Hey IC-Hubbers,
If we haven’t already met, my name is Lawron, and I run an accounting firm (The Discipling CPA) located just outside of Atlanta. I’m passionate about many things, but one of the things that really gets me jazzed is working with people who are committed to making our world a better place. Your work matters greatly, and I consider it my mission to help you do that sustainably.
Now that we’ve gotten introductions out of the way, let’s get to the veggie meat (fun fact, I’m vegan 😊).
This post will give you a couple of quick things that I think you should know when starting or growing your consulting business from a tax and accounting perspective, whether working domestically or internationally. Let’s get to it!
TL;DR: Treat your bookkeeping routine better than your workout one. Manage costs – it helps with pricing contracts and managing profits. Taxes are a pain, and they’ll follow you to Bali. The good news is you may not owe, and you get an automatic 2-month extension for your federal return. You might have a state tax filing requirement.
Want more tips? Stay tuned to the end of this article, where I’ll answer a question from Don from the IC-Hub Facebook group.
Accounting Considerations:
1. Maintain a consistent bookkeeping routine.
I cannot emphasize this enough, but whether you are domestic or an expat, you must maintain a consistent rhythm to your bookkeeping. Your bookkeeping does more than just get on your nerves. By maintaining proper financial records, you have clear insight into how money moves through your business, can identify areas where you may be overspending, and understand your ability to add more staff or tools to help you better serve your clients.
Not to mention, it’s always a pain when you have to catch up on your books to send them over to your tax preparer a couple of weeks before the filing deadline.
2. Monitor Cost of Performance.
Because the barrier to entry is so low for consultants, they sometimes mistakenly assume that it doesn’t really cost them much of anything to do their work. However, even service providers incur costs to provide services. Do yourself a favor and identify everything you spend that directly supports your work. If that’s a software subscription or a professional organization membership, account for it as a direct cost and make sure you use those insights when pricing jobs.
Tax Considerations:
1. Understand your filing requirements.
Hate to break it to you, but if you moved to Mexico to soak up the sun while simultaneously saving the world from your laptop, you’ve still got to file your taxes. The IRS does offer an automatic 2-month extension, so your return isn’t normally due until June 15th. If you need more time, you can ask for it and get an extension until October 15th.
2. Just because you file doesn’t mean you owe.
Even though Uncle Sam wants to know all your business, that doesn’t mean you’ll have to pay him. For expats who earn less than $100,000ish in foreign income, there is something called the Foreign Earned Income Exclusion that allows you to exclude that income from US taxation.
Why $100,000ish? Every year the exclusion changes. For 2022, the amount is $112,000. Should you exceed that amount, the foreign tax credit may have you covered.
3. State filing requirements.
I wish I could give you a black-and-white answer on this one, but unfortunately, it depends on your state. You’ll need to speak to your accountant to determine if your state is one that requires you to file.
Now that we’ve covered some of the basics, here’s one other multipart question from Don on the IC-Hub Facebook group. Here's what he asked:
Hi Lawron Ballard! Thank you for providing this opportunity to ask questions. I am currently US-based but will be relocating soon to the Philippines. The consulting work I anticipate doing is to be based in the Philippines but working with US-based and other international clients. One thing I am considering as far as setting up a formal business entity as a sole proprietor is where should I register? Should I register in the Philippines? Should I register in the US? Do I need to choose one or the other?
Well, Don, let me start by saying that you should speak with an attorney specializing in foreign and domestic entity setup when it comes to organising an entity. However, here are some things to think about.
Before anything, how long do you plan on being out of the country? If only for a year or two, it may not be worth registering internationally. The permanence of your move will likely impact the decision.
Based on what we’ve already discussed, you will still have a filing requirement in the US whether you have a US or Filipino entity. Added complexity comes in when you have a foreign entity that you control. Assuming you’re a registered business in the country, you will likely have some additional reporting (ex. 5471s or 8865s).
Be mindful that if you register in PH, that will likely mean you’re opening a PH bank. When you do, you may be required to file an FBAR (Report of Foreign Bank and Financial Accounts).
Ultimately, a foreign entity means more paperwork when you’re a US citizen. As mentioned in point 1, all of this boils down to getting clear on your long-term plan and being honest about your ability to foot the bill for the cost of compliance domestically and internationally.
Thanks for the question!
Well, friends, we’ve reached the end of our journey together. I hope that this was helpful! Should you have any specific questions or were exhausted after reading this and want someone to take this off your plate, feel free to shoot me a note at: lawron@thedisciplingcpa.com. I’d love to help however I can.
And if you feel ever so inclined, go ahead and connect with me on LinkedIn. I love making new friends.
Many thanks to Loksan and Molly for generously sharing their platform with me to serve you all. Until next time.
