Foreign freelance income and Taxes

[rick313 5]

Hello. Another tax season question. My wife (from Thailand) arrived in the United States late last year on her K-1 visa, and we promptly got married near the end of 2011. I understand we can file jointly as a married couple with her treated as a resident for tax purposes.

My question is this: In 2011 my wife had a steady job which paid a regular income. However, she also received a lot of income in 2011 from doing freelance work in graphic design. These were all cash transactions that were made in which customers simply gave her cash or transferred it to her bank account. There were no written documents and unlike here, there is no equivalent to a 1099 or other forms. Its just simply not regular practice in Thailand to have official documentation for payments for freelance work.

Obviously, I want to make sure we are following the letter of the law and complying with all tax regulations, but I don't know how to approach reporting my wife's freelance foreign income. I should also mention, now that she is working here in the US, she is still receiving freelance income for graphic design work. How should we be reporting this? Thank you in advance.

[Ippsy Pippsy 31]

Treat it like you would income that wasn't reported via a W-2 or 1099. Is she considered self-employed from it? That's a schedule SE and everything it refers you to. It probably depends on how much she's getting from it.

[Nich-Nick 3,354]

Hello. Another tax season question. My wife (from Thailand) arrived in the United States late last year on her K-1 visa, and we promptly got married near the end of 2011. I understand we can file jointly as a married couple with her treated as a resident for tax purposes.

My question is this: In 2011 my wife had a steady job which paid a regular income. However, she also received a lot of income in 2011 from doing freelance work in graphic design. These were all cash transactions that were made in which customers simply gave her cash or transferred it to her bank account. There were no written documents and unlike here, there is no equivalent to a 1099 or other forms. Its just simply not regular practice in Thailand to have official documentation for payments for freelance work.

Obviously, I want to make sure we are following the letter of the law and complying with all tax regulations, but I don't know how to approach reporting my wife's freelance foreign income. I should also mention, now that she is working here in the US, she is still receiving freelance income for graphic design work. How should we be reporting this? Thank you in advance.

You report foreign income as a big lump converted to US dollars. No documentary paperwork is required by the IRS like a W2 or 1099-MISC equivalent.

[rick313 5]

Thanks, your replies make me feel better. But my concern is that her freelance income that she makes is transferred to her bank account in Thailand. Doesn't she have to report her bank account to the IRS even though its in Thailand? Additionally, she then transfers that money from her bank account in Thailand to her bank account here in the US. This freelance income in Thailand is not a lot - its probably about $6-8000 dollars a year. Still, I'm just worried the feds will want us to account for that somehow.

[Love's JAA 100]

For freelance income, you will need to file schedule C with your 1040, as well as schedule SE (for self-employment tax) with your tax return. You report the income, but if she has any expenses related to that income, also report those on schedule C as well. Anything like supplies, software purchases, computer purchase, certain travel expenses, - whatever you can come up with related to her business (freelance work).

Furthermore, there are potentially two foreign account reporting requirements. The IRS just came out with form 8938, in which if you had $50K in foreign assets at any time in the last year, you need to report them. Another reporting requirement is to the treasury department if you had foreign assets exceeding $10K during the year (see Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts). This form is due, I believe, June 30 of the year following the reporting year and no extensions. Please review both of these forms and instructions yourself. I just wanted you to be aware of them but can't give all the facts.

[Ippsy Pippsy 31]

Careful with the $10k form: you send it to a different address. Read the form. That's where you'd report her bank account if it went high enough.

[Jack25 0]

Yeah, the FBAR goes to the department of treasury. I had to file that for my wife last year. I think it's off kiltered that we need to pay taxes on foreign income such as interest or dividend income but interest on foreign school loans are not tax deductible. My wife made the money in her foreign accounts before she met me and now we have to pay US taxes on the interest/dividend and we can't get credit on her school loans.

[Love's JAA 100]

Yeah, the FBAR goes to the department of treasury. I had to file that for my wife last year. I think it's off kiltered that we need to pay taxes on foreign income such as interest or dividend income but interest on foreign school loans are not tax deductible. My wife made the money in her foreign accounts before she met me and now we have to pay US taxes on the interest/dividend and we can't get credit on her school loans.

I am not sure what you mean by that? If the amounts were not earned in the current reporting year, then you don't report it. You report the interest and dividends received in 2011 on your 2011 return. Amounts she made before she met you (2009?) would not now be reported on your 2011 joint return.

[Jack25 0]

I am not sure what you mean by that? If the amounts were not earned in the current reporting year, then you don't report it. You report the interest and dividends received in 2011 on your 2011 return. Amounts she made before she met you (2009?) would not now be reported on your 2011 joint return.

All I was venting was that the principal income from the interest/divdidend were made prior to becoming a US resident. The fact that the US government taxes on the interest/divdidend income derived from that principal but at the same time does not allow you to take credit for the interest you pay on a foreign student loan is not fair.