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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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Shall a US LLC partnership pay taxes on payments made for outsourced

Resolved Question:

Shall a US LLC partnership pay taxes on payments made for outsourced programming tasks to Eastern Europe?
The tasks a performed outside US and such payments are sent monthly. If yes who is liable for them? The LLC or the person/company receiving the payments?
Are these payments considered an expense for the LLC?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

Hi and welcome to Just Answer!

 

The person who receives a taxable income is responsible for income taxes. The payer - depending on circumstances might be responsible to withhold income taxes.

 

Payments to nonresident alien partners are subject of US taxes. The partnership is required to withhold income taxes and remit to the IRS on such payments. Partners may file US nonresident tax returns and calculate actual tax liability - thus if the actual tax liability is less than withholding - the refund will be issued by the IRS.

Payments to other parties for services provided outside the US - and not subject of withholding. The partnership as a withholding agent should be able to support that position - services were performed outside the US and are not effectively connected with US activities. Also identification information should be collected from payees.

For withholding requirements from payments to nonresident aliens - see IRS publication 515 - www.irs.gov/pub/irs-pdf/p515.pdf

 

Are these payments considered an expense for the LLC?

The fact of payment doesn't indicate that is a deductible expense for business purposes. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

Let me know if you need any help.

Customer: replied 5 years ago.
Hi,
The question was in regards XXXXX XXXXX taxes for outsorced services performed by 3rd parties. The main scope of our business is web development and we contract freelancers outside the US. So in brief, are these payments subject to reporting and taxing in US? Or are they just ordinary expense in the course of our business?
Expert:  Lev replied 5 years ago.

So in brief, are these payments subject to reporting and taxing in US?

Payments to nonresident aliens from US sources are subject of reporting.

Payments to nonresident aliens for services provided outside the US are not subject of withholding.

Or are they just ordinary expense in the course of our business?

Reporting and withholding requirements have nothing to do with deducting expenses.
As mentioned above - to be deductible, a business expense must be both ordinary and necessary. If such expenses are both ordinary and necessary - these expenses are deductible business expenses.

 

Let me know if you need any help or clarification.

Lev and 2 other Tax Specialists are ready to help you