Hi, I am a freelance graphic designer working from home in the U.S., and I plan to hire a foreign freelancer to produce video advertisements for my business. Can I deduct the payment made to the foreign freelancer as a business expense on my tax return? Additionally, what documentation is required to support this deduction, and are there any specific forms I need to obtain since the contractor is based outside the U.S.?
Thank you for your guidance.
@cat1221 , as a self-employed tax payer you report your gross income and all expenses on Schedule-C. Thus any payments made to a foreign person ( NRA -- Non-Resident Alien ) and where the work is done abroad, you can still claim these expenses -- contract payment. You do not withhold any taxes ( federal / State or FICA ) for these payments. To prove that you have had these expenses, you should consider paying by wire transfer or similar trackable transfer. You should have all the details of the person -- name / address / Bank account etc.
Obviously you cannot use 1099-NEC because that is ONLY for US persons and /or Non-residents where the work is performed in the US. Just keep good records of what was the work, what was paid and how.
Good Luck.
Is there more I can do for you ?
@cat1221 IRS generally declares the income source to be the same as where the work is performed. Thus your Foreign person performing work in a foreign country would actually have local sourced income ( even though the actual monies came from US. IRS cannot tax this. Therefore you DO NOT need a tax ID for the foreign worker. It is same as if you had bought raw material from a foreign country for your business -- your expense is shown on Schedule-C in US$ as a deduction while the foreign source recognizes this as income in local currency and taxed locally.
Does this make sense ?
Is there more I can do for you ?
@cat1221 , as a self-employed tax payer you report your gross income and all expenses on Schedule-C. Thus any payments made to a foreign person ( NRA -- Non-Resident Alien ) and where the work is done abroad, you can still claim these expenses -- contract payment. You do not withhold any taxes ( federal / State or FICA ) for these payments. To prove that you have had these expenses, you should consider paying by wire transfer or similar trackable transfer. You should have all the details of the person -- name / address / Bank account etc.
Obviously you cannot use 1099-NEC because that is ONLY for US persons and /or Non-residents where the work is performed in the US. Just keep good records of what was the work, what was paid and how.
Good Luck.
Is there more I can do for you ?
Thank you for the clarification! As a follow-up, do I need to request Form W-8BEN from the foreign freelancer for my records, even though no taxes are being withheld? Is this necessary to document that the freelancer is a non-U.S. person for IRS purposes, or is other documentation sufficient?
@cat1221 IRS generally declares the income source to be the same as where the work is performed. Thus your Foreign person performing work in a foreign country would actually have local sourced income ( even though the actual monies came from US. IRS cannot tax this. Therefore you DO NOT need a tax ID for the foreign worker. It is same as if you had bought raw material from a foreign country for your business -- your expense is shown on Schedule-C in US$ as a deduction while the foreign source recognizes this as income in local currency and taxed locally.
Does this make sense ?
Is there more I can do for you ?