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\n\t\tOpinions expressed by Entrepreneur contributors are their own.\t<\/p>\n
Moving abroad changes your finances, but it doesn\u2019t change your U.S. tax obligations. I regularly talk to clients who assume that once they or their income and assets leave the U.S., the IRS is no longer interested. Unfortunately, that\u2019s not the case. The U.S. taxes its citizens on their worldwide income, and requires reporting of foreign accounts and assets, regardless of where you live.<\/p>\n
Many expats also assume a side hustle, like freelance work or an online shop, is too small or too casual to count. Again, the IRS doesn\u2019t see it that way. For most expats, the real risk isn\u2019t double taxation. It\u2019s missing a filing or reporting requirement that they didn\u2019t know existed, and the risk only grows as you, your money and your assets become more international.<\/p>\n
Side-hustle income, such as freelance work, consulting, ecommerce or creating content a few hours a week, counts as taxable income in the U.S., even when the client is abroad, and you\u2019re paid into a foreign bank account. Earning money outside the U.S. doesn\u2019t move it outside the U.S. tax system.<\/p>\n
That income also triggers self-employment tax<\/a>, a 15.3% rate many expats running a side business overseas don\u2019t expect. Expat tax breaks like the Foreign Earned Income Exclusion (FEIE)<\/a> and the Foreign Tax Credit<\/a> can help reduce or eliminate US tax on foreign income, but neither touches self-employment tax.<\/p>\n Start keeping records of income and deductible business expenses as soon as the money starts coming in. Reconstructing a year of transactions at tax time is harder than tracking them from day one.<\/p>\n Living abroad typically means opening at least one foreign bank account, and entrepreneurs running a side business can quickly end up with several, split between personal and business use.<\/p>\n The rule is simple: if the maximum value of your foreign financial accounts combined exceed $10,000 at any point during the year, you must file a Foreign Bank Account Report (FBAR)<\/a>. That threshold applies across all your accounts, including business accounts you control, not to each account separately.<\/p>\n Say you have an account set up to receive payments for your freelance consulting work, where the highest balance was $8,000 during the year, and a personal checking account for everyday expenses that peaked at $3,000. Neither account alone crosses the $10,000 threshold, but together they total $11,000, so you\u2019d still need to file an FBAR and report both accounts.<\/p>\n US expats may also have to file under FATCA<\/a> using Form 8938<\/a>, which applies at higher thresholds that vary based on filing status and whether or not you live abroad. Neither FBAR nor FATCA is a tax. Both are reporting requirements only, but failing to file either can bring steep penalties.<\/p>\n Keep track of your foreign accounts and their highest balances each year to avoid an expensive mistake.<\/p>\n An investment product or structure that\u2019s ordinary, even tax-efficient, where you live, can be treated very differently by the U.S. Foreign mutual funds, and even some foreign pensions are good examples. The IRS often classifies them as Passive Foreign Investment Companies (PFICs)<\/a>, a designation that can come with punitive tax treatment and complex reporting obligations.<\/p>\nTrack and stay ahead of foreign bank account reporting rules<\/h2>\n
Be careful with foreign investments and business structures<\/h2>\n