of considerations to bring along on your journey.
First, the good news. If you are a U.S. non-resident, and you meet the following requirements you have an automatic 60-day extension for filing your tax return:
- You reside outside of United States and Puerto Rico with your primary business location being outside of the United States and Puerto Rico also.
- You serve in the U.S. military or U.S. navy and are on active duty outside the United States and Puerto Rico.
Beyond your federal income taxes, remember that every state also has unique tax-filing requirements for U.S. expatriates, so learn what your state and local tax obligations are before jetting off to your far-flung freelance gig.
Additional Considerations for Freelancers Setting Up Shop Abroad
Beyond the filing deadline for non-resident U.S. taxes, here are some other key considerations you should be aware of when filing your taxes while living and working outside of the United States:
Foreign Earned Income Exclusion
Up to $100,800 USD of your foreign earned income may be excluded when you live and work abroad, as long as you can provide proof of your current living and working location.
Even when living abroad, the income you report on your tax return must be in U.S. dollars, converted on the daily rate of the payment transaction, or on the annual rate (if you have many different payment transactions). It’s a good idea to compare the conversion amount using both options to see which one is the most advantageous one, from a tax perspective.
Foreign Tax Relief
When you earn money from your freelancing work as a resident of a country other than the United States, you will likely be obligated to pay taxes in that country, too. Fortunately, the Foreign Tax Credit helps to reduce the pain of this double taxation by allowing you to claim a credit on your U.S. expatriate taxes for any foreign income taxes paid.
In addition, the United States has tax treaties with more than 50 countries to mitigate the impact of dual taxation on U.S. citizens. It is your responsibility to understand how you will be taxed in the country where you are living and working.
Foreign Bank and Financial Accounts (FBAR)
On a related topic, if you have over $10,000 USD in a foreign bank account for any period of time throughout a year, you must report this activity by filing the Foreign Bank and Financial Accounts (FBAR) or risk penalties. The FBAR is due on April 15 of each year with an automatic six month extension until October 15. This filing is submitted separately from your tax return.
Enjoy Freelancing Abroad…Just Keep Your Tax Obligations in Mind
One of the best things about freelancing is the freedom that it affords you to choose your own assignments and to make your own schedule. What better way to take advantage of this than to live and work abroad? If you get the chance to work outside of the U.S., it’s worth giving it serious consideration. Just make sure that you also explore the tax and financial implications of doing so before you board that plane!
Jonathan Medows is a New York City based CPA specializing in taxes and business issues for freelancers and selfemployed individuals. He offers a free monthly email newsletter covering tax, accounting and business issues via his website, www.cpaforfreelancers.com, which also features a blog, howto articles, and a comprehensive tax guide for freelancers.