Living abroad as a U.S. citizen offers incredible opportunities but comes with its own set of tax responsibilities. Here’s a breakdown of key tax considerations for U.S. citizens living overseas, particularly those earning income from self-employment.
What If I Earn Income from Self-Employment Overseas?
Self-employment income must be reported on Form 1040, Schedule C. This income is eligible for the Foreign Earned Income Exclusion (FEIE)—up to $130,000 in 2025—after reductions for adjustments and business expenses. However, this exclusion applies only to income tax, not self-employment tax (Social Security and Medicare).
To calculate self-employment tax, you’ll need to file Form 1040, Schedule SE. If you live in a country with a Social Security Totalization Agreement with the U.S., you may be exempt from U.S. Social Security tax. Check the agreement details to determine your obligations.
Filing Requirements for U.S. Citizens Residing Overseas
- Who Must File?
Any U.S. citizen or resident alien with worldwide income exceeding their standard deduction must file annually. For 2025, the standard deductions are:- $30,000 for married filing jointly
- $15,000 for single or married filing separately
- $22,500 for head of household
- When Is My Tax Return Due?
- If you’re living abroad on April 15, 2026, you qualify for an automatic extension to June 15, 2026 to file your return. However, interest on any amount due starts accruing from April 15, 2026.
- Payments must be postmarked or submitted online by the deadline.
- What Form Should I File?
- File Form 1040 to claim the Foreign Earned Income Exclusion or Foreign Tax Credit.
- Use Form 2555 to report foreign earned income or housing exclusions.
- What If I Pay Foreign Income Taxes?
If your foreign tax liability exceeds your U.S. tax liability, you may be eligible for a Foreign Tax Credit by filing Form 1116. This credit can offset U.S. taxes owed on foreign income.
Qualifying for the Foreign Earned Income Exclusion
To claim the Foreign Earned Income Exclusion, you must meet either:
- Physical Presence Test: Reside outside the U.S. for at least 330 full days within a 12-month period.
- Bona Fide Resident Test: Establish residency in a foreign country for an uninterrupted tax year and meet residency conditions.
If you’re exempt from foreign income tax under a treaty, you may not qualify as a bona fide resident and must rely on the physical presence test.
IRA Contributions While Living Abroad
Generally, U.S. citizens abroad cannot contribute to an IRA if their taxable earned income is fully excluded under the FEIE. For 2025, the contribution limits are:
- $7,000 (under age 50)
- $8,000 (50 or older)
If your foreign income exceeds the exclusion limit or your employer provides a U.S.-based 401(k), consult a tax advisor to determine eligibility.
FBAR Filing Requirements
If the total value of your foreign accounts exceeds $10,000 at any time during the year, you must file the Report of Foreign Bank and Financial Accounts (FBAR) using Form 114. This must be filed online through FinCEN, separate from your tax return, by October 15, 2026. Failure to file can result in significant penalties.
Simplify Your Tax Compliance
Navigating U.S. taxes while living abroad can be challenging, especially when dealing with self-employment income, exclusions, and credits. For tailored guidance, consult the IRS Publication 54 or reach out to an experienced tax advisor.
At GoalSeek, we specialize in helping expatriates and self-employed professionals in Portugal and beyond manage their tax obligations efficiently. Contact us for personalized support in 2025 and beyond.
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