Filing taxes with income earned in foreign company

[AmyWrites 593]

So, I'll try to summarize this:

- My husband is working remotely with his old company from back in Russia. They deposit his salary directly into his account in Russia (he transfers the money from Russia to here via Paypal or whatever). He gets no W-2's or anything from them.

- We live in Puerto Rico, not the US, so our taxes are a tad different.

I have no idea how to go about filing taxes or having him pay SS. He has an SS card so I'm sure he must file SOMETHING, but, how? And obviously, for ROC reasons, we must file something as proof we're married.

Any advice? Our accountant basically said to not file anything since there's no proof that he makes any money. I obviously think this is ridiculous advice and can screw us over fiercely when ROC time rolls around.

[Harpa Timsah 13,258]

Very bad accountant. Look into Foreign income exclusion, Form 2555, it goes with the 1040.

[himher 634]

There is no requirement to pay SS when one is working for a foreign company

[AmyWrites 593]

Very bad accountant. Look into Foreign income exclusion, Form 2555, it goes with the 1040.

But we have absolutely no way to prove he's getting a salary. It just looks like somebody deposits money every month. I wouldn't know how to prove to them it's from a job. I'll still look into it.

[nictillster 1]

In the eyes of the irs, why would you claim it for tax purposes if you're not earning it? Does he have a written contract stating salary or something as evidence if he were to be audited? Look at the requirements for documentation on foreign earned income...it's not much.

[bewildering 9]

Very bad accountant. Look into Foreign income exclusion, Form 2555, it goes with the 1040.

Awful advice. Form 2555 only applies if you Work and reside outside the United States.

Puerto Rico is a special case all by itself, but only for Puerto Rican residents. Permanent residents and US citizens must report all income obtained from outside of Puerto Rico.

Your accountant is suggesting you don't report the Russian income, as the Russian company does not file a 1099 with the IRS reporting your income.

Up to you whether you report it, but legally and ethically you should report your income and pay the taxes due.

[bewildering 9]

But we have absolutely no way to prove he's getting a salary. It just looks like somebody deposits money every month. I wouldn't know how to prove to them it's from a job. I'll still look into it.

If you get audited and avoid your taxes then expect to go to jail.

The chances of getting audited are generally low but are incredibly high if you are red flagged.

One example of a red flag is claiming a mortgage deduction but not indicating an income to afford the house payment associated with the mortgage.

Let me give you the only advice you should trust from an online forum regarding taxes: don't trust advice from an online forum regarding taxes. If the IRS get a sniff of wrong doing then your life is finished. This isn't Russia or some corrupt developing country, the US has stringent laws regarding taxes and enforces them vigorously. They can sieze your property and send you to prison.

[Villanelle 4,122]

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)

[newlyweds2010 208]

But we have absolutely no way to prove he's getting a salary. It just looks like somebody deposits money every month. I wouldn't know how to prove to them it's from a job. I'll still look into it.

I think you have to look at it the other way around: you do not have to prove to them that the money comes from a job. You know it does, and you can track it to the penny. One thing you could do is to print out the online bank statements and take them to an accountant (a real one).

[Noel194 53]

There is no requirement to pay SS when one is working for a foreign company

Correct, but if he does not work 40 quarters in the USA he will not qualify SS or medicare.

But we have absolutely no way to prove he's getting a salary. It just looks like somebody deposits money every month. I wouldn't know how to prove to them it's from a job. I'll still look into it.

You can simply state his income you are not required to submit a W2 or other documents. His income up to $80,000 should be exempt anyways but I would still report it.

[AmyWrites 593]

So I can file and they won't ask me for any docs? That was my worry, that'd they start asking me to send paperwork I don't have. Of course I'll file and report it, I just wanted to know how to go about it. Thanks!

[Darnell 8,478]

would it make sense to review foreign business income instead of foreign personal income ?

[Villanelle 4,122]

So I can file and they won't ask me for any docs? That was my worry, that'd they start asking me to send paperwork I don't have. Of course I'll file and report it, I just wanted to know how to go about it. Thanks!

I dont understand what you mean by this. What do you mean you have no paperwork? Your not going to have paperwork until you create paperwork.

If you enter $21,325 as income. Thats it. You enter it on the tax form. If you get audited the IRS is going to say- excuse me Amy, where did you come up $21,325? Did you pull this number out of thin air. You will say of course not! Company X paid my husband $21,325 for work he did. Okay, the IRS says, please show us such.

You then show them. So what are you going to show them? Well, either monthly bank statements with deposits highlighted totaling $21,325. A spreadsheet showing all the wire transactions or paypal transactions. A copy of the job contract showing he is to be paid 21,325 a year or X amount an hour for work along with a spreadsheet of hours work that total out to Xhrs=21,325.

Making the proof is YOUR RESPONSIBILITY. The above is a few general examples of proof you can create. Your post is vague about what he does and how he is paid. If you cant come up with proof and want specific help in creating proof you need to give specifics. You can post it here or send it in a message if you dont want to post it publicly.

But again, the proof is not something you send with the tax return. The IRS doesnt want all that cr*p. If you send it to them its going to be shredded. They only take your return. You keep the proof with your return in a safe place in case of an audit. Its better to make the proof NOW, then to wait until you may be audited and run around like a chicken with your head cut off later trying to find old bank statements and assemble it for an audit.

[seth2013 39]

I am an accountant- please go see a responsible accountant about this. A CPA would be best, because you know they actually know what they are talking about. Anyone can put a sign on the door and say they are a tax accountant, but a CPA had to take strict exams proving their knowledge, and can give you the best advice about this.

Some of these comments are correct- don't trust what you're are reading here. Just go see a CPA that can give your specific advice about your case.

[Noel194 53]

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.