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treelifedesigns
07-20-2011, 06:34 PM
Hey Everyone,

I am new to the forum, but had a question regarding outsourcing and taxes. I run a web design/development firm and have developers in a couple different countries. Some are in Europe, Canada, China and India. Depending on the project and what kind of market it is I pick accordingly. All my developers live in there countries so I can not send a 1099. With the amount of volume I have all my contractor make over 1200 in this year, not sure if that matters. Can I still right my labor off without 1099s. I have proof of payment through invoices and credit card statements. Is there another form I fill out for outsourced work ?

Any insight would be appreciated. I currently 1099 all my American designers and developers, but not sure about the out of country workers.

vangogh
07-21-2011, 01:39 PM
This isn't my area of expertise so know this is as much a guess as anything else. I'm thinking you would only need to send 1099 to those working in the US. You'd naturally want to report the payment to those outside the US, but since a 1099 is meaningless to them there's no reason to send it. I'm not sure if there's a specific way you're supposed to report the outsourced payments or if there are specific forms you need to fill out.

Hopefully someone who can offer more than a guess will see this and provide better advice than me.

treelifedesigns
07-23-2011, 12:43 AM
This isn't my area of expertise so know this is as much a guess as anything else. I'm thinking you would only need to send 1099 to those working in the US. You'd naturally want to report the payment to those outside the US, but since a 1099 is meaningless to them there's no reason to send it. I'm not sure if there's a specific way you're supposed to report the outsourced payments or if there are specific forms you need to fill out.

Hopefully someone who can offer more than a guess will see this and provide better advice than me.

Yea that where I stand - I have called some local accountants and they wont provide any information like that in the free consultation blah

Evan
07-23-2011, 04:11 PM
Hey Everyone,

I am new to the forum, but had a question regarding outsourcing and taxes. I run a web design/development firm and have developers in a couple different countries. Some are in Europe, Canada, China and India. Depending on the project and what kind of market it is I pick accordingly. All my developers live in there countries so I can not send a 1099. With the amount of volume I have all my contractor make over 1200 in this year, not sure if that matters. Can I still right my labor off without 1099s. I have proof of payment through invoices and credit card statements. Is there another form I fill out for outsourced work ?

Any insight would be appreciated. I currently 1099 all my American designers and developers, but not sure about the out of country workers.

Most local accountants don't deal with international tax issues.

Generally the treatment of these international payments raises the issue of what jurisdiction (country/state) that the money was earned, and whether the United States has an income tax treaty with the respective nation. Some states do not recognize the provisions of these international tax treaties, nor are they required to. But all individuals receiving income from U.S. sources need to have a taxpayer identification number from the IRS even if they are a citizen of another country. They would file W-7 to apply for a TIN.

Foreign persons are generally subject to withholdings of 30% on income earned from U.S. sources that include compensation for services performed, but it may be less based on the specific income tax treaty with that nation. It's possible the treaty may say to withhold not tax, but if you are to withhold that tax, it is your obligation submit it on behalf of your vendor.

I recommend reading: http://www.irs.gov/pub/irs-pdf/iw8ben.pdf

As this is not my area of specialty, I recommend finding an accountant who deals with international tax issues, and likely due to that specialization they will not offer a free consultation. You need to determine whether the burden of this reporting and withholdings is worth the relationship with these vendors to perform these services.