September 12th, 2009 | 
Author: Earnings From Abroad And Taxes
With the every expanding global economy many people receive earnings from foreign entities. Unfortunately the federal government wants you to pay taxes on it.
Taxes on Your Earnings From Abroad
The federal government has a very simple attitude towards taxes and earnings. If you have earnings the feds want some of it. A number of countries however take the attitude that if you earn money in another country they will not tax that money. In theory this is because you are already paying taxes in the foreign country. This makes sense from a logical perspective which means the federal government does something else.
Regardless of what you do how you do it or where you do it the federal government demands that all U.S. citizens pay taxes on their worldwide income. Your income includes everything from wages tips interest payments dividends capital gains pensions royalties rents and revenues. Put another way there are no loophole exceptions regarding what qualifies as income.
It is important to understand that you do not get to avoid reporting and paying taxes on foreign income or revenues just because you arent issued a 1099 or W2 form. You still have to report it and pay.
Now more than a few people will be tempted toforgetthey receive foreign funds during the year. There are a few problems with these memory lapses. First the IRS could take a look at your bank account and realize there is a difference between what you reported and deposited. Second rivals and exspouses have a bad habit of reporting such memory losses to the IRS. If the IRS ultimately finds out youve failed to report foreign income you could be facing tax evasion charges. Tax evasion is a criminal charge carrying prison terms and massive penalties.
There is one key exception to the above scenario. If you live outside of the United States and earn income you may be able to take up to an 80000 deduction. Put another way you will not be taxed on your first 80000 of earnings if you are living in Japan and working for Sony. You have to meet a number of strict and somewhat complex requirements to take advantage of this deduction. Boiled down to the basic elements you essentially have to remain outside of the United States for the taxable year.
It can be tempting to forget to report your foreign earnings and revenues. The IRS is aware of this so taking some memory improvement supplements is highly recommended.
About the writer:
Richard A. Chapo is with the tax site http://www.businesstaxrecovery.com providing information on taxes. Visit http://www.businesstaxrecovery.com/articles to read more business tax articles.
Related posts:
Posted in Finance