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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22829
Experience:  Taxes, Immigration, Labor Relations
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My question should be pretty simple to respond to: Preface. I

Resolved Question:

My question should be pretty simple to respond to:

Preface.

I am a US citizen with a SSN and I work overseas for the US Gov. technically I am in the US and pay taxes (no state taxes I am exempt form them while I am overseas)

I am opening a business in Netherlands, Europe with a partner. It will be a registered business. This will be finalized by the end of the month. I will own 50% of it. I already understand how to declare my income from the business on my tax form. It will be considered income but not taxable since I will be paying taxes to Netherlands authorities, but it will be counted for my total income for taxation purposes overseas.

Question.

I will be running a few Kick-starter funding campaigns (will be collecting money for a project using an Amazon account linked to my US bank). The total amount collected from these Kick starter will be given to the Netherlands based business to accomplish the project. The business will then produce and distribute the products to the customers.

My question is how do I need to declare this income (that will be $0 dollars after expenses) on my tax declaration form for 2013. I was told that I may declare them as self employed revenue and suing a Form 1099-K. And most likely any of the projects will exceed $20.000 and 200 transactions.

In a few words:

How do I declare them on my federal taxes, and what expenses will I be incurring?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
There are several issues...
First of all - as US citizen - you are required to report all your worldwide income on your tax return - including your expected business income from Netherlands.
As that is a partnership - assuming it will be registered as such in Netherlands - it will be a foreign partnership - unless you create a different business entity - for instance a foreign corporation.
If that is a partnership - you would need to prepare this form - http://www.irs.gov/pub/irs-access/f8865_accessible.pdf - Return of U.S. Persons With Respect to Certain Foreign Partnerships.
Your share of income will be taxable for you - and will be reported as if you received schedule K1 (1065) even a foreign partnership doesn't issue such form.

LEV :

Then - if you are living abroad - you MIGHT be eligible for a foreign earned income exclusion.


To to claim foreign earned income exclusion - the taxpayer should file either form 2555 or 2555EZ. Here are forms: Form 2555 Instruction 2555


Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable - income from wages and self-employment. For instance - dividends, investment income, rental income, pensions, etc - are not excludable. Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit. If the person bona fide resident of a foreign country - he/she may qualify for the foreign earned income and foreign housing exclusions.

LEV :

The form 1099K reports financial transaction - that is no necessary your taxable income.
The purpose of that form to track possible sale transactions. However if that are not sale transactions and you will receive form 1099K - you need to attach a note to your tax return with explanations that these are not taxable income.

Customer:

Lev, thank you for your quick answer, sorry last night I had internet issues and wasn't able to reply.

Yes I am aware I will need to report any income for the company located in the Netherlands. Expected business income fo rthis year will most likly be a negative balance since we are opening now, and all expenses exceed income. This new company will be a corporation. So I will still need to fill a K1 even if income will be equal to 0 or a negative ammount? I will look at form 2555 later. But I am fine in paying taxes on this not looking for any exclusion.

My primary question is about self employement taxes, is there a fixed ammount plus a percentage of any income? Or is just a percenatge based on my gross income? If I make 60K a year and get 40K from a Kickstarter (and I will have a receipt for 40K paid back to the Netherland based company), will they consider my gros sincome 60K or 100K for taxation purposes?



Customer:

What I am trying to calculate is how much the income from the Kickstarter will affect my taxes in numbers. Thank you and again sorry for the late reply.

Customer:

For the 1099 they will be sales transactions, but all income will be sent to the overseas company to cover the cost to produce the item I have sold.

LEV :

With negative income - there will not be any tax liability - and no need to worry about exclusion - at least at this point.
If you will have a foreign corporation - which is a separate legal and taxing entity - there are two types of income for you personally - as an employee of the corporation - you will receive wages and as a shareholder - you will receive dividends out of corporate earnings.
There is no self-employment taxes in this situation. However if your corporation will be operated in Netherlands - there will be employment taxes on wages paid in Netherlands.
However - if a foreign corporation will operate and will pay wages in the US - it should be registered and pay employment taxed in the US. For instance if the corporation will sell goods in the US - it will be liable for US taxes and will be required to file US tax returns.

Customer:

Thnak you it makes sense. Also fo rthe comapny in Netherlands our balance at the end of the year may be negative and no salaries or incentives will be awarded.

LEV thank you for the response, also I was wondering if you also offer a service to help tax filing at the end of the year. As said I work overseas for the US Gov. currently in Italy. We are given free legal advise from our legal office but I can ot realy trust their knowledge.

LEV :

If the corporation will pay no wages due to lack on income - there will not be any taxable income for you.
In additional - as a co-owner of a controlled foreign corporation (CFC) - you are required to file a form 5471 to the IRS reporting your ownership regardless of having any taxable income. There is no tax associated with this form. You may find more information in instructions - http://www.irs.gov/instructions/i5471/ch01.html

LEV :

Unfortunately rules on this site prevents me from contacting customers directly outside this site. According to these rules - Posts are for general information, and are not intended to substitute for informed professional advice and do not establish a professional-client relationship. However - I would be glad to address all your questions related to tax issues.

LEV :

If you are the US Government employee - your wages may not be excluded from US taxable income as foreign earned income, however any other qualified earned income may be excluded.
In additional - if any income is subject of US and foreign income taxes - you may claim a foreign tax credit - thus effectively will eliminate double taxation of the same income. 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.

Customer:

thank you, XXXXX XXXXX have a contact form? And do you assit people in filing their taxes under compensation?

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22829
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Expert:  Lev replied 1 year ago.
Yes - I do prepare tax returns.
However as I already mentioned - rules on this site prevents me from contacting customers directly outside this site.
Still I would be glad to address all your questions related to tax issues. If you want to contact me in future - here is the page to start - http://www.justanswer.com/finance/expert-lev-tax/
Please be aware that I might not be immediately available - but surely will reply.

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