Filing taxes with income earned in foreign company

[Love's JAA 100]

Im not really sure how being in Puerto Rico fits into all this- but I can tell you this.

In the US you have to report all income you make from any sources- regardless of whether they give you a 1099 or not.

Ive had jobs in the past where they havent given me 1099 forms. Freelance blogging type jobs online where the companies were based overseas. Some would send 1099s at the end of the year, some dont.

It was my responsibility as the US taxpayer to disclose ALL the income I earned on my tax return if the money I earned from the company was more then 400$. I had to keep my own records of what the company paid me and provide it to the IRS in case of an audit. Because the company wasnt giving me paystubs and was paying me through paypal or some other wire service- I was an independent contractor and responsible for the records.

I think maybe thats the part where youre getting hung up? When the IRS gets a 1099 from a company they match it up the persons return to see if the person reported it and they match. If it doesnt match, or the company reported it and the person failed to report it- an audit is triggered.

Your accountant is basically saying well, no 1099 is going to show up- sooo dont worry about it. The IRS isnt going to be looking for a 1099 on your end. And well, yeah thats true.

But legally you are required to disclose and pay tax on ALL income you earned regardless of whether or not the company issued you a 1099 form or not. If they didnt issue you one- its OK. You just report the money with out one. If the IRS ever wants to know- hey how did you come up with that EXACT amount you claim the company paid you (to know if its accurate or if you shaved a bit off to save money) well then, you better have records. Statements of the deposits the company made into you account. They better add up to the penny of what you put on your tax return. Get it?

(however in all the years Ive been doing this and all the other people I know that do this- only one person I know of was audited for records of such and it was due to an unrelated complex issue where both spouses claimed the kids after a divorce when only one was suppose to and the IRS opened up both returns and audited them to straighten it out)

Not reporting the income simply because the company didnt is tax fraud in the US (perhaps in PR its different? But I doubt it) I really dont know why your accountant would tell you that. Perhaps ask another one? Or simply go to one and tell them- I know this company is not providing me with a 1099 but this is the amount they paid me and I want to report it and pay the tax on it- what are the forms I need, and see if theres a way to exclude the income as foreign income.

(Im inclined to agree with bewildering though- it doesnt appear to be something thats going to apply to the 2555 and be excluded. He lives in the 'US'. Hes just earning the money from a company overseas. Its most likely going to be taxable here- unless they are taking tax out there- then you might be able to get a tax credit on it)

It sounds like he's not getting an earnings statement so the amount he'd be reporting are the actual deposits which would be a net amount. So you wouldn't report net AND take a foreign tax credit. But I generally agree, best to report it and pay the taxes. Since he's working out of Puerto Rico, I would guess he might be considered self-employed and the IRS would be looking for self-employment (social security and medicare taxes) as well as income taxes when he does report the income. File a return and get the statute of limitations running.

[bewildering 9]

Self-employed persons in the USA file tax returns with no documents every year. Lets say you bake and sell cupcakes for a living. At the end of the year you have sold $30,000 worth of cupcakes for cash. You have no w-2 or 1099 just your cash. You fill out your tax forms put in your income minus deductions and send it in. In my scenario you would most likely owe taxes to the USA but in your case foreign income up to a certain amount ($80,000) I believe, is exempt.

It is certainly true that self-employed people have the ability to avoid paying taxes. But, they are also more likely to be audited. If you are claiming a mortgage interest deduction for a 500,000 house and then claiming only a 20,000 income expect the IRS computers to flag you for an audit (Just like you will be flagged by the USCIS for things that don't make sense).

The problem is that no one really knows how the IRS determines who gets audited. But if you are audited it will be almost impossible to hide 30,000 in cash (Unless you don't spend it and keep it under your bed). People get away with a lot because the IRS doesn't bother much with auditing people with lower incomes, but i am sure they notice a lot of things.

I don't think there is a 80,000 exemption for foreign earnings. The whole tax system regarding foreign income is complicated, but permanent residents and citizens are a class were they are expected to declare all their income. People are confusing this class of people with people using tax treaties, working abroad and some non-resident alien visas. As someone above says, go to a CPA.

[Noel194 53]

It is certainly true that self-employed people have the ability to avoid paying taxes. But, they are also more likely to be audited. If you are claiming a mortgage interest deduction for a 500,000 house and then claiming only a 20,000 income expect the IRS computers to flag you for an audit (Just like you will be flagged by the USCIS for things that don't make sense).

The problem is that no one really knows how the IRS determines who gets audited. But if you are audited it will be almost impossible to hide 30,000 in cash (Unless you don't spend it and keep it under your bed). People get away with a lot because the IRS doesn't bother much with auditing people with lower incomes, but i am sure they notice a lot of things.

I don't think there is a 80,000 exemption for foreign earnings. The whole tax system regarding foreign income is complicated, but permanent residents and citizens are a class were they are expected to declare all their income. People are confusing this class of people with people using tax treaties, working abroad and some non-resident alien visas. As someone above says, go to a CPA.

I was wrong the foreign earned income exemption is $95,100.00 for 2012. I am not sure where you got tax evasion from my post as I was merely stating that w2 or 1099 is not necessary to file income taxes. And if you do not know what you are suggesting perhaps you should do some research before giving advise.

From the IRS website:

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is now adjusted for inflation ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011, $95,100 for 2012). In addition, you can exclude or deduct certain foreign housing amounts.

See a little research is a wonderful thing.

Edited April 7, 2013 by Noel194

[bewildering 9]

I was wrong the foreign earned income exemption is $95,200.00 for 2012. I am not sure where you got tax evasion from my post as I was merely stating that w2 or 1099 is not necessary to file income taxes. And if you do not know what you are suggesting perhaps you should do some research before giving advise.

I strongly believe the 95,200 figure you quote is from using form '2555'. This form only applies if you reside outside the USA. The question is whether Puerto Rico is a special case. I personally don't think it is a special case.

Again, the person should find a CPA.

I was wrong the foreign earned income exemption is $95,100.00 for 2012. I am not sure where you got tax evasion from my post as I was merely stating that w2 or 1099 is not necessary to file income taxes. And if you do not know what you are suggesting perhaps you should do some research before giving advise.

From the IRS website:

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is now adjusted for inflation ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011, $95,100 for 2012). In addition, you can exclude or deduct certain foreign housing amounts.

See a little research is a wonderful thing.

The person does not live outside the USA!

[AmyWrites 593]

To clarify some things:

- He's a programmer. He works remotely (online) for his company that he used to work for in person back in Russia. In Moscow they'd give about 20% of his income through a check and the rest cash.

- They don't send him checks. They just deposit his monthly salary, and it shows up as "deposit" in his account, it doesn't even say where he got it from.

- I don't have any documents stating his salary, just these deposits. His job contract is now outdated since his salary changed and that was just a verbal agreement, no document that we have says his salary now.

- They deposit this money in his account in a Russian bank, and he transfers the money to our bank here; the company refuses to deposit them in our US bank.

I will file and state his income, I was more so worried about how he could prove the money came from that job, since I've nothing that says X money came from Y job aside from his bank statement and the way it appears, it could look like just any random person deposited money. If I can just state he made X amount and not have to send any letters from his job verifying that's true (unless he gets audited), then I'll do that.

I've gotten a CPA, so hopefully we can figure this out more so and according to PR's rules. I just want to do this right so I don't have problems once ROC time comes.

On another note, I can't wait until he gets a job in the US so we don't go through this deal with foreign income.

Edited April 7, 2013 by AmyWrites

[Noel194 53]

If he actually lives here then no he does not get an exemption only if he lives in the foreign country while working. Do not worry it is not your job to prove the money is legit. The government does not care and if they do audit you (which is very unlikely) you can just explain where the money came from. It is their job to prove it was not legit. I think you are wise to hire a professional. If nothing else than for piece of mind and then you will know the proper way to do it next year.