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Tax Tips for Your Small International Business

Tax Tips for Your Small International Business

With how vast today's world is connected, it is possible to run a business anywhere thanks to technology. However, before developing your business overseas, it is essential to consider the overseas tax implications. Even though it is complex and challenging, it is necessary to keep you within the confinement of the law.

 

This article will discuss essential tips for entrepreneurs who want to file taxes for their businesses. 

  1. Decide Your Company Structure 

The essential decision business owners need to take is the business structure. The selection is a factor of the nature of the organization or whether you have relocated abroad permanently. Make sure to register your business in your country of abode for people that have settled abroad permanently. 

For people who are not settled in a specific country but will be travelling between various countries or for people abroad for a long time, the best thing is to register your business in your home country. 

People residing in the United States of America have the option of Sole Proprietor, S-Corp, Partnership, Limited Liability Company or Corporation. For all these structures, the tax structure is similar to those living in the States. 

  1. Report Your Earnings

Your total personal earnings should be disclosed on your tax return (for US taxpayers) from all existing sources. It also includes the small foreign company, whether you work or not, the origin of the earnings and whether your tax goes to another country. 

Series of strategies are available to take care of double taxation like Foreign Tax Credit, alongside the Foreign Earned Income Exclusion. One needs to report the foreign profit on a US federal return to avoid double taxation. 

  1. Track Gross Receipts

 Uncle Sam defines gross receipt as the total sums acquired by the company from every source during the annual accounting cycles without removing any expenditure. As an expat taxpayer, you have to monitor every income from the company. Examples of qualified gross receipts are:

  • Invoices

  • Sales receipts

  • Bank deposits

  • Cash register receipts 

  • All credit card receipts that come from businesses and customers. 

Any independent contractor with annual wages above $600 employed by a US client could be a 1099-MISC sent before the tax deadline. Also, when you commence business, you can start tracking payments and save gross receipts. 

  1. Employ Deductions 

In talking about US tax seasons for expats in business abroad, Americans living and working abroad can get some significant savings. Based on the Foreign Earned Income Exclusion, all eligible taxpayers must not be on US soil for an entire year, with no plans to reside in the foreign country for 330 days out of the whole year. 

Based on the FEIE, you can deduct the first $101.300 of foreign income from your entire annual income. It is also possible to withhold company costs from the expat tax liability, provided they are classified as reasonable and ordinary. Here are the categories of expenses that you can write off based on the nature of the company you operate:

  • Travel

  • Legal service

  • Meals and entertainment

  • Supplies

  • Professional services

  • Taxes and licenses

Ensure you are aware of the tax guidelines in your receiving company since requirements are not the same in all locations. 

  1. It is Compulsory to Report Offshore Bank Account 

One of the significant reporting criteria that is unknown to many people about the launching of overseas business is Foreign Bank Account Reporting (FBAR). It is one of the essential strategies employed by the US government to curb tax evaders that would want to keep cash in an offshore account. Every company with a foreign account balance above $10,000 must file Form FinCEN 114 before the 30th of June. 

Bear in mind that the figure is estimated, implying that the entire sum of your whole international account will stand as the threshold. People operating a foreign-based corporation need to file FBAR for the individual personal account; it is more than $10,000 for the current tax year. If one does not file and Uncle Sam detects, it can lead to severe fines, which makes it essential to maintain the FBAR filings every year.


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