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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience:  Taxes, Immigration, Labor Relations
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Good evening I have a question I need the answer to shortl

Customer Question

Good evening I have a question I need the answer to shortly
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
Please post your question?

Customer :

Good evening I am trying to file my taxes along with my husbands and I can't seem to figure out the answer

Customer :

He works in afghanistan

Customer :

he is a permanent resident and he is working for an Australian contract company in Afghanistan earning "tax free money" And works 8 months out of the year over seas

Customer :

I have no clue how to claim his pay because I don't know whether he owes or whether he doesnt?

LEV :

Is your husband an US resident?

Customer :

yes he is but just recently worked the last year over there

LEV :

If he is an US resident - he is required to report all his worldwide income.

LEV :

There are several issues...

Customer :

He is originally from Australia and all of the guys he works with are from there and live there and they apparently do claim it but dont pay taxes then when they file

Customer :

but I tried to claim it all on turbo tax and it then stated he owed 6000 ....how is it that nontaxable income then becomes income????

LEV :

According to the US tax law - all worldwide income should be reported. I understand that some people do not report their income - but that would be a different issue.

LEV :

1 - does he work as an employee or as a self-employed contractor? Does he pay any income taxes in Australia?

Customer :

it seems on every website that the IRS don't even understand of what to do with it so they decide to then tax it but on turbo tax it does not even ask where the money was earned.

Customer :

he is a self employed contractor but they are australian so they can not provide him any tax forms.

Customer :

I am very well aware of the law about claiming income that is exactly why am trying to do so but I don't want to be paying 10000 a year in taxes to then find out we just needed to ask a professional and we were infact not meant to pay taxes on it but just claim that we made it

LEV :

2 - Does he pay any income taxes in Australia?

Customer :

the last claim he did was for 2010/2011 tax year as there fiscal year is different than ours

LEV :

If income taxes were paid in Australia - there will be a credit for foreign taxes - and that will reduce the tax liability.

LEV :

So far - we agree that income should be reported on the US tax return. So the question is - how to reduce the tax liability.

Customer :

oh okay well legally he still has to continue to file there so maybe since he know that his own country actually truly considers it tax free income.... file in both places would lower the tax expectation from the US.

Customer :

yes we absolutely agree all income should be reported and if we didn't do so his application for citizenship would be in limbo I just want to be certain I am not just paying money to the IRS when I really am not suppose to...

LEV :

As long as he is US resident - all his worldwide income is taxable - there is no "tax free income" so far. However - if he is a self-employed contractor - there should be deductions for business related expenses. These deductions will reduce his taxable income and correspondingly tax liability.

LEV :

You mentioned that his contract is 8 months - correct? So - he will be able to deduct travel expenses including per diem. Please verify if you correctly listed all business expenses?

Customer :

yeah I think thats where we need to be sure to save any and all receipts for any work related fee that are incurred during the year

Customer :

yes he actually works 8 weeks and then is home 4 weeks continueing that all year.

Customer :

yeah I will be certain to get all the numbers off of him

LEV :

That is correct - you need to list all qualified business related expenses.

LEV :

As long as that job assignment was temporary - see IRS publication 463 page 5 for deductible travel expenses - Table 1-1. Travel Expenses You Can Deduct - www.irs.gov/pub/irs-pdf/p463.pdf.

LEV :

Only NET self-employment income (after deducting all qualified expenses) will be subject of income and self-employment taxes.

Customer :

oh okay well that makes sense I think I will be able to go back to the working board on that one....he has quite a bit of travel expense and all of that

Customer :

Thanks so very much for that....I feel better having spoken to a professional

LEV :

In additional..
If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 - http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

LEV :

That is in case - he pays taxes in Australia.

Customer :

All of his work mates are given government forms as they work for the Australian Embassy and they truly do not pay a cent on the money made.

Customer :

I believe as for other interest ...investment properties and such they would owed on that income however

LEV :

Ok - if he pays none of foreign taxes - there will not be any credit.
So we need to concentrated to deductions.
See per diem rates here - http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1149
You should use M&IE Rate as per diem to deduct meal expenses while traveling for business purposes. In Kabul - $28 per day.

LEV :

There are might be other overlooked expenses - special tools? working clothes? others? - please be sure you list all related expenses.

Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.

I will summarize all issues that we discussed.


Hi and welcome to Just Answer!

Is your husband an US resident?
If your husband is an US resident - he is required to report all his worldwide income. According to the US tax law - all worldwide income should be reported. I understand that some people do not report their income - but that would be a different issue.
Does he work as an employee or as a self-employed contractor?
He is a self employed contractor but they are Australian so they can not provide him any tax forms.
Does he pay any income taxes in Australia? If income taxes were paid in Australia - there will be a credit for foreign taxes - and that will reduce the tax liability.
The last claim he did was for 2010/2011 tax year as there fiscal year is different than ours

So far - we agree that income should be reported on the US tax return. So the question is - how to reduce the tax liability.
As long as he is US resident - all his worldwide income is taxable - there is no "tax free income" so far. However - if he is a self-employed contractor - there should be deductions for business related expenses. These deductions will reduce his taxable income and correspondingly tax liability.
1/2/13 11:26 PM
You mentioned that his contract is 8 months - correct? So - he will be able to deduct travel expenses including Per Diem. Please verify if you correctly listed all business expenses?
He actually works 8 weeks and then is home 4 weeks continuing that all year.

As long as that job assignment was temporary - see IRS publication 463 page 5 for deductible travel expenses - Table 1-1. Travel Expenses You Can Deduct - www.irs.gov/pub/irs-pdf/p463.pdf .
Only NET self-employment income (after deducting all qualified expenses) will be subject of income and self-employment taxes.
Customer says: oh okay well that makes sense I think I will be able to go back to the working board on that one....he has quite a bit of travel expense and all of that. Thanks so very much for that....I feel better having spoken to a professional

In additional..
If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 - http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied. That is in case - he pays taxes in Australia.
Customer says: All of his work mates are given government forms as they work for the Australian Embassy and they truly do not pay a cent on the money made.
LEV says: Ok - if he pays none of foreign taxes - there will not be any credit.
So we need to concentrated to deductions.
See Per Diem rates here - http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1149
You should use M&IE Rate as Per Diem to deduct meal expenses while traveling for business purposes. In Kabul - $28 per day.
There might be other overlooked expenses - special tools? working clothes? others? - please be sure you list all related expenses.

 

Let me know if you need any help.

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