Question

I paid foreign contractors with income received from 1099-K. How would I reflect that properly?

Forum|Forum|5 years ago
June 26, 2020
1 reply
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I receive payments through Paypal. The Paypal account is solely in my name. However, I regularly distribute payments to two foreign contractors for services rendered related to my online business. I have full records of how many payments I have made, when payments were made, the amounts, etc. 1. Would I still enter the total amount listed on the 1099-K or deduct the payments I've made? 2. Would I have to send 1099-Misc to each foreign contractor, even if they solely conduct business from overseas? 3. Would I have to register for an EIN? 4. Is there a cap on deductions for self-employed income? Thank you.

P

pk12_2

Employee

@conwaynavarro , assuming that your business is US ( sole proprietor ) business, that you are US citizen/Resident( Green Card) and that the foreign service providers are not US citizen/Resident then the following are the answers to your questions:

1. On your personal return ( i.e. on Schedule-C ) you report all the income i.e. the total 1099-K gross reported, you then show all the expenses including amounts paid to foreign contractors -- use US$ exchange rate of the day or average for the month.

2. You do not report the payments made to foreign contractors on 1099-MISC ( those are only when payment is made to US persons with SSN/ITIN )

3. These contractors are independent foreign contractors for US purposes -- they are not your employees ( hence no W-2) -- you need EIN ONLY when you plan to have employees. However many states require registration of a business -- please check with your state if you need to register.

4. Expenses for a business are not capped but the assumption always is that your motivation is to make profit. Thus 3 of 5 years in the business you must show profit or the IRS will conclude that this is a hobby and not a profit making entity.

Is there more I can do for you?