Tips for Overseas Small Business Taxes!

Small Business Taxes

Technology, the internet, and social media have made it possible and even prudent to run an online business from any location in the world and digital nomadism and the laptop lifestyle have struck a chord with entrepreneurs and independent contractors everywhere who see the value it has added to their lives, despite overseas small business taxes. 

Expats also run small businesses or businesses in foreign countries and may be struggling to accurately calculate and file their annual tax returns. Here are some tips to manage small business taxes from overseas with the minimum of hassle. 

Know That Taxes Affect A Business

Taxes are not a small problem and individuals that under-file their required taxes or miss out on provisions can become burdened financially and may even suffer from prosecution by the state for willful tax evasion or fraud. 

Taxes are also a colossal cost to a business as in some countries income tax and indeed commercial tax can be as high as 19% or more and expats may even face double taxation which means they need to file for taxes in two countries for the same commercial enterprise. 

Not Personal, Just Business

One of the basic axioms of running a business is to limit your personal liability as far as possible and to separate personal finances from the business’s balance sheet and transactions.

This is also true for tax deductions and returns because the last thing you would want as a small business owner is to have your personal expenses and assets mixed into the tax due on your business income.  To avoid combining your personal and business taxes, always go by this Xero tax guides for retail and e-commerce enterprises.

Keep the personal and the commercial separate and make sure you have a separate bank account for your business. If you want to maintain your privacy in front of the IRS as an overseas small business owner, it is best to not log any business expenses on your personal account. 

Educate Yourself

Not only is it crucial to have knowledge of all the taxes that apply to your small business both in your host and home country, but you should also be up to speed on the technical tax jargon that is used in federal documents. 

  • Net sales are your total profit after all expenses have been paid for. 
  • Gross profit is the amount of profit you have left once you have paid the full costs of goods sold. 
  • COGS or cost of goods sold is the production cost of all your units (can apply to both goods and services). 
  • Revenue is the total amount earned by a business in any given time period without subtracting break-even point or paying expenses like overheads. 

When you will consult an expat tax CPA in the UK or any other country, you’ll understand better what they mean and what the federal tax forms are communicating. 

Quarterly Tax Payments For Small Businesses 

Quarterly payments for taxes are preferred by the IRS and are usually paid based on an estimate. Write down your approximate year-end tax amount and divide by 4, using form 1040-es, you can file your taxes four times a year. For small businesses based on a certain individual skill, both income and self-employment tax will apply. 

Managing Employee Taxes

If you have a staff and employees as a small business owner overseas, you are liable to pay a few types of taxes. Legally you should file paperwork about the number and type of employees you have hired for your business’s activities.

Social security tax (an employer is liable to pay upwards of 6.2% of the employee’s salary), Medicare tax (employers have to pay 1.49% of employee’s salary or wages) and federal income tax are all types you have to consider as a small business owner. 

Inventory Logs

Small businesses especially if they are a retailer or deal with goods rather than services often have a lot of finance tied up in unsold materials or finished products. As unsold inventory technically classifies as an asset, you should have a thorough record of all the available inventory you have in storage so you can garner a correct estimate of its value and therefore ascertain the tax liable on it.

If you hire a tax consultant, one of the things they will do is organize all the information about your assets and sources of income. 

Master Tax Deductibles

Many aspects of running a small business overseas can be tax-deductible such as low profit levels for example. The less income and subsequently profit your business is generating the less tax you will have to pay.

The IRS states businesses can write off certain expenses that are necessary (needed for business growth) or ordinary (industry standard expenses or ones shared by similar firms and businesses).

Small business taxes article and permission to publish here provided by Holly Clarke. Originally written for Supply Chain Game Changer and published on July 1, 2022.