How to file overseas freelance income

[gsta]

I have recently started a freelance consultation service in Europe and I have just received my Green Card in September 2021. I am keeping this income in Europe as it makes it easier to manage that business.  In addition, due to international tax agreements with USA I am not required to pay taxes on that income in Europe. I do my annual taxes for my primary US job for which I have an W2 and I was told I have to disclose my freelance income in my annual tax declaration. This income might represent up to 5% of my annual income. Besides reporting this income, is there anything else I need to do in the mean time, prior to filling my 2021 taxes?

[pk]

@gsta , to clear my understanding-->

1. you are a citizen of xx country; you are  Resident of USA and have been in the USA for considerable time;

2. You have US source income reported on W-2;

3. You have  self-employed income from customers/clients  in one or more  countries in Europe;

4.  You have Bank account in Europe ( country XX )  and your clients deposit  the payments  into this  account  ( foreign bank )

From  US  perspective,  

(a)     since the work in actually done in the USA  ( please confirm that  you actually live and  work in the USA and generally  do the work for the foreign client on-line with perhaps  occasional  visits thereto ). it is  US sourced income and not foreign income   for tax purposes.

(b) if the  foreign jurisdiction taxed this income as  in-country sourced  earnings of a non-resident, then  there are mechanisms to change the sourcing of the income  -- but  absent  other facts  this does not seem  necessary.

(c)  However, because you are holding the monies in a foreign account, you may come under the reporting requirements of  FBAR and FATCA.

(d) As far as reporting / recognizing the foreign income, all you do is declare these incomes as self-employment income ( Schedule-C ) and allowable expenses associated  with this income stream,  pay self-employment tax ( Schedule-SE ) and that is all.   TurboTax  ( Self-emloyment or  Home & Business  ) will do all the necessary  work for you on this.

Is there more I can do for  you ?

[Opus 17 · Accepted solution]

1. Generally speaking, if you are a resident alien (green card or substantial presence test) then you owe US income tax on all your world-wide income.  You would report this business income on schedule C like any other self-employment income.  It does not matter that your clients did not issue US tax forms like a 1099-NEC.

If you do not pass the substantial presence test for 2021, and you think you are a non-resident alien prior to September 2021, that would make you a dual-status alien for 2021, which is more complicated, and possibly beyond the scope of this forum to help.

2. As mentioned, this is considered US-source income under US tax law, because you live and work in the US, even if the clients are overseas.  But even if it was not US-source, the fact that you are a resident alien means you pay US income tax on all your world-wide income regardless of the source.

3. If the country where this income was paid to you considers it their income also, you may be able to claim a credit on your US tax return for the foreign taxes you pay on the same income.   But it sounds like this will not be an issue for you.  

4. If you own a foreign bank account with more than $10,000 at any time, you must file an FBAR report.  This is not included in Turbotax, the deadline is the same (April 15, 2022). 

5. Do you need help on the general rules for paying taxes as a self-employed person?  Briefly, you file a schedule C that reports your gross business income and deducts your business expenses.  The net profit flows to your regular tax return form 1040 where it is combined with all your other income, deductions and credits, to calculate your overall income tax.  You will also pay 15% self-employment tax on the net profit (this is the self-employed version of social security and medicare tax on your paycheck from a regular job).  There's a lot more help available on the general question of how to file self-employment income.   Here are some links.

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

[gsta]

pk, yes all that was correct. I work in US and do occasional consulting for Europe. I claimed US tax citizenship so I do not have to pay taxes for it in Europe, just here, and yes all the work is done over the internet from US. I just have two clarification questions:

(c) FBAR and FATCA reporting is something I can do as part of annual tax filling or is it separate? Do I need an accountant for this?

(d) I assume I fill Schedules C and SE during my annual tax filling, right?

Thank you!

[Opus 17]

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@gsta wrote:

pk, yes all that was correct. I work in US and do occasional consulting for Europe. I claimed US tax citizenship so I do not have to pay taxes for it in Europe, just here, and yes all the work is done over the internet from US. I just have two clarification questions:

(c) FBAR and FATCA reporting is something I can do as part of annual tax filling or is it separate? Do I need an accountant for this?

(d) I assume I fill Schedules C and SE during my annual tax filling, right?

Thank you!

---

The FBAR is a report of foreign holdings, it does not by itself assess tax.  It's not part of your tax return and not included in turbotax, but the deadline is the same.  You can do it online.

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-a...

Schedule C and SE are part of your regular tax return.  In Turbotax, you would use the Self Employed version (online) or the Home & Business version (if using the CD or download installed on your own computer).  If you have never filed as a sole proprietor before, you may want to talk to a tax advisor to help you get started, or get something like a Lasser's tax guide, or review some online sources.

https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

https://turbotax.intuit.com/tax-tips/self-employment-taxes/beginners-tax-guide-for-the-self-employed...