Coffee heat rising

A Quick Guide to Taxes for Self-Employed American Expats

Susan-B.-Anthony-DollarThe United States is only one of two countries that have adopted a citizenship-based taxation system, the other being Eritrea in Northeast Africa. This means that all U.S. citizens and permanent residents (also known as Green Card holders) are required to file a return and pay tax on their worldwide income, even if they are based in a foreign country.

For self-employed expats who are thinking of starting a business abroad, this could mean an additional layer of complexity to an already complicated system of tax filing and reporting. But just because the U.S. tax system works against expat taxpayers doesn’t mean you should give up on your goals.

Here’s a quick guide to filing taxes as a self-employed expat.

What is self-employment?

People who work for themselves are considered self-employed. While the term is generally associated with small side hustles, working as an independent contractor or opening a business also counts as self-employment.

According to the IRS, a person can be considered self-employed if:

  • They carry on a trade or business as a sole proprietor or an independent contractor
  • They are a member of a business or trade partnership
  • They are otherwise in business for themselves (including a part-time business)

It’s important to note that a person can be both self-employed and also work as a salaried employee. Many expats have started businesses on the side while holding down a full-time job.

Self-employed expat taxes

Self-employed expats often deal with heavier tax responsibilities compared to their salaried counterparts.

For starters, self-employed taxpayers have to withhold taxes from their income themselves, which results in extra paperwork and research. They also have to pay self-employment tax (for Social Security and Medicare) on top of their income tax.

Self-employed taxpayers may also have to pay estimated taxes quarterly. Ask a tax professional to clarify your tax situation to avoid a hefty penalty at the end of the year.

What is the threshold for self-employed tax

The reporting threshold for self-employed individuals is substantially lower than what most taxpayers are accustomed to. Self-employed expats who earn more than $400 in a year are required to file a tax return.

Is foreign income subject to self-employment tax

All income from self-employment, even from foreign sources, is subject to U.S. taxation. Self-employed individuals are required to pay a 15.3% self-employment tax: 12.4% for Social Security and 2.9% for Medicare.

However, you may claim an exemption from paying U.S. Social Security tax if the United States has signed a totalization treaty with your country of residence.

Self-employed tax deductions

The IRS allows self-employed individuals to deduct business expenses from their taxable income, reducing their tax bills. Make sure to take advantage of all the benefits available to you to minimize your tax liability.

Some business expenses you can deduct include:

  • Legal and professional services
  • Business-related travel
  • Equipment and supplies
  • Marketing
  • Utility bills
  • Insurance
  • Business meals and entertainment

Just make sure to keep your records updated in the event of an IRS inquiry. Every deduction must be supported by documentation such as a receipt to justify the claim.

Self-employed tax exemptions

Self-employed expats who already pay income tax to their host countries can take advantage of tax exemptions to minimize their U.S. tax liability on the same income.

For instance, the Foreign Earned Income Exclusion allows you to exclude up to $108,700 (for tax year 2021) of foreign-earned income from U.S. tax if you are based in a foreign country.

You may also take a Foreign Tax Credit for foreign income taxes imposed on the same income. Self-employed expat taxpayers may claim a dollar-for-dollar tax credit on income tax paid to the host country’s tax service. This means you can use your foreign income tax bill to offset your U.S. taxes.

What if I’ve never filed self-employed taxes?

Self-employed American expats who haven’t filed a U.S. tax return may use the Streamlined Foreign Offshore Procedures program to report foreign-earned income and pay back taxes without facing penalties.

Tax planning for self-employed expats

Filing taxes as a self-employed expat can be confusing and time-consuming. You are expected to stay on top of your tax obligations while running a business abroad. You also risk incurring heavy penalties if you make a mistake on your tax return. If you want to make sure your taxes are done correctly, your best option is to work with a professional tax service .

A Raft Made of Palm Fronds

Where we lived in Saudi Arabia — I grew up in an oil camp full of American expats on the shore of the Persian Gulf — the fences between our houses were made of sticks derived from stripping the leaves off the center spines of palm-tree fronds. Date palms, oleanders, a kind of jasmine shrub, and a tree-like affair that looked a great deal like a paloverde were the only things that grew out there, where the soil was mostly sand and salt. A sort of bermuda-grass would grow, in a sickly and lumpy way. But otherwise that was about it.

I had a plan, when I was a little girl.

It was to run away.

Not just to run away, but to sail away — because obviously, even to the mind of a young child, the only plausible means of escape were by air (impossible for a kid without her parents) or by sea.

The latter would be exquisitely dangerous. Even the ten-year-old I recognized that. But it was reasonable to reflect that to be dead would be better than to continue living in that place.

I was an unpopular little kid — a weird one. School was an unhappy place for me. And home wasn’t a whole lot better when I wasn’t sequestered in my room,  terrified of my father and  miserable in general with life.

So I hatched a Plan.

The Plan was to build a raft, equipped with a sail made from a sheet, and set to sea off the coast of the Rub al Khali, one of the most barren deserts on the planet. The body of this raft would be made of palm ribs, readily available from the fences the Arabs built to delineate the lots that held the Americans’ company houses. These I would lash together with rope and wire.

Once fully equipped, I would sail down the Persian Gulf through the Strait of Hormuz, then make my way up coast of Asia. Cross the Bering Strait and make landfall in Alaska. From there I would walk and hitch-hike down into California. And once home: take up the lifestyle of Little Orphan Annie.

Great idea, ain’t it?

This evening I was led to reflect on my father’s life, blighted as it was from the beginning by circumstance, and how he managed to overcome most of that. Yet…how any extended happiness contrived to elude him.

My father was a change-of-life baby, an unfortunate surprise for his parents. His youngest brother was 18 years older than he was.

His father did not want to raise another child, starting out in middle age. So he ran off, leaving the infant and the 40-plus mother in Texas to fend for themselves. She had inherited a substantial amount of money from her own father, who had made a fortune freighting buffalo hides out of Oklahoma into Kansas. Some time later, the unwilling dad was found by the side of a remote East Texas road, allegedly a suicide.

That, I think, is dubious. Given that during his careers as a prison guard and as a cowboy he had plenty of opportunities to make the occasional mortal enemy, I suspect it’s just as possible that he was murdered. But that, interesting as it may be, is neither here nor there.

My grandmother diddled away her late father’s wealth (equivalent of about $2.75 million in today’s money), swindled by dubious building contractors offering to fancify her home and by spiritualists who promised to contact the dead in séances from the living room. When the two older brothers learned their expected inheritance had been looted — way too late! — they turned on each other. My father dropped out of high school, lied about his age, and joined the Navy.

Hence, a career as a deck officer: Navy, Coast Guard, and Merchant Marine. It was this seafaring work experience that bought him a handsomely paid, all-expenses-covered job as a harbor pilot in Arabia, steering supertankers in and out of the port at Ras Tanura.

He led an interesting life full of interesting (but also often tedious) adventures. He worked hard. He set himself the goal of earning and putting into savings the amount of the fortune his mother squandered. Today, that’s no great pile of dough — to buy my little tract house would cost five times that many dollars. But he wasn’t an educated man and he didn’t understand about inflation. And besides, by the time he retired, the dollar hadn’t lost so much value that he and my mother couldn’t live a modest middle-class lifestyle on what he’d saved. They paid for everything in cash: cars, the house in Sun City, their daily necessities. If they couldn’t afford to buy it in cash, they didn’t buy it. And they lived pretty well.

That cash-only lifestyle — and its obvious benefits when good times turn to hard times — was what taught me never to buy anything that you can’t afford to pay for out of pocket. That includes a house: if you don’t have $500,000 in savings (and then some), don’t buy a $500,000 house. Buy a $100,000 house and pay for it in cash dollah.

[Unless, of course, your investments are returning more than the amount of interest you would have to pay on a mortgage loan. That concept was above my father’s head, but it’s worked OK for me.]

I think he never had a very happy life. Or if he did, it was only for short stretches. He went to sea most of his adult life: hard, tedious work. As for the ten-year stretch in Arabia? Who knows what he really thought about it: he wasn’t a complainer. I doubt if he thought much about it one way or the other: he took things as they lay.

My mother used my (supposed…) infection with mononucleosis in the 6th grade as an excuse to demand that we come back to the States. He reluctantly agreed. We moved to California, where for a few years he shipped out of Rodeo (in the San Francisco Bay Area) and then for a few more years out of Long Beach. By nature he was a homebody — he loved to putter, and he would cheerfully do things like scrub the kitchen floor for my mother. But now “home” was a cabin on an oil tanker.

He retired in the late 1960s…just in time for a wild inflationary period. Shortly, the value of his life savings shrunken, he had to go back to sea: he was on a boat when I graduated from college, and he was stuck in a storm off Alaska when I got married.

Finally he retired again, once and for all, and came “home” to Sun City.

I believe he and my mother were happy enough there, for awhile. But it wasn’t long before she smoked herself to death. Not surprisingly, given that she was smoking six packs a day by the time she died, she lasted only another six or seven years after they moved to Arizona. Then he had to care for her while she died hideously over a four- or five-month period.

Devastated by her death and the horror show that accompanied it, he sold the Sun City house, moved to a life-care community, and married a woman he met there. This was not an especially happy match. But because he was afraid that if he divorced her she would get all his money (Arizona is a community-property state), he stayed miserably in the union. By way of survival, he snuck off and rented a studio at another old-folkerie…he would tell the wifeling that he was taking the car to the repair shop, and then he would repair, all right: to the other apartment and sit in front of the TV all day.

LOL! You shoulda seen the Vigoro fly when she found out about that! 😀

When you come right down to it, life is a raft made of palm fronds, isn’t it?

The State of the…Whatever-We’ve-Got-Here…

Today’s Quora post:

What are your thoughts on Dr. Fauci telling reporters that America might still be battling smallpox and polio if today’s kind of misinformation existed back then?

Unstuck in Time

Disequilibrium, indeed. More like “unstuck in time,” I fear.

I’ve disliked the modernified Scottsdale Fashion Square for some years. Once a pleasant place to shop in tony venues, in recent years it has been upgraded to “contemporary”…another word for “cold,” “hard-edged,” “noisy and echoey,” “engineered to feel hectic,” and…well…”not a place you’d like to hang out if you had some other choice.” So by and large I stay away from it, because a visit there usually devolves into an annoyance of one sort or another.

But…my MacBook needs some attention. Actually, what it needs is a compatible external hard drive, preferably one designed to work with Mac equipment.

Apple kindly closed its store in Biltmore Fashion Park, which was at least moderately civilized. Their other store, in Arrowhead Mall, is too small for its clientele: every time you go there, you find yourself waiting interminably for help, crammed in elbow-to-elbow with a whole bunch of other glassy-eyed folks who are waiting interminably.

So. Let’s try something altogether different, in the Apple Department.

After I seethed my way back across the city and got back into the house, I searched Google for independent Mac technicians, and lo! Found several. One over at 32nd Street & McDowell answered the phone and said to come on in any day this week.

He said to call in the morning of the day I’d like to meet him and make an appointment then. So…by tomorrow I should have regained part of my sanity — whatever is left of it — and so I’ll arrange to get this thing over to him and get HIM to fix it.

Orrrr… As for the hard drive? Says he: it needs to be formatted for the Mac.

Who knew?

Where was I in my planned rant?

Yes, the uglified Scottsdale Fashion Square. It is a long drive from the Funny Farm through unpleasant traffic: a good 30 to 40 minutes, outside of rush hour. When you get there…I swear…every time you surface over there, they’ve changed things around and fucked things up. Now you have to navigate past a trolling valet parking service to make your way up into a high-rise parking garage. Memorize where you left the car. Find the steps or elevator. Memorize which set of steps you used to get down to the ground floor. Then hike.

And hike. And hike.

The Apple store is ALLLLL THE WAY ON THE FAR SIDE of the freshly ugly mall, forcing you to walk up and down steps, through hectic crowds, past endless kiosks selling junk, all the time accosted by the loudest echoing racket you ever hoped never to have to hear. The atmosphere is cold, snobby, overpriced, hectic, and annoying.

Finally I get there. I tell the service rep I have an appointment. I explain that the Macbook won’t talk to the hard drive so there’s no question of backing up data: it just can’t be done. She gives me a blank look. For all the world, it appears that she doesn’t understand what I’m talking about.

I try again: “I would like to buy an external drive that is compatible with this Macbook — preferably one that is made by Apple.”

Blank look.

After another try, I give up.

Furious, I stalk back to the car and head back out through the ever-evolving landscape that is the ever-Los Angelizing Valley of the We-DO-Mean Sun.

Yechhh!

Remember when malls were fun to shop in?

Remember when customer service was not more aptly called customer disservice?

Remember when Apple had awe-inspiring, blow-you-away, superb customer service?

The present angst is, I am quite sure, because I am unstuck in time: a creature of another age. And I can tell you for damn sure, the present age is not one I would like to live through much longer. What a flikkin’ dystopia we inhabit!

Driving homeward, homeward, ever homeward across the east/west main drag that in Ritzyville is called “Lincoln Boulevard” and in mittel-America is called “Glendale Road,” (interesting how rich folk get more characters for the words used to describe their thoroughfares, no?), it struck me that the whole city has changed significantly over the past five or six years. Not as annoyingly or as extremely as Scottsdale Fashion Square, but still…a lot. Mostly, in the regions I drifted through, in the form of gentrification of already pretty damn fancy houses. All along the way, houses have been fancified, dandified, and — often — ripped down and replaced with ultra-modern mansions painted eye-searing white.

Neighborhoods are recognizable, but…different.  The whole city is recognizable but different, I guess. Most of it, anyway.

So… Yah. I guess the issue here is that I’m unstuck in time. Living IN the here and now, but not OF the here and now. I feel like I’m afloat in a fluid reality. That which is real is not what was real.

Some squib on the vicissitudes of advancing senility that I read the other day said that one of the ways to stave off dementia is to drive around new neighborhoods. In this city, driving around old neighborhoods is driving around new ones. 😀 Seriously: it was kinda fun cruising through old stomping grounds that no longer look quite the same, and then sliding through the new stomping ground and finding previously undiscovered short-cuts and pass-throughs. If this activity staves off Alzheimer’s, I guess I’ll be buying a whole lot more gas. For awhile, anyway…

Newton’s Third Law of Disequilibrium

Is it some law of Nature that you can never, ever have a dull moment? Newton’s Third Law of Disequilibrium, maybe?

So I have this mailbox made by an outfit called MailBoss, which I installed while we were having a rash of mail thefts here in the ’Hood. This monster is the Fort Knox of the mailbox world. It is freaking impossible to break into. When you buy it, they give you two (count’em, 2) keys for it. And the instructions explicitly state, in words of one syllable, that you’d bloody well better not lose the keys because they cannot be replaced AND there’s no way in Hell you or anyone else will be able to break into the locked mailbox.

Yes sir. Got it, sir!

I thought I had lost one of the keys. I keep one hanging from a nail inside the front security door, which itself is pretty impermeable. The other, to my knowledge as of about 10:00 this morning, was…well…disappeared. So I went this morning to take the surviving key to my killer locksmith over in Glendale, a guy who no doubt ranks among the top Killer Locksmiths on the planet. I doubted he could copy it, but figured it was worth asking. The worst he could do would be to laugh and say “noooo way!”

But y’know…it was hot…it was humid…i was tired…i did not feel like schlepping to the gas station and then driving from pillar to post…so decided to belay that errand for a day or two. So, turn around, come back and hang the key back in its place.

So I think.

This afternoon when I went to find it? GONE.

The spare key in the drawer (I thought)? NOT THERE.

This elicited a high panic of epic proportions. Dammit, I thought I was gonna have a heart attack!

After much frantic searching — like 30 or 40 panicky minutes — I finally found found the spare key. A-n-n-n-d after I stopped hyperventilating, eventually found the other key, too.

But oh MAN! What a moment of panic!!!!!

I figured I was going to have to order a new mailbox. The thing is SOOOO HEAVY it takes three men and a horse to install it…and now we would be asking the three men and the horse to UNinstall one of the monsters and put a new one in. Good luck with that! And in the meantime, I’d have to drive to the post office to pick up my mail every day!!

Auuughhhhh!

Honest to God, I do not know when I’ve ever been so upset.

And now as the sun settles toward the west, storm clouds are blowing in. Got the camp lantern out, as we almost surely will lose power sometime between now and midnight. Let’s hope that holds off until after it starts to rain, which will cut the heat to about 80 degrees. It’s already dropped to about 100. How…refreshing!

Soggy Day in Rattie Central

Rathame…

At 7:00 this morning it was 90 degrees and overcast. And damp. Very, very damp.

That is extreme, even for lovely uptown Phoenix! Especially for this time of year. Normally it’s very hot, but also very dry in July. So you can bitch and whine about the heat, but it’s basically empty bitching and whining.

That is so until early August, when we start to get the kind of weather we have now: hot and humid. The difference is, in normal (pre-Paved Paradise) times, we would have had a spectacular thunderstorm every afternoon or evening, followed by much cooler temps.

*****

And during the interval when this scribble was interrupted by a phone call from WonderAccountant, it’s started to rain. Hot, wet, and raining.

W.A. is having a wondrous Adventure in Medical Science. She experienced some chest pains; her husband drove her up to the Mayo, where she enjoyed a number of interesting tests, experiences, and discussions. [heh! typed “unjoyed” there…have we discovered a new word for this sorta fun?) They concluded she was not having a heart attack — what she was having, they seem not to have figured out. But she is now reamed steamed & dry-cleaned, so called to cancel our planned evening at the concert tonight.

Between you’n’me, I’m very sorry she wasn’t feeling great but moderately relieved that we don’t have to venture out tonight. Really, I don’t enjoy driving in the rain and the dark with my fellow homicidal drivers (talk about taking your life in your hands!!), and truth to tell, even with the full complement of covid shots, I’m just not very comfortable about spending time in crowds.

An hour of gossiping produced a consensus that we both think the Mayo Clinic is far, far superior to most of the medical practices in the wild here, as experienced during our respective lifetimes as Arizonans. I guess if I ultimately make up my mind to move, it’s gonna be to someplace closer to the Mayo’s ER — EMT’s in this part of town will NOT take you to the Mayo. They give you the choice of John C. Lincoln (please just take me to the Hormel slaughterhouse…), St. Joseph’s (where one night I waited outside their ER for over five hours, before I finally gave up and had a friend come take me home; then got another friend, by dawn, to drive me to the Mayo, where they slapped me into surgery before I could even take a seat in their waiting room), or Good Samaritan, where I haven’t been back since I gave birth without anaesthetic.

Okay, to be fair: the anaesthetic wasn’t needed.  I thought labor was supposed to hurt a whole lot more than it does, and so by the time we arrived there, the kid was ready to pop out.

*****

Apparently Rattie attempted a foray into the yard this morning, despite all the throwings-around by Gerardo and his crew. Ruby signals Rattie’s presence by going batsh!t every time she spots the little gal through the Arcadia door.

Rattie has gotten wise to this, since every time I hear Ruby go on a tear, I let her out the garage door (which is a lot easier to open, because of all the anti-burglar hardware on the Arcadia). Ruby shot out and patrolled the side yard, but by then Rattie had either hopped back over the wall or climbed up into the trees to take refuge. I think the former, since Ruby evinced a great deal of interest in the odor trail along the wall’s footing and the view of the top of the wall.

I do hope the blockading strategy will keep her out, but fear the truth is we are going to have to take the tangle of cat’s claw vines down off the alley wall. If I could think, offhand, of a legal way to replace the jungle plants (which make for a fine Rat Hotel) with something that would block the view of the backyard, that’s what I would do. But to run a couple more rows of block along the top of the walls here in the ‘Hood (which are about 5½ feet tall, easy for a grown man to peer over), you have to get a permit from the city. This involves a bureaucratic hoop-jump that I do not wish to engage.

Neither, I suspect, did any of the neighbors who have taken matters into their own hands — many of them have piled several rows of block atop the developer’s original walls, far more than would be legally allowed. However, I have a friend whose ex-wife enhanced her backyard wall — in a house, like this one, that occupied a corner lot — and was ordered by the city to take the entire expensive thing down. So she ended up with no wall, no privacy, and no money.

Even if I jump through the regulatory hoops (and succeed…), they no longer make cinderblocks in the kind of dust-gold color the developer used, back in the early 70s when he built out this tract. So whatever goes along the top would not match the wall. One could, in theory, paint the wall…opening not only several cans of paint but also a whole new can o’ worms… But that, then, would have to be maintained for the duration of the house’s existence.

If you could find chimney-red cinderblocks (not an impossible proposition), you might be able to make it look like you intended to have a contrasting line of decorative (heh) block along the top. But since no one else has done this, dollars to donuts it’s not a practical idea.

The vines have some distinct benefits, not the least of which is that they cut the stupefying heat that would be reflected off that wall in their absence. Secondarily, they produce rafts of very lovely bright yellow flowers.

So it goes: lovely Phoenix, Arizona, July 16, 2021…