Self-Employed Self Employed: Living and Working Abroad? Here’s What You Need to Report to the IRS Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Jim Wang Published Mar 16, 2023 - [Updated Apr 5, 2023] 4 min read Reviewed by Katharina Reekmans, Enrolled Agent One of the more popular trends these days is being a digital nomad. If your work can be done remotely and not at an office, why not travel the world at the same time? You can often live in an exotic location that has a significantly lower cost of living, all while earning a comfortable salary from clients who don’t need to meet with you every day. Once you sort out the basics, like where you’re living, you might be thinking about the tax implications of such an arrangement. If you are a United States citizen or a resident alien living overseas, the IRS will still want to know about your earnings. Fortunately, the process and rules for filing income taxes and paying estimated tax are the same whether you live in or outside the United States. How to Report Your Earnings When living and working abroad you’ll need to report all of your income. Whether it was earned in the U.S. or abroad, the IRS wants to know what you’ve earned in US Dollars (USD). When you’re self-employed you will also still be responsible for making quarterly estimated tax payments as if you lived in the United States since the rules are the same. The Foreign Earned Income Exclusion The foreign earned income exclusion is one benefit you need to know about if you’re working abroad. If you have qualifying income, you can elect to exclude foreign earned income that is the result of your personal services up to $112,000 for 2022 and $120,000 for 2023. This applies to employees as well as self-employed persons. You qualify for this exclusion if you are a resident of a foreign country for the full tax year or physically present in a foreign country for at least 330 full days in any 12-month period that begins or ends in the tax year you hope to claim the exclusion. In addition to the income exclusion, you may be able to claim a foreign housing cost amount exclusion from your gross income. This amount is your total housing expenses minus a “base housing amount” and is 16% of the maximum exclusion amount times the number of days. Foreign Tax Credit If you earn foreign income your foreign source income is taxed in the U.S. and the foreign country you work in, however, the IRS gives you a break with the foreign tax credit. The foreign tax credit is intended to relieve you of being taxed in both the U.S. and the foreign country. You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Generally, it is better to take the credit for qualified foreign taxes than to deduct them as an itemized deduction because of the following reasons: A credit reduces your actual U.S. income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax. You can choose to take the foreign tax credit even if you do not itemize your deductions. You then are allowed the standard deduction in addition to the credit. If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. You Get Extra Time Finally, the IRS gives you an automatic two-month extension to file your return and pay any taxes due without having to request an extension. The due date would then be June 15, 2023, instead of the April tax deadline. If you happen to owe any penalties, these are calculated based on the extended date in June too. Note, tax deadlines are the 15th of the month unless the 15th falls on the weekend, then the deadline will be the following business day. If you need more time, you can request an extension by filing a Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return but you must do so before June 15th. Don’t worry about knowing these tax laws. TurboTax Self-Employed will ask you simple questions about you and your business and give you the tax deductions and credits you’re eligible for based on your entries. If you have questions, you can connect live via one-way video to a TurboTax Live Self-Employed tax expert to get your tax questions answered at tax-time. Start TurboTax Live Self-Employed today, in English or Spanish, and get your taxes done and off your mind. Get started now Previous Post Are State Tax Refunds Taxable? Next Post Tax Guide for the Self-Employed: Everything You Need to Know Written by Jim Wang More from Jim Wang One response to “Self Employed: Living and Working Abroad? Here’s What You Need to Report to the IRS” Foreign tax credit carryover only applies towards foreign earned monies in subsequent years, no? Reply Leave a ReplyCancel reply Browse Related Articles Self-Employed Self-Employed? Quarterly Tax Date Deadlines Self-Employed Tax Tips for People New to Freelancing Self-Employed Moving from Employee to Self-Employed? Here’s What it… 2022-03-23 Self-Employed 1099-K Form Reporting Threshold Delay Announced For Tax… Self-Employed Tax Tips for “The Sharing Economy” Self-Employed Do Creators Pay Taxes on Money Earned? Self-Employed Self-Employed Tax Tips & Summer Jobs Self-Employed What Income and Expenses Do Social Media Influencers Ne… Tax Planning Save the (Tax) Dates!