Working for Yourself Means More Work When Filing Your Tax Returns


Yesterday was the Labor Day Holiday in the United States — a national holiday meant to acknowledge the workers of this country.  Some of those workers are employees, but a growing number of them are self-employed.  In 2015, around ten percent of workers were self-employed.  And in a more recent poll, that number was up around 14 percent, with a total of 28 percent of workers surveyed saying they were self-employed at some point during the 2019 tax year.


Being self-employed can be exciting, but also scary, particularly around reporting it all on your tax returns.  You may be asking yourself, where do I report the income?  Which expenses can I claim?  Most self-employed people can report their earnings on Schedule C, and even rental income, which is normally reported on Schedule E, may need reporting as self-employment income.  Figuring your expenses is not straightforward, because the IRS will allow some deductions but not others.


Working for yourself also means figuring your own "payroll" taxes and sending that payment along with your regular 1040 and income taxes.  In addition to the burden of 15.3 percent tax itself is the worry you've done it right.  And getting these calculations done correctly is crucial.  The IRS has a reputation of being tough on self-employed people who have problems with their "payroll" and income taxes. 


And like so many typical tax issues, being international adds an additional level of complexity — and an addtional level of concern.  Working for yourself can seem easy enough under local law in the country where you reside, but keep in mind that a U.S. citizen self-employed abroad still needs to report all of his or her self-employed income to the federal government.  Often, a self-employed person will form an LLC equivalent in the country where he or she lives, which likely creates international information requirements.  Will you need a 5471?  An 8858?  Will you need to file a form 8832 to avoid some of the more onerous information reporting requirements?  If your LLC equivalent gives you something like limited liability, then you will definitely need some information reporting.  Getting those filed correctly will help avoid those nasty $10,000 penalties. 


Like with so many problems, an ounce of prevention is worth a pound of cure.  Having your Schedule C and tax returns prepared correctly the first time will be your first line of defense should the IRS contact you.  Give IRS Medic a call and let one of our experienced tax professionals complete and file your self-employment and international returns.


— The IRS Medic Team