# US Citizen, UK Resident, looking to become self-employed



## socomplicated (Jan 20, 2020)

Hello,

I have been a UK resident (and married to a UK citizen) for over a decade, but until now have not had any income. Now I am looking to become self-employed and hopefully making over the $400 minimum required for reporting.

I am finding myself a bit overwhelmed and would be very thankful for any help. Do I simply need to do 1040 SS or is there more?

Thank you for any help.


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## Nononymous (Jul 12, 2011)

First ask yourself why exactly you would want to declare this income to the IRS and begin filing US tax returns. Lots of paperwork to prove that you owe them nothing, or worse, you would actually owe something on top of your UK taxes.


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## Bevdeforges (Nov 16, 2007)

Things have changed and the US filing threshold for married filing separately is now $5. Yeah, lots of folks thought it was a typo, but they really mean it, I guess.

As a self-employed person, you need to make sure that you are registered for the UK health care system (and paying in), in which case you don't have to pay US SS. (As self-employed, you'd pay both employer and employee portions - so more like 15% than the 7% an employee pays.)

But for US tax purposes, you'd file a 1040 plus a 2555 to claim the Foreign Earned Income Exclusion (to eliminate US tax on your self-employment income). 

The forms have changed a bit in the last couple of years (since the big tax changes of 2017 or thereabouts), so you might want to take a look at the forms available on the IRS website - or at least check IRS Publication 17 for Overseas Taxpayers.


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## socomplicated (Jan 20, 2020)

Bevdeforges said:


> Things have changed and the US filing threshold for married filing separately is now $5. Yeah, lots of folks thought it was a typo, but they really mean it, I guess.
> 
> As a self-employed person, you need to make sure that you are registered for the UK health care system (and paying in), in which case you don't have to pay US SS. (As self-employed, you'd pay both employer and employee portions - so more like 15% than the 7% an employee pays.)
> 
> ...


This is exactly the information I needed, thank you very much. You mentioned the 1040 is that the regular one or the SS?

Thanks again!


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## Bevdeforges (Nov 16, 2007)

socomplicated said:


> This is exactly the information I needed, thank you very much. You mentioned the 1040 is that the regular one or the SS?
> 
> Thanks again!


I don't think I've ever heard of a 1040 SS. This year there is a new one - the 1040SR but that's for "seniors." (I.e. it has extra lines to detail pensions and SS benefits and IRA withdrawals).


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## socomplicated (Jan 20, 2020)

Bevdeforges said:


> I don't think I've ever heard of a 1040 SS. This year there is a new one - the 1040SR but that's for "seniors." (I.e. it has extra lines to detail pensions and SS benefits and IRA withdrawals).


Yeah it looks like I was taken down a wrong turn by their website. It's for self employed people but only for people in US Territories.

Right, so a regular 1040 and the 2555 and I'll be all set? That sounds great.


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## Bevdeforges (Nov 16, 2007)

OK, you probably also should include a Schedule B - if only to check the boxes at the bottom of the form regarding whether or not you have a total of $10,000 or more in foreign financial accounts. ($10,000 is the threshold for having to file an FBAR - which is a separate filing - detailing your foreign financial holdings.)


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## socomplicated (Jan 20, 2020)

Okay, I'll get that as well. Thank you so much for all your help.


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## socomplicated (Jan 20, 2020)

Got some more information. It seems I'll be an independent contractor whose income is considered self-employment income and assuming I make over $600 they'll send me a 1099.

Does this change anything?


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## Bevdeforges (Nov 16, 2007)

socomplicated said:


> Got some more information. It seems I'll be an independent contractor whose income is considered self-employment income and assuming I make over $600 they'll send me a 1099.
> 
> Does this change anything?


As far as which forms you file, not really. As long as your total take comes in under the FEIE cap (a little over $100,000 a year), your whole take should be excludable with the FEIE. But you may wind up having to pay "self-employment tax" (i.e. US SS) at about 15% (i.e. both employer and employee portions) - you may need or want to get some sort of paperwork showing that you are covered by UK social insurances, which would allow you to avoid the US self employment tax.


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## Moulard (Feb 3, 2017)

Bevdeforges said:


> As far as which forms you file, not really. As long as your total take comes in under the FEIE cap (a little over $100,000 a year), your whole take should be excludable with the FEIE. But you may wind up having to pay "self-employment tax" (i.e. US SS) at about 15% (i.e. both employer and employee portions) - you may need or want to get some sort of paperwork showing that you are covered by UK social insurances, which would allow you to avoid the US self employment tax.


There are a bunch of gotchas with the FEIE and foreign self employment particularly if your gross income is above the FEIE amount because...


The foreign earned income exclusion applies to gross income.
When you use the FEIE you have to reduce your deductions proportionally.
A reduction in your deductions effectively increases your net income
Your net income is used to calculate the SE tax amount

Say you have a gross income of 120k and exclude 100k, then you can only use 16% of your deductions. So say you had 40k in deductions then you could only use 6400 of deductions and your SE taxable income amount would be $113,600 not 80k.

As you can see, if your gross self employment income is above the FEIE exclusion limit this can mean a larger SE tax bill as it increases the net income used for the purposes of self employment taxes.

You will need to get a certificate of coverage from the UK. 

I am sure there is a UK equivalent of the SSA brochure, but it should contain how to get a certificate of coverage.

https://www.ssa.gov/pubs/EN-05-10199.pdf

You would include a copy of that certificate with your US return.


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## Bevdeforges (Nov 16, 2007)

Just a note, however, as it's kind of rare for "self-employed" folks to have gross income over the FEIE limit (something more than $100K last I looked). At least not in the first few years. And if you're starting to take in well over about half of that, I'd start to think seriously about either incorporating or setting up a proper business entity of some sort (and taking a "salary" from that). It will really simplify your life.

Plus, with the combination now of the standard deduction with the personal exemption, the threshold for itemizing deductions is something over $10,000 - even for those filing as married, filing separately. 

Try to keep your filings as simple as possible, particularly if you haven't been filing for a while. Once you're used to how to file from "overseas" you can start getting creative. But with income well under the FEIE limit you'll probably do best to keep it simple.


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