Moved Abroad With Your LLC? You May Be Overpaying US Taxes
Most LLC owners who move abroad have never heard of the Foreign Earned Income Exclusion. How it works, what it saves, and why self-employment tax is the catch.
I have a version of this conversation almost every week.
Someone relocates abroad. They're running a business back in the US through an LLC — maybe a services company, maybe consulting, maybe a trade. They're earning well. And they're still filing taxes exactly the way they did when they lived in Houston or Phoenix or wherever they came from.
When I ask if they've heard of the Foreign Earned Income Exclusion, the answer is almost always the same: "Never."
What You're Leaving on the Table
The Foreign Earned Income Exclusion (FEIE) allows US citizens and residents living abroad to exclude up to $130,000 (2025 tax year) from federal income tax.
That's not a deduction. It's an exclusion. The IRS treats that income as if it doesn't exist for federal income tax purposes.
For an LLC owner netting $300,000, that means the first $130,000 is excluded from federal income tax entirely. You're only paying federal income tax on $170,000.
At typical effective rates, that's a savings of roughly $25,000 to $33,000 per year in federal income tax alone.
The Catch: Self-Employment Tax Doesn't Go Away
Here's what the FEIE does not do: it does not eliminate self-employment tax.
If you're a single-member LLC taxed as a sole proprietorship, you owe 15.3% in self-employment tax (12.4% Social Security up to the wage base + 2.9% Medicare) on your net self-employment income. The FEIE doesn't touch this.
On $300,000 of net LLC income:
| Tax | Without FEIE | With FEIE |
|---|---|---|
| Federal income tax | ~$65,000 | ~$33,000 |
| Self-employment tax | ~$38,000 | ~$38,000 |
| Total | ~$103,000 | ~$71,000 |
| Annual savings | ~$32,000 |
That's $32,000 back in your pocket. Every year. Just for filing correctly.
And if you're earning in the $500,000+ range, the savings scale — though you'll want to be aware of the AMT trap that can reduce the benefit at higher incomes.
How to Qualify
There are two tests. You only need to pass one.
Physical Presence Test
Spend fewer than 35 days in the US during any 12-month period. This doesn't have to be a calendar year — it's a rolling 12-month window.
This is the simpler test. If you're genuinely living abroad and only going back for short visits, you likely qualify.
Bona Fide Residence Test
Establish that your tax home is in a foreign country. The IRS looks at:
- Do you have a lease or own property abroad?
- Do you have a local ID or residency visa?
- Are you integrated into the local community?
- Do you maintain a home in the US? (If yes, it weakens your case)
For most expats who've fully relocated — signed a lease, gotten a residency visa, opened local bank accounts — this test is straightforward.
What Counts as "Earned Income"
The FEIE applies to earned income — money you receive for services you personally perform. For LLC owners, this includes:
- Net self-employment income from your LLC
- Consulting fees
- Management fees you pay yourself
- Contract work
It does not apply to:
- Investment income (dividends, capital gains, interest)
- Rental income (this is passive, not earned)
- Pension or retirement distributions
- Social Security benefits
If you have multiple income streams — say an LLC plus rental properties plus a military or government pension — the FEIE only applies to the LLC income. Your other income streams are taxed normally, though they may qualify for other exclusions or treaty benefits.
The LLC Structure Question
If you're earning well above $130,000, the LLC-as-sole-proprietorship structure may not be your most tax-efficient option. Two alternatives worth evaluating:
S-Corp Election
Electing S-Corp status lets you split your income between a reasonable salary (subject to self-employment tax) and distributions (not subject to SE tax). Combined with the FEIE, this can significantly reduce your total tax burden. See our detailed comparison.
Foreign Corporation
In some cases, restructuring as a foreign corporation in your country of residence can offer additional benefits — though this adds complexity and compliance requirements. This is highly situation-dependent and requires professional guidance.
The Conversation I Keep Having
Here's why this matters: most of the business owners I talk to have been living abroad for a year or more before they learn about the FEIE. Some have been abroad for several years. That's tens of thousands of dollars in overpaid taxes — per year.
The good news? You can amend prior returns to claim the FEIE retroactively. If you qualified in previous years and didn't claim it, you may be entitled to a refund.
What to Do Next
If you're an LLC owner living abroad and you've never claimed the FEIE:
- Determine your qualification. Count your US days for the past 12 months. Gather evidence of your foreign residence (lease, visa, utility bills).
- Calculate your potential savings. Take your net LLC income, subtract $130,000, and compare your tax liability with and without the exclusion.
- Check prior years. If you qualified in 2024 or earlier and didn't claim the FEIE, you may be able to amend and get money back.
- Evaluate your LLC structure. If you're earning well above the exclusion limit, an S-Corp election or other restructuring may save you even more.
If you want help running the numbers for your specific situation, book a consultation or start your intake. This is exactly what I do.
Official IRS sources
Still unsure about your filing situation?
If this article raised more questions than it answered, that is normal.
Tax rules depend on your exact facts: your country, your income, your accounts, your filing history. I review every intake personally and reply within one business day. If FileAbroad can accept the work, we schedule a paid consultation and you receive a written scope before any preparation begins.
No tax documents here — just the broad facts.
Frequently Asked Questions
Can LLC owners use the Foreign Earned Income Exclusion?
Yes. If you're a single-member LLC taxed as a sole proprietorship or a partner in a multi-member LLC, your share of the business income is considered earned income and qualifies for the FEIE, up to $130,000 for tax year 2025.
Does the FEIE eliminate self-employment tax?
No. The FEIE only excludes income from federal income tax. You still owe self-employment tax (15.3%) on your net self-employment income regardless of where you live.
How do I qualify for the FEIE?
Two ways: the Physical Presence Test (spend fewer than 35 days in the US during a 12-month period) or the Bona Fide Residence Test (establish genuine ties to a foreign country — lease, property ownership, local ID, community involvement).
What if my LLC earns more than $130,000?
The first $130,000 (2025 limit) is excluded from federal income tax. Income above that is taxed at regular rates. You'll also want to watch for the Alternative Minimum Tax, which can claw back some of the benefit at higher income levels.
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About the Author
Chip Moreno is an American expat and PTIN holder based in Cuenca, Ecuador. He files his own FBAR and US return from Ecuador every year. Most expat tax firms are call centers in Ohio — Chip does the opposite: you work directly with him from first review to filing. Every engagement starts with a paid consultation or reach out here.