If you’re a self-employed American living abroad, you’re likely juggling business growth, client relationships, and a unique set of tax obligations. Fortunately, the US tax system offers a range of deductions that can help reduce your taxable income if you know how to claim them properly.
1. Home Office Deduction
If you work from home, the home office deduction is one of the most valuable tax breaks available. As a self-employed expat, you can deduct the costs associated with maintaining a home office, provided the space is used regularly and exclusively for business activities. The deduction can cover, rent or mortgage interest, utilities (electricity, water, internet), home repairs and maintenance (proportional to the size of your office) and depreciation of your home.
There are two methods for calculating this deduction:
- Simplified Method: $5 per square foot, up to 300 square feet (maximum $1,500).
- Regular Method: Deduct a percentage of home expenses based on the square footage of your office relative to the total home size.
This deduction can be particularly useful for freelancers and remote workers who operate from their homes abroad.
2. Travel and Transportation Expenses
If you’re self-employed and travel for business, you can deduct a wide range of travel-related expenses. This may include airfare, lodging, meals while away for business purposes, local transportation such as taxis, rental cars, or public transit, and even mileage if you use your personal car for work-related travel.
However, it’s important to note that only the portion of travel that is directly connected to your business is deductible. If a trip combines business and personal elements, you’ll need to clearly separate those costs. The IRS also limits meal deductions to 50% of the expense. To support your claims, keep detailed records that include travel dates, destinations, and the specific business purpose for each part of the trip.
3. Equipment and Supplies
As a self-employed individual, the tools and supplies you use for your business are deductible. This includes:
- Office equipment: Computers, printers, phones, and furniture
- Business supplies: Stationery, printer ink, and other consumables
- Software subscriptions: Tools like Adobe Creative Cloud, accounting software, or other software you use to run your business
If you purchase expensive equipment that will last more than one year, you may need to depreciate the cost over several years. However, smaller items and business supplies can generally be deducted in full in the year they’re purchased.
Additionally, Section 179 of the tax code allows you to deduct the full purchase price of qualifying equipment up to certain limits, instead of depreciating the cost over time.
4. Marketing and Advertising
Marketing and advertising are essential for growing your business, and fortunately, these costs are fully deductible. Whether you’re running ads on social media, creating marketing materials, or developing your website, all of these expenses qualify. Examples include online advertising (Google Ads, Facebook Ads, etc.), website development and hosting, SEO services, business cards, brochures, and other print materials.
For self-employed expats, marketing and advertising expenses can be a significant portion of your business costs, and the deduction helps offset some of those expenses while contributing to your business’s growth.
5. Professional Services and Fees
Running a business often involves hiring professionals to support key aspects of your operations, and the fees you pay for these services are generally tax-deductible. This includes legal fees related to drafting contracts, registering trademarks, or handling other business-related legal matters.
Accounting services are also deductible whether you’re paying a tax professional to prepare your taxes or receiving guidance on how to structure your finances as an expat. Consulting fees paid to mentors or business advisors who help you improve or grow your business can also be written off.
Don’t forget that bookkeeping services fall into this category as well. If you hire someone to maintain your financial records or use bookkeeping software, those costs can be deducted too.
6. Health Insurance Premiums
Health insurance is an essential expense for any self-employed individual, and for US expats, health insurance premiums are fully deductible. If you’re self-employed, you can deduct the premiums you pay for yourself, your spouse, and your dependents, including, medical, dental, and vision insurance premiums.
This deduction can apply regardless of whether you itemize other deductions. For expats who live in countries with national health systems, be sure to consult a tax professional to determine whether premiums for international health insurance or coverage in your host country can be deducted.
7. Retirement Contributions
Contributing to a retirement plan is not only a smart financial move for your future but can also help reduce your taxable income. As a self-employed expat, you can deduct contributions to retirement accounts, such as:
- SEP IRA (Simplified Employee Pension): You can contribute up to 25% of your net earnings from self-employment, up to $69,000 (in 2024).
- Solo 401(k): You can contribute up to $69,000 in 2024, or $76,500 if you’re 50 or older.
- Traditional IRA: Contributions are limited to $7,000 ($8,000 if over 50) but can reduce your taxable income.
These contributions can help you save for retirement while lowering your taxable income. Even if you’re living abroad, these contributions are still available to you.
8. Education and Training Expenses
As a self-employed expat, continuing your education to enhance your skills is not only a smart move for your business, it can also help lower your US tax bill. The IRS allows you to deduct education and training expenses that are directly related to your current business activities. This includes tuition for courses or workshops that improve your professional skills, books and materials relevant to your field, and even online courses or webinars.
The crucial point is that the education must be tied to maintaining or improving the skills required for your existing business, it cannot be used to qualify for a new trade or profession. This deduction provides a valuable opportunity to grow professionally while reducing your taxable income.
As a self-employed expat, taking advantage of available tax deductions can significantly lower your US tax liability. By properly documenting and claiming deductions for home office expenses, travel, equipment, marketing, professional services, health insurance, retirement contributions, and education, you can maximize your savings while growing your business abroad.
