About 50% of all small businesses in the United States are home-based businesses. They come in every shape and size — from landscape designers freelancing out of their garages to a 30-person app development firm with employees all over the country and no physical headquarters. As different as they may be, they all have at least one thing in common. Each company has to decide what address to use to register their business.
The decision isn’t as straightforward as you might think, and if you’re reading this article, it’s probably because you’ve figured out that using a virtual mailing address is the best option for your business. But if you’re still on the fence, this article will help guide you through the pros and cons of your various options (like using your home address) as well as how to get and use a virtual address to register your business.
Why you shouldn’t use your home address to register your business
If you’re starting a business from your home, you may be inclined to use your personal address when you register with your local Secretary of State’s office. After all, your home will be your office. But using your home address has some significant drawbacks.
- You don’t want to entangle your business and personal affairs. If you’re registering your business, then you’re likely creating a limited liability company (LLC) or corporation — probably to get the benefits those structures provide, like a shield from personal liability. Smart move. Unfortunately, if your company was ever involved in a lawsuit, the court would look for things like separate bank accounts and addresses to determine whether a liability shield is appropriate, i.e. whether your business and personal life were actually separate. Let’s be clear: registering your business using your home address isn’t going to bring the Feds knocking on your door. But if you experience legal issues in the future, you’ll be glad that you kept your business and personal affairs separate.
- The address you use to register your business is public. Anyone can look it up on your local Secretary of State’s website. Publicizing your home address increases your susceptibility to identity theft. Between 7 and 10% of the U.S. population falls victim to identity fraud each year, and sharing personal information online makes you more susceptible to attack. Even if your information remains safe, you may open yourself up to having an upset customer knock on your door while you’re having dinner with your family.
- You may be prohibited from operating a home-based business at your home address. Some homeowners’ associations, condominium or apartment associations, and municipal ordinances ban people from operating businesses out of their homes. The reason for these bans is generally to avoid the activity of a business (traffic, customers coming in and out, etc) in a residential area. Many home-based businesses don’t have any of that activity, especially if you’re providing a service that involves sitting in front of your computer at a desk. However, using your home address as your business address may open you up to complaints or citations. Make sure you know what the rules are where you live before you get started.
Why should you register your business with a virtual address?
At this point, you’re probably pretty clear on why you shouldn’t use your home address to register your business. But why should you use a virtual address?
The answer is simple: getting a virtual mailing address for your business protects your private information and keeps your business and personal affairs separate.
Of course, your business address does much more than serve as a registration location for the Secretary of State’s office. You provide your business address to many people, in dozens of places:
- On your invoices
- When you register your domain name for a website
- On communications with customers (For instance, anti-spam laws in the U.S. require any business sending marketing email communications to include their business address at the bottom of the email.)
- On contracts or purchase orders with vendors
- When you open a business bank account
- To be on online review sites, like Google My Business or Yelp
If you’re going to be using a business address in all those ways, you might as well have it work for you. A virtual mailing address adds flexibility to your business operations by allowing you to check your mail from anywhere in the world — sitting on your couch or on a bicycle tour of the Irish countryside. Wherever you have internet access, you have your mail.
With a virtual address, you can easily share mailed documents with colleagues or clients and save important information securely in the cloud. Plus, you can be sure you’ll never miss an important piece of mail.
Now, let’s take a minute to talk about PO boxes.
Some home-based businesses rent a PO box to avoid providing their home address when they register or on other business documents. Unfortunately, not all states allow businesses to register with a PO box, and a PO box can’t give you the flexibility that a virtual mailing address provides.
Can you use a virtual address for a registered agent?
LLCs and corporations must have a registered agent in the state where their business is registered. A registered agent is someone that you designate to receive specific important documents on your behalf—for instance, documents from the Secretary of State’s office or “service of process” documents if you’re ever involved in a lawsuit.
Each state creates its own rules about registered agents. In most states, you or another individual from your company can act as the registered agent as long as you have a physical street address within the state. However, someone would need to be present at that address during working hours to sign for important documents, and the registered agent’s address is publicly available on the Secretary of State’s website.
Because someone must be physically present for a registered agent’s address, you may not be able to use a virtual address. Check with your local Secretary of State’s office to be sure. Online companies like LegalZoom offer registered agent services, as do many local businesses and attorneys.
How to register your LLC or corporation with a virtual address from Earth Class Mail
You can get a virtual business address within a matter of minutes.
- Choose the Earth Class Mail virtual address plan that best meets your business’s current mail needs.
- Click the “Buy Now” button and enter your name and email address.
- Choose a virtual address in the state where you’re registering your business. If you’re choosing a virtual address that’s a PO box, check with your local Secretary of State’s office to confirm that you can use a PO box address to register. Earth Class Mail’s PO box virtual addresses work the same as our street number virtual addresses.
- Fill out a USPS Form 1583, a form required by the Federal Government before any third party can gain access to your postal mail. You’ll need to have the form notarized with two forms of identification. Tools like Notarize.com move the notarization process online so you can take care of this process entirely from home. Then send the original form to Earth Class Mail.
- Once you receive notice that your virtual address is set up, visit your local Secretary of State’s website and use the virtual address to register your business.
If you’ve already registered your business using your home address, don’t fret. You can always change it, and now is the perfect time to get that personal information off a publicly available website.
Start here to get your virtual mailing address.
Founders and entrepreneurs leading a remote company face a unique set of challenges when it comes to employee engagement, business operations, and team communication. You’re creating company culture virtually, without the luxury of in-person management. With your team’s increased mobility it becomes more important to centralize and standardize your business practices and keep everyone in sync.
Thankfully, there are many options to choose from when it comes to affordable cloud-based tools that make it easier for your remote team to collaborate, as well as a wealth of information from companies that have paved the way. If you are about to launch a remote company or are looking for ways to improve an existing business operating remotely now, we’ve got a few core practices that will keep you organized and your team optimized.
1. Don’t underestimate (virtual) face time
We’ve written about the importance of remote communication before, but it’s worth mentioning again. A simple way to strengthen rapport with your team is to replace conference calls with video conferences. It’s a great way to connect with colleagues who would prefer to put a face to a name while easing the barrier of remote communication and helps create clarity on tasks and projects . Start with free, easy to use tools like Zoom, Google Hangouts Meet, or even Slack Calls.
2. Use the cloud
Storing data in the cloud allows you to access and analyze important information quickly, enabling you to make informed decisions more readily. Instead of creating an Excel spreadsheet that can’t be shared in real-time, leverage cloud-based apps until you need a more robust tool, like a cloud-based Customer Relationship Management (CRM) solution. Avoid the trap of investing in software that your employees might not need by testing a free or inexpensive tool and by being strategic about how the tools you’ve put in place interact with one another.
3. Put yourself in your client’s shoes
Running a remote company has its benefits, as well as its trade offs when it comes to your client base. I recently spoke with a customer who was turning down clients that were only able to send payment via mail (paper-based billing and paying by check are more prevalent than you might think). Since this client relocated from the US to Europe, receiving and processing payments from abroad was taking too long, checks were occasionally lost in transit, and the company was at risk of not making payroll. A digital mail solution, also sometimes called a virtual mailbox, gives you access to important correspondence, such as postal mail, documents, and checks, all via an online platform. You’ll have continuity in your mailing address even if you want to travel the world or set up shop in another state. Some solutions, like Earth Class Mail, even offer remote check depositing solutions, which allow you to keep clients whose billing practices might not be as automated as your own.
4. Start with data
And don’t stop. Without a doubt, centralizing customer and prospect data is a must when starting a remote company. Even if you’re a solopreneur, or work on a small team, begin with something as simple as Google Sheets, a live document that’s accessible from anywhere. As you add employees, give them access and review the data that you require them to enter. At a minimum, start tracking your business prospects and customers. Collect relevant contact details and lead source information, the product of interest or the product purchased, as well as other data – such as the time it took to close the deal or the reason why you lost the deal – to inform future decisions. When the time comes that you have too many data points to manage, move to an affordable cloud-based CRM to centralize customer and prospect data.
5. Standardize processes
As you add employees to your team, be sure to communicate and train each employee on the tools you have in place and your expectations on how the team should use them to collaborate. Otherwise, you could end up with disparate data and inefficient processes. Create an on-boarding document or new hire training so that you minimize the time spent bringing new employees up to speed. And, don’t think of standardization as infringing on your employee’s autonomy. You’re building consistency among your remote workers the way it might more organically be built if you all were working in the same physical location.
Remember, if you’re just getting started, use free cloud-based tools to build out your core business processes and make it a practice to have all your information living in a central repository. If you and your employees have conquered your business workflows with free cloud-based tools and feel like you’ve outgrown them, then it’s time to begin looking for a more specialized solution.
For years, law firms of all sizes followed a similar pattern when it came to running their mailroom. These firms would dedicate time and labor to opening, sorting, and filing incoming mail that could be used for more pressing legal work.
Small firms required legal secretaries or assistants to step away from other tasks to open, sort, and deliver incoming mail. Larger firms often used a dedicated mailroom, which involved substantial labor costs and required plenty of physical space. The traditional system for filing away this correspondence and other documentation was not much better. This process drained resources and dramatically increased the amount of physical space each firm needed to hold years’ worth of thick paper files.
Now technology is transforming the way many practices operate – and law firms of every size are utilizing this technology to streamline their mailroom process. For a variety of reasons, including improvements in digital scanning technology, virtual law firms are replacing the traditional brick and mortar experiences. The concept of a virtual law firm is made available by the use of a virtual mailbox or virtual address, sometimes even referred to as a digital mailroom.. A virtual address is an actual street location that serves as a firm's functioning business address. Firms are able to select the location of their business address from a list of virtual addresses, typically made available from virtual address providers. Mail sent to this address is then automatically forwarded to the virtual address provider’s processing facility.
At Earth Class Mail, all mail sent to our virtual addresses is routed to our secure mail processing facility, where incoming mail is received, scanned and digitized. File storage occurs in the cloud; making files and documents readily accessible for use in support of a case. By using a service like Earth Class Mail we’ve seen many smaller firms avoid overwhelming office expenses and we’ve allowed larger firms to be more agile. In addition to a significant reduction in cost-savings, lawyers can focus more on their practice, creating an experience tailored toward customer service and building relationships.
Guest post by Courteney Reed, Financial Industry Analyst at Credit Card Insider
Successfully growing a business is no small feat. It takes a great team, determination, and often a decent helping of luck. With so many things to contemplate, it is often hard to find a place to start seriously investing in your startup’s growth. Here are three suggestions:
Separate your business and personal finances
As a business owner, you need to apply for an employer identification number (EIN) via the IRS website. This allows your business to build a credit profile and maintain a record of business transactions. Until you file your business as a separate legal entity, you could be held personally liable for all financial activities.
The sooner you establish your credit profile the sooner your business begins to build credit. Opening a business credit card and using it responsibly can help you track your expenses and profits, build your credit scores, and simplify tax filings. Conversely, mixing business and personal expenses on a personal credit card can quickly eat up your credit limit, causing a drop in credit scores and making it harder to apply for personal credit, such as car loans or mortgages.
Consider these advantages of using a business credit card:
- Separation of business and personal expenses
- Higher credit limits than personal cards
- Rewards like cash back, miles, points, and warranties
- Potential to increase business credit scores for better business loan terms and high-tier business credit card rewards
- Better cash flow management, allowing 20-30 days to pay business costs without interest
Finance To Fit Your Needs
Successful businesses often use outside funding to plan ahead for their business needs. Here are three tried and true options worth considering:
Small Business Loans
Small business loans provide access to capital before revenue streams begin flowing. Plus, by successfully managing a business loan, you’re increasing the potential of securing bigger business financing when it’s time to expand your company. Finding the right business loan may take time but you’ll have working capital you need to get off the ground.
Venture Capital Funding
Financing investors provide funding to startup companies that are believed to have long-term growth potential. This type of funding usually comes from wealthy investors, investment banks, and other investment companies, and ownership of a business is divided between the investors and the proprietors of the business. There are different platforms that provide a database of different investors looking to invest in new companies or promising business ideas, making it easier to find investors interested in your market niche.
Alternative business funding is capital offered to small business owners by “non-bank” providers. Alternative lenders are particularly attractive to small business owners who don’t have an established business credit profile.
Most lenders have their applications available online, making the approval a quick process. Their interest rates are typically higher, but if you need money in a timely manner, alternative lending might be the way to go. Typically lenders extend loan repayments from 6 months to a year, but depending on the type of loan you choose, you may not have to pay the money back until you actually draw from the provided funds.
Leverage Software to Increase Efficiency and Reduce Costs
After getting approved for more financing, you’ll need to stay on top of all the financial details. The right software can help streamline multiple tasks and increase your team’s performance and overall efficiency. Here are three tools for keeping your finances in order:
Payroll management is often a burdensome task, especially as your business grows in manpower. Effortless HR is an HR tool that enables employees to self-manage their payroll preferences, time off, and access any other necessary information without the assistance of an HR employee.
Quickbooks for Finances
Quickbooks is simple to use and helps you keep track of all basic business transactions. Plus, they regularly roll out updates to their online platform for flexible financial management.
A cloud storage solution is a must-have for organizing and sharing important files. Depending on your specific needs, Dropbox contains tools that benefit secure record keeping and flexible collaboration.
The path to growing a successful business is not a concrete one. However, these three tips can begin to increase your financial literacy and day to day expense management in a simpler and more productive way. Seriously considering these recommendations will give your business a better chance of success and expansion in the future.
By Matt Goldman on April 25, 2018
As an entrepreneur, the measure of success for a product or service isn’t just about getting it out in the world but making sure you’re actually serving a market’s need. Without identifying the market potential for your startup idea, you might find yourself where many founders do: failing to acquire or keep customers, financially tapped out due to investing your own money and left facing a deflated dream.
In this post, we’ll provide you with some guidance to help you kickstart your market research as well as links to free, proven resources.
Do 90% of startups really fail?
Over the years, the statistics rumor mill reported widely that the failure rate of startups hovered somewhere around 90 percent. But that longtime stat isn’t quite accurate and hasn’t been so for a very long time.
According to a study that monitored the performance of nearly 28,000 startups, “research reveals that the real percentage of venture-backed startups that fail—as defined by companies that provide a 1X return or less to investors—has not risen above 60% since 2001. Even amid the dot-com bust of 2000, the failure rate topped out at 79%.”
So, by this measure, your chances for success are really in the neighborhood of 20 to 40 percent. Not too shabby. But if you’re planning on investing your savings to build your dream: 1) don’t skip researching why other startups fail and 2) proactively learn from their mistakes.
Why startups fail
When the research experts at CB Insights studied 101 failed startups, participants reported that “tackling problems that are interesting to solve rather than those that serve a market need was cited as the number one reason for failure, noted in 42 percent of cases.” The good news is market research can help you determine if you have a product fit before you end up with empty pockets.
How to begin researching your market and product fit
To determine if there is a market need, you need to clearly define and establish who you are targeting. You can begin to gauge a market need by listing the characteristics, such as job role, applicable industries, size of the company and most importantly, what problems you are solving for them. This is usually referred to as a target persona.
Next, research companies already working in this space, including their strengths and weaknesses to pinpoint your competitive advantage. Chances are you’ll find yourself in a scenario where you’ll have to convince a prospect who is a customer of your biggest competitor. Is your product or service enough to have them switch to your company? Do you solve a different problem altogether? You either have to be able to solve problems that their current provider does not or benefit them enough to win them over. In other words, you need to have a product (or provide a service) that has evidentiary proof that is solves actual problems.
There are several steps to begin your market research:
- Talk to a representative at your local Chamber of Commerce or Small Business Development Office
- Prepare a pitch deck that will help you zero in on your competitive edge
- Find friends and colleagues, who mirror your ideal customer, and pitch them to get their feedback (or better yet, conduct primary interviews with potential customers)
- Collect all feedback and data
- Use your research to develop and refine your minimum viable product
- Objectively review your data to gauge a market
- Ask yourself if your product still viable based on your target audience and initial feedback
While this is a high-level overview of what you need to determine product-market fit, there is an abundance of free resources out there to help you in the process. Investing the time in conducting market research is sure to save you time and money in the long run.
By Eric Romoff on April 18, 2018
Increasingly, companies are outsourcing the role of Chief Financial Officer (CFO), also known as CFOs-for-hire, and interim, or contractual, CFOs. It may seem odd that companies, from large firms down to small- and medium-sized businesses, would contract out an executive position. But understanding the challenges and opportunities this trend presents can help you evaluate potential payoffs for your business.
- Lower costs. With permanent employees, benefits, opportunities for training and career advancement, and other aspects for retainment should be top-of-mind considerations. Having an outsourced CFO, however, sidesteps some of these factors because the position is either temporary or such logistics are handled by the CFO’s parent company (when there is one). And because you may not boast the payroll to accommodate in-house accounting, small and medium-sized businesses benefit from this exponentially more than their larger counterparts.
- Minimize off-peak periods. Outsourcing gives greater flexibility to hire a CFO according to a business’s peak season. If a company doesn’t need a full-time CFO during off-peak periods, they’re under no pressure to hire one. Maximize payroll, and profit, by limiting overhead and keeping overall costs low.
- Flexible commitment. Taking a test drive before finding a full-time financial executive might not be the worst idea. Depending on your particular arrangement with your outsourced CFO, it might be easier to make changes if they’re not living up to expectations.
- Trained professionals. By looking outside your own walls, you can rest easier knowing your next CFO comes vetted by a home agency. This puts your financials in the hands of trained pros, leaving you more time to focus on scaling your business.
The perks of contracting an outside CFO can be great, but below are some challenges to prepare for along the way.
- Longer onboarding. Syncing workflows and work styles with that of a CFO-for-hire’s parent entity can take more time than hiring and onboarding an in-house employee. This is especially true when it comes to establishing communication procedures. Both your company and a parent agency or independent CFO will have their own way of working, and acclimating an interim CFO to your set of processes will require an extra dose of patience.
- Less control. When working with a CFO for hire, you forgo some leverage that comes with managing a full-time team member. Some motivators for high performance, such as opportunities for long-term career advancement, don’t exist. Often times, the client company won’t exert direct control over the CFO, instead having to coordinate with the home agency to voice concerns.
- Limited independence. Outsourced CFOs typically don’t make considerable financial decisions on your behalf. While you can still expect to save buckets of time by outsourcing financial leadership, meaty financial decisions will still fall squarely in your lap. Of course, you’d want to be working with someone whose expertise you trust and who is able to push back and provide financial reassurance when needed.
- Vulnerability. Increased protection against the mishandling of money is definitely a pro of outsourced CFOs if there’s a quality agency or parent company with skin in the game. But the risk remains that a hired gun may mishandle sensitive financial data. You might get the sweats wondering if an outsourced CFO is engaged in Tom Foolery.
It’s important to also consider how a nontraditional CFO might fit with your company’s team makeup, structure, and culture. But ultimately, only you will know if an outsourced CFO will positively impact your company’s bottom line. That’s the thing about the for-hire business: testing the waters is a built-in feature. Whether you want to use sporadic financial advice, or put feelers out for a good match that can eventually become in-house, you can shape outsourcing to fit your company’s specific needs.
Doug Breaker here, CEO of EarthClassMail.com. Writing billing code is hard. Really hard. If you’re wrong by a penny, you’re all wrong.
I used to write billing code as a young developer. I once made a mistake that cost a client $1,200,000! Oops, not my best day.
Any business not in the business of writing billing code should not write billing code. Outsource it instead.
I guarantee it will save you time, make your other development faster, and save your sanity. Spend time building your competitive advantage, not wasting it writing billing code.
When I ran HomeFinder, we used Recurly and liked it. Stripe’s subscription functionality offers a ton of time savings and robust tool set. Check them all out, all offer immense developer time savings vs. developing your own billing system.
Repeat after me ten times, “we will not have developers spend time on billing code!”
CRITICAL TIP: before you choose, ask yourself, “will we ever want to charge for something like ‘get 20 widgets for free on our $99 plan, and 40 widgets for free on our $149 plan and charge for widgets over those amounts?'”
If you answer “yes”, then keep reading for a MASSIVE difference between Chargify/Stripe/Recurly. This one tip can save you months of developer time, make you more money, and launch your products faster.
Let me explain with two real world examples, one using Recurly, and one using Chargify.
Example 1: Offering Free Usage on Recurly
My wife runs a little site called MovingCompanyReviews.com. The site lets consumers read 100% verified reviews from moving companies and get free quotes from them. For example, check out all the reviews for Tampa movers or Orlando movers.
Consumers can even get a free pizza on their move day if they find a mover through the site. Who doesn’t love pizza on their move day?
(Quick backstory: Before I took over as CEO of Earth Class Mail, I was CEO of HomeFinder. While at HomeFinder, we launched MovingCompanyReviews.com as an internal startup. After I left, Placester bought HomeFinder about 6 months later. Placester didn’t want MovingCompanyReviews.com, so we bought it from them.)
We offer a product to moving companies called “Review Advantage“. For that product we email prior customers of moving companies and collect reviews on behalf of the moving companies.
We offer the first bunch of customers to write a review per month a free Starbucks coffee. The product used to be manual, but we just launched an automated version. We set out to offer different plans with different number of free coffees:
- $19 per month includes 3 free customer coffees
- $99 per month includes 15 free customer coffees
- $299 per month includes 50 free customer coffees
After we hit the free coffee limit, we wanted to charge the moving company a certain amount per coffee. Here’s how it looks to our movers:
Here’s how we set that up on Recurly:
- Set up a “Measured Unit” for free coffees
- Set up the pricing plans, including a billable add-on for the extra coffees. Here’s the $19 plan.
- Write a bunch of custom billing code to do the following:
- Keep track of how many free coffees we’ve given in a billing period
- Report any coffees over that the free limit to Recurly
- Reset the counter when a customer’s billing period renews
That’s not easy code to write! We did it, but it took our developer about three weeks of hardcore coding time to get it correct, get automated tests in place, and get fully confident that it worked.
Recurly gives us a ton of benefit, and we enjoy using it. Unfortunately their metered component functionality still required us to write complex billing code in order to give away a different number of free coffees by plan price point.
We made the investment because it was worth it. However, we’d much rather spend our coding time helping consumers find great moving companies.
Example 2: Offering Free Usage on Chargify
Here at Earth Class mail, we just launched a killer new check deposit/lockbox product on Earth Class Mail called CheckStream.
If you’re a business that gets checks, it can revolutionize the way you deposit them and record payments in Xero or QuickBooks Online.
You can deposit any sized check into any bank in the US without going through any application process, or worrying about per check credit limits.
Once you deposit the check, you can record payments to customers & invoices right from our app into Xero & Quickbooks online.
We launched with three pricing plans, each with a different number of checks included.
- $99 per month includes 30 check deposits
- $249 per month includes 125 check deposits
- $499 per month includes 265 check deposits
If customers pass those limits, we charge $2 per check deposit on the first two plans, and $1.90 per check on the $499 plan.
Thanks to Chargify’s new price point functionality, charging for this is a breeze.
Check out how easy Chargify made it to set this up:
- Set up our 3 plans, here’s the $99 plan.
- Set up our metered “check deposit” component, with the three different price points.
- Configure each price point to include the correct number of free check deposits, see screenshot below.
- When someone signs up for a plan, set the correct price point on their subscription (we do this in our ordering code, but you can do it via the user interface as well).
- Ship it! That’s it! Since our app already tracks which plan a customer is on and reports check deposits to Chargify, we didn’t have to do anything else.
Notice the step we didn’t have to do? Write complex billing code! Magic!
Chargify saved us weeks or months of development & testing time. Instead of spending weeks or months coding & testing, we launched the new plans in days.
So do you and your company a favor, don’t write billing code! After having hands-on experience with various billing solutions, Chargify has been the clear winner for Earth Class Mail’s needs, but I encourage you to check out all the options before committing to a provider.
Going with any will save you development time and future tears when your custom billing code breaks.
However, make sure you bump your current and future billing scenarios against each provider to make sure you don’t get sucked back into the swampy quagmire of billing code development.
Lastly, if you’re a business that gets check in the mail, check out our new check deposit service, it’ll save you bunch of time, get money in your bank account faster, and save you from keying in payments in Xero and Quickbooks Online.
Professional services businesses represent a huge chunk of the U.S. economy. Legal services alone account for nearly $250 Billion in revenues and over one million employed.
Many of these firms rely heavily on billable hours for their primary revenue stream. The story is basically the same whether it’s a law firm, CPA practice, management consultancy, or similar business.
The problem is that so much of the day-to-day work that goes into these businesses isn’t billable. This rings especially true if it’s a solo-practice or small firm.
It’s not uncommon to spend up to two-thirds of your time in a solo-practice working on non-billable tasks such as billing, accounting, and marketing to new clients.
Obviously, all those things are valuable. However, it’s important to understand where your time is best spent.
For example, a typical attorney may bill in the $200-400/hr range. Is that half-hour they spend each day sorting through mail worth the hundreds lost in billable hours each week?
There is a path to reduce the non-billable work…
Download the white paper, Four Steps to Cut Back on Your Admin Costs & Increase Billable Hours.
This is a guest article by Hugo Lesser @ Bright!Tax
A lot of entrepreneurs choose to run their small business from abroad. For some it’s a way to get around work visa requirements, for others it may be a tax savings decision, and many are simply drawn to the expat lifestyle.
Unfortunately for you, the IRS still needs to get theirs. If you’re a U.S. citizen, you need file a federal tax return each year.
There are a few critical steps you can take to minimize your tax liability, and several important considerations that are unique to expat tax returns.
Use your expat status to reduce tax liability
You’re not going to escape the IRS, but to their credit they are accommodating toward expats.
There are some key exclusions that allow you to partially reduce or entirely eliminate your U.S. tax liability.
The FEIE allows expats, who can prove that they’re living abroad, to exclude the first $100,000 (inflation adjusted) in earnings each year.
The threshold for expat living abroad is as follows, per the IRS website:
“You are considered to live abroad if you are a U.S. citizen whose tax home is in a foreign country and you have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period.”
With the FTC you can claim a dollar for dollar tax credit for any income taxes you’ve already paid abroad, and potentially eliminate your entire IRS tax bill.
Bonus: The FTC credits rollover for future use.
Deadlines still apply so you have until June 15th to file, with a further extension available until October 15th upon special request.
Single-member LLC’s are your wallet’s best friend
Limited liability corporations registered in the U.S. with a single owner are considered ‘disregarded entities’ by the IRS.
Huh? Well, that means they don’t require separate corporate reporting, and any revenue or expenses can be included on the owner’s personal tax return.
There’s a catch though, you need to “elect” to be considered a disregarded entity by filing a special form, form #8832 (#8858 in subsequent years).
Doing that allows you to use the personal exclusions mentioned above against your corporate profits.
The IRS knows your bank account balance
You’re required to report any foreign bank or investment accounts if the total value of their combined balances is over $10,000.
Any bank account that you have control or signatory authority over qualifies, including small business accounts, even if the account isn’t in the your name.
For example: if you have a personal savings account and control over your small business account, and the two balances combined had a value of over $10,000 at any time during the tax year, you will need to file a Foreign Bank Account Report (FBAR).
Foreign banks report their U.S. clients’ account details to the U.S. government, so the IRS knows who should be filing. Penalties for not filing are substantial.
If you ignore this requirement, you will get penalized. From the IRS website,
“For willful violations, the inflation-adjusted penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation“.
If business is good, the IRS wants to know
The Foreign Account Tax Compliance Act (FATCA) requires expats to report their foreign assets (not including tangible assets such as property) if they are worth a total of at least $200,000 at any time during the tax year.
Qualifying assets include savings and investments, and small businesses.
If your investments and the value of your small business pass this threshold, you should report them.
You’re still going to pay for Social Security
Sole proprietorships and single owner LLCs registered in the U.S. are required to pay Social Security taxes.
If your business is registered abroad on the other hand, you aren’t.
Certain countries have Totalization agreements with the U.S. A totalization agreement means that you won’t be penalized with a requirement to contribute to two separate social security programs.
There are dozens of countries that qualify including, but not limited to: Australia, Canada, Denmark, France, Germany, Ireland, Japan, Norway, Poland, South Korea, and the United Kingdom.
You can view a complete list of Totalization Agreements here.
In countries with Totalization, you can opt to have your foreign social security taxes credited toward your U.S. future social security benefits.
Filing U.S. taxes as an expat small business owner can be complex, and this article is not comprehensive.
The IRS offers an overview of the rules and required forms, just remember that mistakes can be costly.
As with anything tax related, consult a licensed professional for your specific needs.