Sole proprietorship in the United States Thread poster: Federica Mantica
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Hello everyone,
I recently relocated to California and am in the process of establishing my status as a sole proprietor. There are still quite a few things I haven't figured out though. Hope you can help me out!
- Do all tax returns have to be filed by April of the following year? (April 2018 for the year 2017?)
- If I make an invoice to a EU customer, do I have to charge any VAT? If so, how much would that be?
- On my invoices, since I don't n... See more Hello everyone,
I recently relocated to California and am in the process of establishing my status as a sole proprietor. There are still quite a few things I haven't figured out though. Hope you can help me out!
- Do all tax returns have to be filed by April of the following year? (April 2018 for the year 2017?)
- If I make an invoice to a EU customer, do I have to charge any VAT? If so, how much would that be?
- On my invoices, since I don't need a VAT-number in the US, which identification number could I alternatively use? I was told to certainly not put my social security number on any invoice and I still have to get my driver's license/ID.
- On my invoices, should I separate the reimbursements from my actual fee, like in the EU?
- Which expenses can I deduct on my tax return? Only work-related expenses (travels, stationery, electronics,...) or, for instance, my medical insurance as well?
- Do I need to file a VAT-return quarterly, like it is the case in Belgium? If not, how often? Do I even need to do so?
- I already have a very good coverage from my husband's health insurance. Do I still need to pay taxes fully for my social security and Medicare?
- Which percentage of income tax should I expect, approximately? Social security, Medicare, city/federal and any other type of tax all put together? 20, 30, 40, 50%?
- Last but not least, I would appreciate any recommendations for a knowledgeable accountant in the San Francisco area. I already contacted a few ones, but none of them had any experience on (I think basic) things like how to invoice a EU customer. I have plenty of EU-based customers, so I need someone who knows how I should deal with that.
Thank you very much in advance! ▲ Collapse
| | | | | I wonder if you would not want valid interpretation rather | Jan 5, 2018 |
All these questions you should clarify with an accounting/tax advisor's office.
| | | | RobinB 
United States
Local time: 05:45
German to English
| Some answers to start with | Jan 5, 2018 |
Hi Federica,
Having recently relocated to Texas myself, I can answer at least some of your questions.
VAT: You have absolutely nothing to do with VAT any longer. You don't charge it on your invoices, so you don't collect it, pure and simple. One less thing to worry about.
Tax number: You should certainly never put any personal information such as your Social or driver's license number on your invoices. There is no EU legal requirement for service providers ... See more Hi Federica,
Having recently relocated to Texas myself, I can answer at least some of your questions.
VAT: You have absolutely nothing to do with VAT any longer. You don't charge it on your invoices, so you don't collect it, pure and simple. One less thing to worry about.
Tax number: You should certainly never put any personal information such as your Social or driver's license number on your invoices. There is no EU legal requirement for service providers located in third countries to disclose tax-related information on their invoices to EU customers. However, some national tax administrations may require you to provide some information on your invoices to EU customers (the German tax authorities require a boilerplate statement about the reverse charge mechanism, for example), and I understand that some ignorant agencies also think they are legally required to demand a tax number from their non-EU suppliers. To avoid problems, I suggest you obtain an Employer Identification Number (EIN) from the IRS, which you can happily quote on all your invoices without any risks. It identifies your business as a U.S. taxpayer, not yourself. You can have an EIN without employing anybody.
Tax returns: You are correct in your assumption. You can defer filing your tax return by up to six months, but you should still prepay your expected tax liability by the April Tax Day. You will be charged an interest penalty for any tax liability not paid by that date.
Reimbursements: This is something between you and your clients, not the IRS. For the tax authorities, reimbursements of expenses are taxable income, pure and simple (this is the same everywhere, including in the EU). If your clients want you to bill these separately, that's not a problem, but - to my knowledge - there's no legal requirement to do so.
Quarterly tax return: You should expect to make quarterly income tax (not VAT!) prepayments as a U.S. taxpayer.
Expenses: You should consult a CPA about this, at least the first time. The CPA will also advise you about the self-employment taxes you will have to pay.
I think you should urgently join your local T&I association. If you are in SF, that will be the Northern California Translators Association (http://www.ncta.org/). They or their local members should be able to recommend a CPA with the sort of experience you require (my CPA here in Austin, Tx, has several expat European clients, for example). Invoicing your EU customers is going to be really straightforward, believe me. How it's all accounted for here in the U.S. will be more complicated, not least if your clients (like mine) will be paying in euros into a bank account in the EU.
I will be setting up an LLC for my business, and I suggest you investigate doing something like that too. Being an LLC should also convince new clients in the EU that you are a business, circumventing the laborious process of proving your identity.
Joining NCTA will also ensure that you keep in touch with the professional community, and will quickly give you a new set of friends and acquaintances in your new home state. I would also recommend joining the ATA.
Robin ▲ Collapse
| | | | | Tax prepayment | Jan 7, 2018 |
RobinB wrote:
Hi Federica,
Having recently relocated to Texas myself, I can answer at least some of your questions.
VAT: You have absolutely nothing to do with VAT any longer. You don't charge it on your invoices, so you don't collect it, pure and simple. One less thing to worry about.
Tax number: You should certainly never put any personal information such as your Social or driver's license number on your invoices. There is no EU legal requirement for service providers located in third countries to disclose tax-related information on their invoices to EU customers. However, some national tax administrations may require you to provide some information on your invoices to EU customers (the German tax authorities require a boilerplate statement about the reverse charge mechanism, for example), and I understand that some ignorant agencies also think they are legally required to demand a tax number from their non-EU suppliers. To avoid problems, I suggest you obtain an Employer Identification Number (EIN) from the IRS, which you can happily quote on all your invoices without any risks. It identifies your business as a U.S. taxpayer, not yourself. You can have an EIN without employing anybody.
Tax returns: You are correct in your assumption. You can defer filing your tax return by up to six months, but you should still prepay your expected tax liability by the April Tax Day. You will be charged an interest penalty for any tax liability not paid by that date.
Reimbursements: This is something between you and your clients, not the IRS. For the tax authorities, reimbursements of expenses are taxable income, pure and simple (this is the same everywhere, including in the EU). If your clients want you to bill these separately, that's not a problem, but - to my knowledge - there's no legal requirement to do so.
Quarterly tax return: You should expect to make quarterly income tax (not VAT!) prepayments as a U.S. taxpayer.
Expenses: You should consult a CPA about this, at least the first time. The CPA will also advise you about the self-employment taxes you will have to pay.
I think you should urgently join your local T&I association. If you are in SF, that will be the Northern California Translators Association ( http://www.ncta.org/). They or their local members should be able to recommend a CPA with the sort of experience you require (my CPA here in Austin, Tx, has several expat European clients, for example). Invoicing your EU customers is going to be really straightforward, believe me. How it's all accounted for here in the U.S. will be more complicated, not least if your clients (like mine) will be paying in euros into a bank account in the EU.
I will be setting up an LLC for my business, and I suggest you investigate doing something like that too. Being an LLC should also convince new clients in the EU that you are a business, circumventing the laborious process of proving your identity.
Joining NCTA will also ensure that you keep in touch with the professional community, and will quickly give you a new set of friends and acquaintances in your new home state. I would also recommend joining the ATA.
Robin
Hello Robin,
Thank you very much for your help! Just a few more questions.
Firstly, if I start working now in January 2018, when will I have to prepay my expected tax for the first time? Should I go to a CPA for it or is the tax prepayment just a form I can easily fill out online? How does this work exactly?
Secondly, is it legal to have my EU-customers pay me on my Belgian account? Is there any limit of money I can receive on my Belgian account? Do I have to declare anything or do any paperwork in Belgium for the money I would receive on my account?
Thank you very much!
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Kevin Fulton
United States
Local time: 06:45
German to English
| Paying estimated tax | Jan 7, 2018 |
Federica Mantica wrote:
Firstly, if I start working now in January 2018, when will I have to prepay my expected tax for the first time? Should I go to a CPA for it or is the tax prepayment just a form I can easily fill out online? How does this work exactly?
Secondly, is it legal to have my EU-customers pay me on my Belgian account? Is there any limit of money I can receive on my Belgian account? Do I have to declare anything or do any paperwork in Belgium for the money I would receive on my account?
Thank you very much!
This is advice based on my own experience. Consulting with a CPA is always advised, but there's really no rush early in 2018.
Basically your estimated tax payment is based on the income from the previous year. Since you will be considered a taxpayer in the US for the first time in 2018, you don't need to pay until you file your income tax statement in 2019. What you should do, however, is set aside about 30% of what you earn, because that will be your baseline amount when you start prepaying after filing your taxes in early 2019. Normally this is done on a quarterly basis.
You are responsible for declaring income/paying US tax on income earned Europe in 2018. I can't address issues with the Belgian tax authorities, but you will have to indicate on your US tax statement that you have a foreign bank account. You may also be liable for state income tax, depending on where in the US you live. This is another reason to get professional help with your taxes, at least the first time. The accountant should be able to provide you with all the US forms you'll need.
The tax code has recently changed, and no one fully understands the implications of the changes at this time. Sole proprietors (Schedule C filers) will be specifically impacted with respect to allowable deductions, if any, which is why Robin suggested forming a limited liability corporation (LLC), depending on your potential tax situation.
Good luck!
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I set up and ran two sole-proprietor businesses in the USA and it was generally a good experience. However, if there was one single piece of advice I would give, it is to find a CPA (ask around for recommendations) before you do anything else. Your CPA is your friend and you can (and should) be completely honest with them. They will set up your book-keeping system and tell you what you can and can't claim against taxes etc. and the schedule for depreciation of capital purchases (computers... See more I set up and ran two sole-proprietor businesses in the USA and it was generally a good experience. However, if there was one single piece of advice I would give, it is to find a CPA (ask around for recommendations) before you do anything else. Your CPA is your friend and you can (and should) be completely honest with them. They will set up your book-keeping system and tell you what you can and can't claim against taxes etc. and the schedule for depreciation of capital purchases (computers, etc.).
While you are no longer subject to dealing with VAT, there may or may not be sales tax to deal with - this varies by state and my experience was in New Jersey. There are also federal and (possibly) state income taxes and social security. Once again, your CPA will deal with all this and explain it to you. If you are ever audited, your CPA will go with you to the audit and answer all of the questions. In fact, they will probably forbid you to say anything after "hello"!
Expect an initial meeting with your CPA to set everything up and, after that, you will probably only meet them once a year. Mine used to charge me about $350 per year. It's probably a bit more now but it's well worth it just for the peace of mind. ▲ Collapse
| | | | RobinB
United States
Local time: 05:45
German to English
| You need a CPA, now! | Jan 8, 2018 |
Federica Mantica wrote:
Firstly, if I start working now in January 2018, when will I have to prepay my expected tax for the first time? Should I go to a CPA for it or is the tax prepayment just a form I can easily fill out online? How does this work exactly?
Secondly, is it legal to have my EU-customers pay me on my Belgian account? Is there any limit of money I can receive on my Belgian account? Do I have to declare anything or do any paperwork in Belgium for the money I would receive on my account?
Thank you very much!
Re the first question: You should speak to a CPA about this now. Ask around at NCTA for recommendations.
Re the second question: It's perfectly legal. In fact, many U.S.-based translators I know have European bank accounts for their European clients, and I also recommend colleagues with European clients to maintain or open a bank account there (even though that's more difficult now than it used to be). You will have to make declarations about account balances on foreign bank accounts, which is why you really have to speak to a CPA about what you need to do here.
There is no limit to the amount you can receive on your Belgian bank account. The question of whether you additionally have to file paperwork in Belgian is something only a Belgian tax adviser can answer.
Picking up on something another answerer said, I'm not aware of any sales taxes that you would have to apply to exports of services to clients outside the U.S. Maybe California does it differently, but this is something the CPA will be able to answer very quickly.
So for many reasons, you need to consult a CPA as quickly as possible.
One thing suddenly struck me: I see you're (primarily) an interpreter. If you are based in the U.S., but provide interpreting services on-site in the EU, it's conceivable that you will be taxed on them (particularly VAT) in the EU. You'd better check this with other U.S.-based colleagues who interpret physically (as opposed to e.g. OPI or VRI), and with your Belgian tax adviser.
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