u.s. expat tax guide – brazil
How do you report self-employment income from Brazil to the IRS?
If you’re self-employed in Brazil—whether as a freelancer or an independent contractor—you must report this income on your US tax return.
You do this using Schedule C (Profit or Loss from Business), which is filed along with Form 1040. On Schedule C, you report your total income and subtract any business expenses to calculate your net income.
Do you have to pay US Social Security taxes if you’re self-employed in Brazil?
Usually, yes. As a self-employed individual, you’re responsible for Social Security and Medicare taxes, which total 15.3% of your net income. However, the US and Brazil have a totalization agreement, which means if you’re contributing to Brazil’s Social Security, you may be exempt from paying into the US Social Security system.
What is the totalization agreement between the US and Brazil?
The totalization agreement exists to prevent double taxation of Social Security contributions for people working in both countries. If you’re already paying into Brazil’s Social Security system, this agreement allows you to avoid also paying US Social Security taxes on the same income, which saves you from double contributions.
Are there any extra forms to file for self-employment income from Brazil?
Yes, in addition to your standard return, you may need to file Form 8858. This form reports income from foreign disregarded entities (FDEs) or foreign branches. Filing Form 8858 is important because failing to do so can result in penalties up to US$10,000.
What happens if you forget to file Form 8858?
If you are required to file Form 8858 but forget to do so, you could face steep penalties—up to US$10,000. This form is often overlooked by expats, which makes it crucial to stay informed and avoid these costly fines.
Can you deduct business expenses incurred in Brazil on your US tax return?
Yes, you can deduct business expenses you incur in Brazil on your US tax return. These are ordinary and necessary expenses related directly to your work, such as office rent, supplies, and utilities. You’ll list these expenses on Schedule C (Form 1040).
It’s essential to keep detailed records and receipts, as the IRS may request proof. Remember to convert all expenses from Brazilian Reais (BRL) to US Dollars (USD) using the correct exchange rate for the time period.
When is the deadline for filing US taxes if you’re living in Brazil?
The standard filing deadline is April 15th, but if you’re a US citizen residing in Brazil, you receive an automatic extension until June 15th.
However, if you owe taxes, interest begins accruing from April 15th. If you need even more time to file, you can request an extension until October 15th by submitting Form 4868, but this extension only applies to filing, not payment.
Do you need to make estimated tax payments if you’re self-employed?
Yes, as a self-employed person, you don’t have taxes withheld from your income, so you’re expected to make estimated tax payments each quarter. These payments are typically due on April 15th, June 15th, September 15th, and January 15th of the following year.
How do you convert income from Brazilian Reais to US Dollars on your tax return?
When reporting your Brazilian income, you need to convert the earnings from Brazilian Reais (BRL) to US Dollars (USD). The IRS requires you to report all income in USD.
You can use the exchange rate from the day you received the payment or an average rate for the year if income is received regularly. The IRS website provides annual average exchange rates to simplify this process.
How can the US-Brazil totalization agreement save you money?
The totalization agreement is particularly beneficial because it allows you to avoid paying Social Security taxes in both the US and Brazil. If you are already contributing to Brazil’s Social Security system, you do not need to pay into the US system.
How do you get more time to file your US taxes?
If you need additional time beyond June 15th, you can request an extension until October 15th by filing Form 4868. Keep in mind, though, that this extension only postpones your filing deadline, not the payment deadline.
Any taxes owed should be paid by April 15th to avoid interest.
What are some common mistakes to avoid when filing as a self-employed expat?
- Not Filing Form 8858: If you have income from a foreign disregarded entity, missing Form 8858 can result in significant penalties.
- Skipping Quarterly Estimated Payments: Missing these payments can lead to large penalties and interest charges.
- Poor Record-Keeping: Keeping thorough records is crucial for substantiating deductions. Missing receipts can cause problems if the IRS requests documentation.
- Ignoring the Totalization Agreement: Some expats end up overpaying Social Security taxes because they are unaware of the totalization agreement between the US and Brazil.
