w-2 and 1042-S / Tax return for the last year of residency in the US

[spade13]

Hi, I'm a foreign national that lived and worked in the US until late June 2023. 

I moved back to my home country, and have started working on a contract basis as a freelancer, working remotely.

I visited the US for a month in Nov-Dec so per the presence test, I believe I am considered resident alien for 2023 and need to file 1040.  

I have already entered information of my W-2 from my employer up until I moved out of the US, but couldn't figure out how to enter the information from 1042-S which I received from one of my clients in the US that I work for remotely as a contractor.  I was also wondering if I should / need to claim deductions on expenses related with the the work? (I have already paid taxes to Japan for the freelance work.)

Thank you!

[DaveF1006 · Accepted solution]

Yes, since you are filing as a resident alien for 2023, you need to report the 1042 S income as self-employment income and report all the expenses that you incurred with the work. In addition, you may claim a foreign tax credit on the income that was taxed by Japan.

1. Open or continue your return.
2. Select Search, enter schedule c and select the Jump to schedule c.
   • Or go to Wages & Income and select Start or Revisit next to Self-employment income and expenses under Self-Employment.
3. Answer Yes to Did you have any self-employment income or expenses?
   • If you've already entered self-employment work and need to enter more, select Add another line of work.
4. Follow the on-screen instructions to enter your Schedule C.
5. In the section where you would enter income, indicate this is other income that is not 1099 NEC or 1099 MISC.

Continue through the section until it is complete.

To claim a foreign tax credit.

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. When it asks We just need to check if you have any uncommon situations indicate I paid foreign taxes on income I earned while working in another country. 
6. Navigate and record the entries that the program asks for and when you reach the page that mentions Foreign Tax Credit Worksheet, this is where you take notice.
7. The first that you will be asked is what category of income is it, you will say General Category income.
8. Next screen will say Country Summary, select add a country 
9. When it says Other Gross Income - XXXX, Here you put in the Gross Amount you earned in that country. 
10. Then you will navigate through the screens until you come to a screen that says Foreign Taxes Paid - XXXX, here is where you record the amount paid under Foreign Taxes.
11. Finish out the section.  

As an FYI, i have included a link that may be of interest to you.

 the self-employed expenses you can deduct and where to enter them.

[spade13]

Thank you so much for the detailed explanation, this is very helpful! 
May I ask a couple more questions:  

1) My income stated on 1042-S is income I made while I lived in a foreign country (remote work for a client in the US) - should this be entered in the self-employment work or included in "Other Gross Income" when entering the information for the foreign tax deduction?  Or do I need to include it in both?

2) for income / expenses in foreign currency (in my case Japanese yen for work I did for local clients in Japan, and expenses paid in Japan ie my phone bills, internet bills, etc) how should I be converting this into dollar - is there a specific rate I would need to use by the day, etc?

Thank you!

[AmyC]

1. Use the code to determine how to enter the income. See 1042S Codes Explained. My guess would be self-employment income from reading through the above.

2. Please see Yearly Average Currency Exchange Rates - IRS which includes: 

The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently.

When valuing currency of a foreign country that uses multiple exchange rates, use the rate that applies to your specific facts and circumstances.

From Yearly average currency exchange rates for converting to US dollars,  Japan Yen for 2023 is 140.511