# US Tax Implications for Sole Trader vs Ltd Company



## texasbrit (Jun 6, 2015)

I am a US expat living in the UK and my husband is British. I work for the NHS as a healthcare professional. We are exploring options of taking on additional private work with the view to potentially grow it into a fully fledged autonomous business (a long way off though). Being a US citizen we are considering the US reporting implications and as such was wondering if any of you on the forum could offer some assistance. At the end of the day the last thing we want to do is create a mountain of additional forms to fill out on my annual US tax return especially in the early days.

We are still weighing up whether to start as a sole trader or a private limited company. There are pros and cons to both - however, private limited offers the most scope. With that being said it would be good to factor in the US aspect into the overall decision.

Currently all my UK employed income is covered fully under the FEIE and there is room for additional income. 

Subsequently, what reporting and disclosure is required for owning and operating either a private limited company or working as a sole trader? 

Given my husband is British, is there a preferential way to set up the ownership of the limited company so no disclosure is required on the 1040 other than the income paid to me (married filing separately)? For example, my husband could be a 100%-90% shareholder while we are both directors or even with me being just an employee.

All advice much appreciated in advance! :yo:


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## Nononymous (Jul 12, 2011)

Two basic options come to mind: 

1. Structure the company such that you have no US reporting requirements beyond simple income.

2. Get UK citizenship so that you can safely stop filing US tax returns (this does not require renunciation, but simply ceasing to file) assuming no strong US family or financial ties of course.


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## Bevdeforges (Nov 16, 2007)

Basically, what Nononymous has said. Technically, you start running into massive reporting obligations once you (the US citizen) hold a 10% or greater interest in the company or if you are considered a "director" of the company.

OTOH, if the business stays small, you can probably just be an "employee" and declare your salary. I know of expat in family businesses like that who have filed for years as the employee of a company with the same address as their home address and nothing ever was questioned. Probably depends on how much of a salary you're drawing.


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## 255 (Sep 8, 2018)

texasbrit -- Your question: "Given my husband is British, is there a preferential way to set up the ownership of the limited company so no disclosure is required on the 1040 other than the income paid to me (married filing separately)? For example, my husband could be a 100%-90% shareholder while we are both directors or even with me being just an employee." You are talking about avoiding "Controlled Foreign Corporation" reporting requirements. There are basically two rules, in determining if your potential UK limited company is a CFC for U.S. tax purposes. The first is that no U.S. person can own directly, indirectly, or constructively 10% or more in all classes of stock in the corporation. The second is that the company cannot have more than 50% U.S shareholders.

So, if you own 9% of the stock - you would not be a U.S. shareholder, for CFC purposes -- i.e. no reporting requirements. The new company can pay you as an employee and you would be eligible for the FEIE. I know of no issue with you being a director.

You, as a sole-trader (sole-proprietor, in U.S. speak,) would have to file a Schedule C, to form 1040. You should also review the UK-U.S. Tax Treaty and Social Security Totalization Agreements to determine specifics. If your husband was the sole-trader and payed you a salary, you would also have no reporting requirement (other than your income.)

To eliminate all reporting requirements, other than your own income -- establishing a company with your ownership share under 10% would be a good option. Cheers, 255


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## texasbrit (Jun 6, 2015)

Thanks for your feedback Nononymous, Bevdeforges and 255 - apologies for the delayed reply! Definitely some food for thought...

Best wishes :thumb:


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