My wife run a hairdressing business from our home while I worked abroad. She collected cash and did not use a bank account. We want to report this income and file jointly so as to double our foreign earned income exclusion and reduce our tax obligations. What documents do we need to satisfy IRS?
Documents for foreign earned income from self-employment
- Thread starter Mufuruki2
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Concerned4us
Banned
You need to consult a tax professional since your wife appears to have hidden her income to avoid taxation in your country of residence. If her business was not properly registered and licensed and the taxes paid to the country of resicence, it seems foolish to admit to illegal work just to save on US taxes.
Thanks. However, she was self-employed serving customers that found her at home. Though her earnings were meagre, reporting them to IRS may have a significant difference. Assuming the host country does not categorzie such work as illegal, what documentation does IRS need for proper reporting? Or do you mean its USG that categorizes such work as illigal?
Concerned4us
Banned
If it is not illegal in the other country, the IRS should only care that taxes be paid on the amount reported. The problem becomes that your records have no backing and you would have problems if audited; what you intend to do is definitely a red flag for an audit.
In the US, even a home business requires that SS and Medicare taxes be paid as well as income taxes. The state wants its share and there are business taxes to be paid. Many locations would not permit a home based business as a hair salon so you would be in violation of zoning. Cosmetologists require licenses to work. The list of problems doing what she is doing in the US goes on and on.
IMO, you should not claim her income in order to get a tax deduction unless she has properly complied with all of the tax regulations where her business is located. You should consult tax professionals in both countries.
Reread the IRS documents; does it really permit her to exclude more income than she actually made? That would be very strange. You really are trying to have it both ways.
In the US, even a home business requires that SS and Medicare taxes be paid as well as income taxes. The state wants its share and there are business taxes to be paid. Many locations would not permit a home based business as a hair salon so you would be in violation of zoning. Cosmetologists require licenses to work. The list of problems doing what she is doing in the US goes on and on.
IMO, you should not claim her income in order to get a tax deduction unless she has properly complied with all of the tax regulations where her business is located. You should consult tax professionals in both countries.
Reread the IRS documents; does it really permit her to exclude more income than she actually made? That would be very strange. You really are trying to have it both ways.
sanjoseaug20
Registered Users (C)
Foreign earned income ... exclusion of 85K, 87600 or 91400 in income - depending on the year you are looking at. This applies to each individual. As an example, I do not think you can report 1000 USD of your spouse income and take a credit for the remaining 90400 against your income.
Also see the link, although not conclusive. http://www.linkedin.com/answers/personal-finance/personal-taxes/PFI_IVT/617680-38605543
sanjoseaug20
Registered Users (C)
nelsona
Registered Users (C)
As to records, as with any business, either run here in US or abroad, the taxpayer keeps their own records. One should be maintaining proper records fopr future presentation to IRS and concerned said, not submitting them with their return.
sanjose is correct that FEIE is limited per individual. One spouse's foreign earned income does not impact the oother's exclusion limit.
sanjose is correct that FEIE is limited per individual. One spouse's foreign earned income does not impact the oother's exclusion limit.