Who this is for
- US citizens running a consulting, freelance or online business while living outside the US
- Owners of a single-member LLC or an S corporation who are moving abroad
- US citizens weighing a company formed in their new country
Not covered here
- Whether an S election pays off and how to make it
- How to set a reasonable S corporation salary
- Qualifying for the foreign earned income exclusion
- How the foreign country taxes any of these setups
- Owners who live in Canada
Single-member LLC, S corp or local company: what changes for a US citizen abroad?
Living abroad keeps each setup's basic IRS filings but changes which social security tax applies, how much the foreign earned income exclusion (FEIE) can reach, and some due dates. A US citizen is taxed on worldwide income: an LLC's or S corporation's profit is yours as it is earned; a local company's reaches you as pay, dividends or, under the controlled foreign corporation rules, some income taxed before it pays you. The main US differences:
| Setup | US tax treatment by default | What files with the IRS each year | US Social Security and Medicare |
|---|---|---|---|
| Single-member LLC or sole proprietorship | Disregarded: the profit is yours | Your Form 1040 with Schedule C, Schedule SE and, if you claim it, Form 2555 | Generally self-employment tax on net earnings; the FEIE does not reduce it |
| S corporation (a US corporation or an LLC that elected S status) | Profit passes to you on Schedule K-1 | Form 1120-S, payroll returns (Forms 941, 940, W-2) and your Form 1040 | Payroll tax on your salary; the profit above salary is not self-employment income |
| Company formed where you live | Usually a foreign corporation | Form 5471 with your Form 1040, plus the local country's own filings | Generally none on wages from a foreign employer |
The rules behind the table: a single-member LLC is disregarded and reports on its owner's return; a self-employed citizen abroad in most cases must pay self-employment tax, and the exclusion cannot reduce it; S corporation income is not self-employment income; and US Social Security and Medicare generally do not apply to wages for work abroad unless the employer is an American employer or another exception applies.
What makes a case not simple:
- Two countries. Your new country applies its own law to a US LLC or S corporation. It may tax the entity where the US taxes you, or the reverse. When the two countries tax different taxpayers or in different years, the foreign tax credit may not line up.
- An S election or a classification election. Both are hard to undo, and an S election can end by accident (see below).
- A local company. Owning a foreign corporation brings Form 5471 and can bring US tax on its income before it pays you anything.
- A co-owner. A second owner changes the US classification and, if not a US person, can end an S election.
- Unfiled years. Missed Form 1120-S, payroll or Form 5471 filings carry penalties of their own, and tax withheld from your salary but not paid over can be collected from you personally if the failure was willful (26 U.S.C. 6672).
What to gather: formation documents and the state or country of formation; any Form 2553 or Form 8832 and the IRS acceptance letter; a list of owners with each one's citizenship and residence; the last two years of returns and payroll filings; a day-by-day travel log for the exclusion tests; and any certificate of coverage or foreign social security statement.
LLC or S corp abroad: how do self-employment tax and payroll tax compare?
A single-member LLC owner pays self-employment tax on all net earnings; an S corporation owner pays Social Security and Medicare through payroll on salary only. Both apply abroad, and the FEIE reduces neither.
| Single-member LLC | S corporation | |
|---|---|---|
| What is taxed | Net earnings from self-employment: 92.35% of net profit | Wages paid to you as an employee |
| Rate | 15.3% (12.4% Social Security, 2.9% Medicare) | 6.2% Social Security and 1.45% Medicare, each from you and from the corporation |
| Social Security cap | $184,500 of combined wages and self-employment earnings | $184,500 of wages |
| When it starts | Net earnings of $400 or more | First dollar of wages |
| Profit above salary | Not applicable | Not subject to self-employment tax |
Why S corporation wages stay taxable abroad. The Social Security law covers work outside the US by a US citizen employed by an American employer, and a corporation organized under the laws of the US or a state is one (26 U.S.C. 3121(b) and (h); Publication 54). Your S corporation runs US payroll for you wherever you live.
What a totalization agreement changes. If the US has a social security agreement with your country, you may pay into only one system. A self-employed person attaches the foreign agency's statement to Form 1040 instead of Schedule SE (Schedule SE instructions); an employee, including an S corporation owner on payroll, needs a certificate of coverage, and without one US payroll tax continues (IRS). Without an agreement, both countries' social taxes can apply. How each agreement assigns coverage is in self-employment tax abroad and totalization.
An S election changes which income carries payroll tax, and the IRS treats payments to an officer as wages to the extent they are reasonable compensation. For whether the election pays off, see should you elect S corporation status; for setting the salary, see S corporation owner salary.
FEIE and S corp salary: can I exclude it, and the profit above it?
An S corporation salary for work you do abroad can count as foreign earned income, to the extent it is reasonable pay for your services and if you meet the exclusion tests. The IRS lists salaries and wages as earned income and the source of earned income as where you perform the work, not where the payer is. The exclusion limit is $132,900 per person. For a single-member LLC, profit from your own services is earned income; when capital, such as equipment or inventory, also produces it, a reasonable allowance for your services counts, up to 30% of your share of net profit (26 CFR 1.911-3(b)(2)).
The profit above the salary is a different matter. The IRS classifies dividends as unearned income and business profits as variable income that can be earned, unearned or partly both (IRS). Treasury rules add that an amount a corporation pays you is not earned income to the extent it is a distribution of earnings rather than a reasonable allowance for services you actually performed (26 CFR 1.911-3(b)(1)). The statute defines earned income as pay received for personal services, not profit distributed by a corporation, and the 30% allowance above is only for a business not in corporate form (26 U.S.C. 911(d)(2); 26 CFR 1.911-3(b)(2)). Your Schedule K-1 share is your share of the corporation's profit, not pay, so on that wording it does not count toward the exclusion; only reasonable salary for the work does.
Excluding wages does not remove payroll tax: Social Security and Medicare still apply to the salary as if it were not excluded.
Whether you qualify is covered in FEIE tests and the first year abroad. Whether the exclusion or the foreign tax credit fits better is covered in FEIE or foreign tax credit.
Can I keep my S corporation while living abroad?
A US citizen can stay an S corporation shareholder wherever they live: an S corporation cannot have a nonresident alien shareholder (26 U.S.C. 1361(b)(1)(C)), and a citizen is never one. The corporation itself must stay a domestic corporation, and other events can still end the election.
The election ends automatically, from the day the corporation stops qualifying, if any of these happens (26 U.S.C. 1362(d); Form 1120-S instructions):
- a nonresident alien acquires shares, including a spouse or a new partner;
- a shareholder who is not a US citizen becomes a nonresident alien; a green card holder stays a US resident after moving until the card is given up or revoked, or until they claim treaty residence in the new country and notify the IRS (26 U.S.C. 7701(b)(6));
- the corporation issues a second class of stock or gets a shareholder that is not an eligible individual, estate or trust.
Where both spouses hold an interest under community property law, both must consent to the election (Form 2553 instructions). If your spouse is a nonresident alien and the new country's community property law gives them an interest in the shares, the corporation does not qualify from the day that interest arises, even with the shares in your name alone; a joint-return election under section 6013(g), which treats the spouse as a US resident, avoids this while it lasts (26 CFR 1.1361-1(g)(1)). The IRS can grant relief when it finds a termination inadvertent and it is corrected within a reasonable time; relief is not automatic (26 U.S.C. 1362(f)). A planned exit is covered in switching an S corporation to a C corporation.
What changes if I run the business through a company formed where I live?
A company formed in your new country is a foreign entity for US purposes. By default, a foreign entity whose owners all have limited liability is treated as a corporation; a single owner without limited liability makes it disregarded (26 CFR 301.7701-3(b)(2)). Some foreign company types are always corporations and cannot elect otherwise (26 CFR 301.7701-2(b)(8)). Others can choose a different US classification on Form 8832, for example to be disregarded when there is one owner (26 CFR 301.7701-3(a) and (c)). That changes the US filing and tax, and the new country may still treat the company as a corporation. The election can take effect no more than 75 days before Form 8832 is filed, so a new company that wants it from the start files within 75 days of formation. A company already treated as a corporation that elects to be disregarded is treated as liquidating the day before, which can bring US tax, and cannot change again for 60 months (26 CFR 301.7701-3(c)(1) and (g)).
If it is a foreign corporation you control:
- Form 5471. A US person who controls a foreign corporation (more than 50% of the vote or value) files Form 5471 with their own return, by its due date including extensions (Form 5471 instructions).
- Controlled foreign corporation (CFC) rules. A foreign corporation you control is also a CFC, so some of its income can be taxed to you in the year it earns it, before it pays you anything. See US owners of foreign companies.
- What it pays you. Wages from a foreign employer for work abroad are generally outside US Social Security and Medicare (Publication 54) and can count toward the exclusion; dividends are unearned income and cannot.
If the company is disregarded instead, its owner files Form 8858 and is subject to self-employment tax on its income, as with a US single-member LLC. Which form applies to which entity is covered in information forms for a foreign company, and the company's bank accounts in FBAR for company accounts abroad.
What changes when a co-owner joins, especially one who is not a US person?
A co-owner changes the US classification of an LLC and can end an S election.
| Current setup | A US co-owner joins | A co-owner who is not a US person joins |
|---|---|---|
| Single-member LLC | Generally becomes a partnership: Form 1065 and Schedules K-1 | Generally becomes a partnership, and the partnership may need to withhold on the foreign partner's share |
| S corporation | Election can continue if the new owner is an eligible shareholder | Election ends the day a nonresident alien becomes a shareholder |
| Foreign corporation | Each US owner's Form 5471 duties depend on their own stake | Your stake may fall to 50% or less, which can change your Form 5471 category |
A disregarded single-member entity becomes a partnership when it has more than one member. One exception: an entity owned only by spouses as community property, under the law of a state, a foreign country or a US possession, can be treated as either disregarded or a partnership (Rev. Proc. 2002-69). Withholding for a foreign partner is covered in foreign partners and withholding; default classification and elections in how LLCs are taxed.
Which returns and due dates apply each year while I live abroad?
These are calendar-year dates. A US citizen living abroad on April 15, with a main place of business abroad, gets an automatic 2-month extension to file and pay Form 1040, to June 15; interest still runs from April 15. Business returns follow their own dates: an S corporation that transacts its business and keeps its books and records outside the US and Puerto Rico, or a partnership that keeps its books and records there, gets an automatic extension to file and pay to the 15th day of the 6th month after year-end, with a statement attached; Form 7004 can then add 3 months to file, not to pay (Form 7004 instructions).
| Return | Who files | Due date | Extension |
|---|---|---|---|
| Form 1040: Schedules C and SE for a single-member LLC, Schedule E for S corporation K-1 income, Form 2555 if you claim the exclusion | You, under every setup | April 15; June 15 if abroad | Form 4868, filed by June 15, extends filing, not payment, to October 15 |
| Form 1120-S and Schedules K-1 | S corporation | March 15; 15th day of the 6th month if it does business and keeps its books abroad | Form 7004: six months, or 3 months after the abroad date |
| Form 941 | S corporation paying wages | the last day of the first month after each quarter | None |
| Form 940 | S corporation paying wages | January 31 after the wage year | None |
| Forms W-2 and W-3 | S corporation paying wages | February 1, 2027 | No automatic extension |
| Form 1065 and Schedules K-1 | LLC with two or more members | March 15; 15th day of the 6th month if it keeps its books abroad | Form 7004: six months, or 3 months after the abroad date |
| Form 5471 or 8858 | You, for a foreign company | With your Form 1040, including extensions | Follows Form 1040 |
Sources: Publication 54, Form 1120-S instructions, Schedule K-1 (Form 1120-S) instructions, Form 7004 instructions, Form 5471 instructions. Your personal filing steps abroad, including the FBAR, are in filing while living abroad.
The state where the LLC or corporation was formed keeps its own annual reports and taxes after you leave; for California, see California's minimum tax and LLC fee. Whether you stop being a resident of your old state is a separate question: see ending state residency when moving abroad.
Example
These examples are illustrative and use US dollars. They show the US side only.
A single-member LLC in Portugal
Dana, a US software consultant living in Portugal, nets US$150,000 through a single-member LLC. If she meets the exclusion tests, the FEIE can remove income tax on up to $132,900 of her foreign earned income. Self-employment tax ignores the exclusion: about US$138,500 of net earnings, roughly US$21,200 of tax. Portugal is on the IRS list of agreement countries, so if she gets a statement placing her in Portugal's system, she attaches it instead of filing Schedule SE.
An S corporation owner in Thailand
Ben's S corporation pays him a US$90,000 salary while he lives in Thailand, which is not on the IRS agreement list. The salary is wages from an American employer: about US$6,900 each from Ben and the corporation for Social Security and Medicare. If he meets the tests, the salary can count toward the exclusion. Another US$60,000 of profit passes to him on Schedule K-1 without self-employment tax; it is his share of the corporation's profit, not pay for services, so on the statute's wording it does not count toward the exclusion.
A private company in the UK
Sofia forms a UK private company and holds all its shares. Its owners have limited liability, so by default it is a foreign corporation she controls. She files Form 5471 with her Form 1040 each year, and some of its income can be taxed to her before it pays a dividend. A US$80,000 salary from the company for work in the UK is generally outside US Social Security and Medicare and can count toward the exclusion.
Different for you?
- You are deciding whether an S election pays off: see should you elect S corporation status.
- You need to set your S corporation salary: see S corporation owner salary.
- You live in Canada with an S corporation: see US S corporation owner in Canada.
- You live in Canada with a Canadian corporation: see American owners of Canadian corporations.
- Your country has a totalization agreement, or you pay social tax in two places: see self-employment tax abroad and totalization.
- You are behind on US returns while living abroad: see Streamlined Foreign Offshore Procedures.
- You run an S corporation abroad, own a local company, are adding a co-owner, or have unfiled years: get corporate tax help.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Share of net profit subject to self-employment tax Net profit is multiplied by this factor to get net earnings from self-employment | 92.35% | IRS: Form 1040-ES (2026), Self-Employment Tax and Deduction Worksheet, line 3 Checked |
| Self-employment tax rate 12.4% Social Security plus 2.9% Medicare, on net earnings from self-employment | 15.3% | IRS: Self-employment tax (Social Security and Medicare taxes) Checked |
| Social Security part of self-employment tax Applies up to the Social Security wage base; employers and employees each pay half on wages | 12.4% | IRS: Self-employment tax (Social Security and Medicare taxes) Checked |
| Medicare part of self-employment tax No earnings cap; employers and employees each pay half on wages | 2.9% | IRS: Self-employment tax (Social Security and Medicare taxes) Checked |
| Social Security tax rate for each of employee and employer Each side pays this rate on covered wages up to the annual wage base | 6.2% Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Medicare tax rate for each of employee and employer Each side pays this rate on covered wages; no wage base limit | 1.45% Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Social Security wage base Maximum combined wages and net earnings from self-employment subject to the Social Security part of the tax | $184,500 Tax year 2026 | IRS: Form 1040-ES (2026) Checked |
| US filing threshold for net self-employment earnings A return is required at this level of net earnings from self-employment, whatever the filing status | $400 | IRS: Publication 54 Checked |
| Foreign earned income exclusion limit Maximum foreign earned income a qualifying person can exclude on Form 2555 | $132,900 Tax year 2026 | IRS: Tax year 2026 inflation adjustments Checked |
| Cap on earned income from a non-corporate business where capital and services both produce income (foreign earned income exclusion) A reasonable allowance for the owner's services counts as earned income, but no more than 30% of the owner's share of net profits; the cap does not apply to a net loss (Publication 54, Example 4). | 30% | 26 CFR 1.911-3(b)(2) (govinfo) Checked |
| Foreign corporation control threshold Ownership must be more than this share of voting power or value for Category 4 control or the general CFC test | 50% | US Code: section 957 Checked |
| Form 1040 automatic due date for a US citizen or resident living abroad Automatic 2-month extension to file and pay for a calendar-year US citizen or resident alien who, on the regular due date, lives outside the United States and Puerto Rico with a main place of business or post of duty there; attach a statement. Interest runs from April 15. | June 15 | IRS: Publication 54 Checked |
| Ordinary calendar-year Form 1040 deadline Following the tax year; weekends, legal holidays and special taxpayer rules can shift the date. | April 15 | IRS: Ordinary calendar-year Form 1040 deadline Checked |
| Regular calendar-year individual filing deadline with a timely automatic extension Following the tax year; weekend, holiday, overseas and disaster rules can alter the applicable deadline. | October 15 | IRS: Get an extension to file your tax return Checked |
| Ordinary calendar-year Form 1120-S deadline Following year-end; weekends and legal holidays can shift this date. | March 15 | IRS: Ordinary calendar-year Form 1120-S deadline Checked |
| Form 941 quarterly filing deadline Normally April 30, July 31, October 31 and January 31; next-business-day and timely-deposit extensions may apply | The last day of the first month after each quarter | IRS: Instructions for Form 941 Checked |
| Form 940 annual filing deadline Next-business-day and timely-deposit extensions may apply | January 31 after the wage year | IRS: Form 940 filing and deposit requirements Checked |
| 2026 Forms W-2 and W-3 filing and furnishing deadline File 2026 Forms W-2 and W-3 with the SSA and furnish W-2 to employees by this date | February 1, 2027 Tax year 2026 | IRS: General Instructions for Forms W-2 and W-3 (2026) Checked |
| Form 1065 due date for a calendar-year partnership 15th day of the 3rd month after the tax year ends; a Saturday, Sunday or legal holiday moves it to the next business day. A 6-month extension is available. | March 15 | IRS: Instructions for Form 1065 Checked |
Primary sources
- IRS: Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS: Foreign earned income exclusion, what is foreign earned income
- IRS: Instructions for Schedule SE (Form 1040)
- IRS: Totalization agreements
- 26 U.S.C. 3121, definitions for FICA (govinfo)
- 26 U.S.C. 1361, S corporation defined (govinfo)
- 26 U.S.C. 1362, election, revocation and termination (govinfo)
- IRS: Instructions for Form 2553
- IRS: Instructions for Form 1120-S
- IRS: Shareholder's Instructions for Schedule K-1 (Form 1120-S)
- IRS: Instructions for Form 7004
- 26 CFR 1.911-3, foreign earned income defined (govinfo)
- 26 CFR 301.7701-2, business entities (govinfo)
- 26 CFR 301.7701-3, classification of eligible entities (govinfo)
- IRS: Publication 334, Tax Guide for Small Business
- IRS: Instructions for Form 5471
- IRS: Instructions for Form 8858
- IRS: Revenue Procedure 2002-69, LLC owned by spouses as community property
- 26 U.S.C. 911, foreign earned income exclusion (govinfo)
- 26 CFR 1.1361-1, S corporation defined (govinfo)
- 26 U.S.C. 7701, definitions including resident alien (govinfo)
- 26 U.S.C. 6672, liability for unpaid withheld tax (govinfo)
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.