Entity Setup
Case Study: Entity Setup for Remote Entrepreneurs with U.S. Base and Abroad Work
For U.S. remote entrepreneurs working internationally, entity choice and tax domicile matter greatly—this case breaks down options for LLCs, partnerships, or S-corps when operating from overseas.
By NomadicTax Research Team • 5-8 min read • April 2, 2026
## Background: remote-based U.S. entrepreneur scenario
Imagine **Sarah**, a U.S. citizen, who runs a software consulting business. She lives partly abroad in Portugal, earning rate-based income from both U.S. clients and foreign ones. She wants to minimize global tax burdens while staying compliant. Her options include setting up an LLC taxed as a **sole proprietor**, **partnership**, or electing **S-corporation status**.
## Key considerations in entity setup
### 1. U.S. Federal Tax Type
- **Sole Proprietorship / Single-member LLC**: Reported on Schedule C; simple admin, but **self-employment tax** applies to all net income.
- **Partnership / Multi-member LLC**: Pass-through, more complex bookkeeping but same self-employment exposure unless structured carefully.
- **S-Corporation**: Salaries + profit distributions; only salary portion subject to FICA/Medicare; distributions aren't if structured properly—can reduce payroll taxes.
### 2. Foreign Earned Income & Exclusions
Since Sarah spends time abroad, she might qualify for the **Foreign Earned Income Exclusion** (FEIE), raised to **$132,900** for 2026 under OBBB. She needs **bona fide residence or physical presence test**. If qualified, this excludes certain earnings from U.S. tax. ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
### 3. State and Local Taxes (SALT), Foreign Credit, Treaty Benefits
- Be careful if domiciled or maintaining ties in a U.S. state—SALT deduction cap changes may help but also phase-out above AGI $500k. ([irs.gov](https://www.irs.gov/newsroom/understanding-the-one-big-beautiful-bill-individual-tax-provisions-youtube-video-text-script?utm_source=openai))
- Foreign tax paid on overseas income may generate foreign tax credits.
- Portugal has favorable tax regime for non-habitual residents—treaty relief and timing matter.
## Case Comparison: LLC vs. S-Corp for Sarah
| Option | Advantages | Disadvantages / Compliance Pitfalls |
|---|---|---|
| **LLC taxed default (Schedule C)** | Simpler; FEIE applies more broadly to active income; easier accounting. | All net income subject to ~15.3% self-employment tax; foreign health/social insurance may be taxable; state obligations depending on ties. |
| **LLC taxed as S-Corp** | Salary + distributions split—save on payroll taxes; distributions might be taxed at lower rates. | Must pay reasonable salary; more payroll filings; IRS scrutiny; loses FEIE benefit for distribution portion; double compliance: U.S. & Portugal. |
## Actionable steps for Sarah
- Register the business properly; if electing S-Corp, file Form 2553 and maintain payroll records.
- Use Accountant familiar with **international tax treaties** and **FEIE / Foreign Housing Exclusion**.
- Keep precise logs of days abroad vs in U.S. to meet bona fide or physical presence test.
- Watch for updates to 1099-DA if she accepts crypto payment—these rules will affect basis, gross proceeds.
## Example outcome
Sarah earns $150,000 from U.S. clients and $80,000 abroad. Under FEIE she excludes $132,900 of foreign income, but must pay U.S. income tax on $97,100 minus business expenses. If S-Corp: she pays herself a $60,000 reasonable salary (payroll taxes) and takes distributions from remaining profits.
## Conclusion
Choosing the right entity structure as a digital nomad or remote entrepreneur relies on balancing U.S. tax rules, international exposure, and administrative burden. Planning early, keeping meticulous records, and working with cross-border specialists is key.