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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I am looking at utilising LinkShare (an ...

Customer Question

I am looking at utilising "LinkShare" (an online marketing services company - includes Fortune 500 customers) to add potential revenue generating links to my website. As any income will be generated in the USA, I understand that as a non-U.S. Citizen, residing outside of the USA, if I wish to receive any income (that is, as an individual - no company or partnerhip) I need to complete a W-8ECI IRS form and then submit a U.S. Income Tax Return annually. Is this correct? If yes, what would be the complexity/cost to submit an annual IRS Income Tax Return?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear XXXXX070,

This is correct, you would be filing a non-resident income tax return to the U.S. for revenues derived from the U.S. market place.

These returns are easy to fill out by most individuals. The problem is you need to make payments.

You return will likely include a schedule C or C-EZ AND which are documents to show net profits from operating the busines in the united states. Non-resient aliens do not have to pay the self employment tax. You will use form 1040-NR.

You would want a professional tax preparer or CPA to file taxes for you the first year so that you can see how it is done. After that you could do it for your self easily enough. You can find a tax preparer in the U.S. to prepare them for you for about 100 to 250 dollars. You could Use H&R block, GHRCI, Jackson Hewitt, etc. OR, skip them all together and use the Turbo Tax Software. The cost of the software is tax deductable. AND Turbo Tax has a inteview process built in to easily guide you through. The problem with using the software is they will automatically prepare an SE tax form for you, which you do not have to pay. (SE tax is Self employment tax)

So you would have to delete the SE form and and zero that line in the form 1040NR and submit your return manually.

If you use Turbo Tax, you will also have to load the 1040NR form before you begin the return.

Here: have a look at the forms:

http://www.irs.gov/pub/irs-pdf/f1040nr.pdf

http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Ed

Thank you for your succint response. Could you please confirm the start and end day/month for the U.S. Tax year and do you know how as someone living outside the US (Australia) I can access a tax accountant service such as H&R Block in the U.S.
Customer: replied 5 years ago.
Hello Ed

Is there a minimum income amount below which the lodgement of an income tax return is not required, for example $1,500.00? Is it possible to pay a withholding tax upfront to negate the need to lodge an income tax return, that is, the withholding tax is deducted at the time the income is earned so that the check I receive is the income less the witholding tax?

Thank you and regards

Mark Krause
Expert:  Ed Johnson replied 5 years ago.

Dear XXXXX,

thank you for accepting my answer, and your feedback.

yes, if you earn less than the personal exemption and standard deduction, you do not have to file a return. That changes each year and is dependent on your filing status.

Filing status is: Single, Married Seperate returns, and married filing a joint return.

In your case you would not be filing a joint return.

The personal exemption for 2008 is 3500

The standard deduction is: 5450 for singles or married fileing seperatte returns.

So you would be able to earn 8950 u.s. before filing a return (as a non-resident alien earning money in the u.s., and not physically present there)

You can set up relationships in the U.S. where withholding of your payments is made from the earnings, but that withholding would be at 30 percent, and you would have to file a return anyway, in order to get back the excess taxes or taxes that you would not have had to pay based on the gross earnings.

this is not possible with retail sales. This is only possible if you are retained as a consultant or independent contractor. Day to day consumers are not going to be able to do this.

 

Customer: replied 5 years ago.
Hello Ed,

How is everything in New Jersey this morning? Absolutely great I trust.

Thank you very much (I mean this sincerely) for replying to my second round of questions.

May I please clarify... that if I complete and submit a W-8BEN "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding" instead of a W-8ECI then 30% tax will be withheld and given to the IRS with me receiving the balance (remainder)?

If I understand your comments correctly - if I complete and submit a W-8BEN instead of a W-8ECI then the IRS will not expect me to file an Income Tax Return as any income tax owed has been paid through the 30% Withholding Tax. However, if I wish to to seek reimbursement if my income is such that I have been "over taxed" (through the 30% withholding tax) then it is my prerogative to submit an Income Tax Return - have I got this correct?

I also wondered what if you earned a large amount say $100,000 (not that I'm expecting too!), under an W-8ECI, wouldn't a portion of the $100,000 be taxed at greater than 30%? If so, does this mean that there is an upper limit on the amount of income that can be treated by the 30% Withholding Tax arrangement under the W-8BEN or is all income taxed at 30% (Withholding)regardless of the amount?

I'm trying to establish the best approach (and ensure that it is all legal and above board) as it may be better to forego any lost income through being taxed at 30% (Withholding) for small amounts (the more likely scenario) as it then negates the need to engage a U.S. based Tax Accountant to file an Income Tax Return and therefore any excess tax paid can be (somewhat) offset by not needing to pay to engage a Tax Accountant to prepare a tax return.

This is just part of the story, the other part of course is that I will also need to declare the foreign income from the U.S. (and any foreign tax credits) on my Australian Income Tax Return - at least that's more easily addressed by my accountant here.

Thanks once again Ed. Is there an avenue to provide you further payment for addressing this latest enquiry?

Have a great day! (and goodnight from here)

Best regards,

Mark Krause
Expert:  Ed Johnson replied 5 years ago.

Your Follow on Question: May I please clarify... that if I complete and submit a W-8BEN "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding" instead of a W-8ECI then 30% tax will be withheld and given to the IRS with me receiving the balance (remainder)?

ANSWER: Yes, but, you only have withholding if you are dealing business to business, or with agents. Individuals form comsumer sales will not be albe to withhold. The general public is ignorant of this kind of thing, and are not really required to do that, because they are making purchases. So you may still be on the hook for reporting your own income and paying the tax at the end of the year.

for example: if you are retained by a company to provide consulting services, the company would withhold back up taxes of 30% and they, the company would pay the tax to the federal government. However if a consumer buys a service or prodcut from you, they are not required to issue any tax payment or collect or withhold any tax, and so would not even know how to do that.

Your follow on question: about the portion of 100K or more. Normally this would be taxed, as personal income at more than 30%. However, this is business income not peronal services income, and no matter, you would receive the tax treaty rate of 30%. The tax treaty takes precedence.

I understand what you are trying to do. the tax returns are not that hard to do. Your accountant would probably be able to understand them. Even if he was not, you would only need a U.S. tax preparer to do this one time and after that you or your accountant would be able to do it on your own.

the problem you have is that there is no mechanism for consumers in general to withold taxes.

One big reason is, that you pay taxes not on gross revenues, but on net profts. The consumer has no way of determining that.

Setting up any kind of system to enable such transactionsn would be extremely costly. Consider, if you have 1000 customers, then you would have 1000 people making income tax payments in your name. You would have to have a system to produce the tax documents required for the customers to complete and fill in with specific instructions for turning the money in your name over to the IRS. What consumers would do that? who would want to buy from you? Consumers want to point and click. How would you determine the net profit from a single sale, when you have no exact idea of what your variable expenses would be for the business?

Trust me friend, the best way is to have your accountant figure your net profits using the schedule C and then for you to pay tax on that. If your net profits are less than the amounts that I mentioned earlier (8,950 ) you would not even have to file a return.

You can pay a bonus. There should be a bonus button somewhere.

 

 

Customer: replied 5 years ago.
Hello Ed,

Thank you for your reply and further clarification of my questions.

To provide some clarification on the income stream being referred to in my questions I have included the following link to the Commission Junction website and in particular the page describing Affiliate Marketing, http://www.cj.com/about/affiliate_marketing.html and also a link to the company I referred to in my question yesterday, LinkShare http://www.linkshare.com/advertisers/affiliate/

There will be no selling to customers - in my language these companies (the two above) act as an agent on behalf of the advertiser and the publisher (web site owner - me). If I place an advertiser's ad on my web site and a visitor to my site (prospective customer) clicks on this ad, goes to the advertiser's site and the advertiser makes a sale then this is recorded with the agent and I receive a commission on this sale. At the end of each month (for example) the agent tallys up all the commissions I have earned (there can be multiple advertisers) and sends me a check.

Applying this operating model I am trying to determine which form is most appropriate i.e. W-8BEN or W-8ECI. I will then apply whatever tax accounting requirements are necessary.

Best regards

Mark Krause
Expert:  Ed Johnson replied 5 years ago.

Dear XXXXX,

thank you for your remarks.

Fill out the W8-BEN so they only take out the 30%. This is because you are not solely claiming treaty benefits. The treaty will still exempt you from filing if you earn less than the amount I indicated.

You can set it up so that the person who is giving you your paycheck is withholding for you.

You have to make sure they understand that you are subject to backup withholding at 30%.

I checked and they will issue a 1099 form, which is a tax document reporting income to the IRS, for any earnings more than 600 dollars, u.s.

Since there is information sharing between australia and the U.s. you will have to file a return if you earn more than the amount I mentioned before.

The company would in this instance be able to withhold taxes for you. BUT, it could end up being too much, based on your actuall net profit, and you may have to file a return to get a refund.

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