Got kind of a complicated question here. Here we go.
I am an expat now living outside of the US. During 2022, for the first half of the year, the income I earned was through my USA Sole Proprietorship (for which I had to pay US taxes on), the second half of the year it was earned through my Polish Sole Proprietorship (for which I had to pay Polish taxes on).
Polish Taxes are paid on the Accrual Method of accounting – which is required by law in Poland to do it that way, they are paid based on the month which they were earned – but not yet received into my bank account.
For 2022 I did not yet receive November and December’s payments into my bank account until 2023 (as the payments I receive are monthly and one month behind, give or take a few days), yet Polish taxes were paid in 2022 on the income generated in November and December.
The accounting on the 1099-K that is shown is the Cash Method of accounting, and I have been using the Cash Method of accounting in all years prior to this to account for my taxes, how would I go about merging these two different methods of accounting? Since according to Poland, I paid taxes on income that is not recorded on my 1099-K for 2022, but will be on my 1099-K for 2023?
I imagine, that if I just have the USA Schedule C using the Cash Method, and the Polish Schedule C, using the Accrual Method, that there will be revenue that is unaccounted for. I need to report to the IRS how much taxes I paid to Poland for 2022. Should I use the Cash Method of accounting for both Schedule Cs, neither, or different for each?
Thank you for any advice you can give,
Aaron
How are you receiving K-s from your business in Poland -- thought the Ks are issued ONLY for US persons and generally living in the USA.
Never the less -- for 2022 -- you show on your Schedule-C for your US business as you have done in the past -- i.e.the yearly total income, expenses and the net taxable income.
For your Polish business ( assuming that this is registered in Poland under Polish laws ) , you again report exactly like you report ed your US business on a separate Schedule ( assuming that this is to be treated as a disregarded entity ( note that by default, foreign LLC. sole proprietor business are generally required to be treated as a standalone entity.--- C-Corp usually). Obviously there are ways around this -- consult a tax lawyer familiar with international taxation. For here I will assume that your business in Poland is a Wholely owned subsidiary of the US sole proprietorship and thus can be reported on the same Schedule C as for US business.
The disparity on the reporting of taxes paid ( Foreign Tax credit on your personal return ) should be based on actual income taxes paide or estimated taxed paid ( in which you have to file an amended return when Polish tax authority has finalized the taxes levied ).
Does this make sense ?
If you need more help , please provide more details on your business, especially my assumptions.
Addionally, depending on the actual structure of your foreign entity and its relationship to your US business, you probably would have to file a form 8838 --- Form 8858 (Rev. September 2021) (irs.gov)
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