Self-Employed Tax Question - Don't know where to start
 

Hi, hoping to get some advice on where to get started with a tax question - have searched the forums, IRS website, Google etc. but am still none the wiser, so grateful if anyone can help point me in the right direction.

I am currently in the US on an L1 visa. I arrived with my wife last year – she is on an L2 visa.

My company employs a tax consultant for me, who helps with filing of the US and UK tax returns. However, they can only work on my returns, not my wife's.

Upon arriving in the US, my wife did not work at all in 2013. However, from January 2014 until now, she has been doing some very sporadic part-time freelance consultancy work. the income to date for this is very small - less than $6,000 - she is just doing the work to keep her brain active.

In the UK she was self employed running her own business (a limited company). Her UK accountant has filed her UK tax returns, so that is taken care of, but we don't know where to begin with regards to what she needs to do for US tax reporting. To date, she has not reported anything.

I estimate that by the end of 2014, she will have earnt less than $10,000, and there are a number of expenses that can offset a proportion of this. We want to ensure that we do everything legally required and on-time, so am tempted to hire a professional like Pete Newton, but don't want to potentially have to pay a fortune for this, when her earnings are so low.

What else can I tell you? - We jointly own our house in the UK, which is currently being rented out, and we have each filed an FBAR for 2013.

So, I really just want to know - where do I start in ensuring that we comply with all legal requirements (e.g. does she need to be filing quarterly amounts as she is self-employed), what is the amount she is allowed to earn before having to pay tax, does she need to do anything to legally be allowed to freelance like this in the USA etc.

I appreciate that there are a lot of questions in this post, and that all the answers I need are out there somewhere, but I am feeling really daunted as to where to begin, so would really appreciate if anyone can point me in the right direction!

Thanks in advance for any advice you can give.

Re: Self-Employed Tax Question - Don't know where to start
 

Unless your tax consultant is telling you it makes sense to file separately, I would imagine that you would be filing "Married Filing Jointly". In which case your wife's return is also your return.

Re: Self-Employed Tax Question - Don't know where to start
 

So she didn't set up a company to do this? She's simply freelance?

It just needs declared on your annual tax return as income.

(Doesn't sound as though anyone that paid her will be providing a W2? In any case Google 1099 and W2 earnings.)

Re: Self-Employed Tax Question - Don't know where to start
 

Thanks Thinbrit and Hotscot for your speedy replies.

Hotscot - no she hasn't set up a company in the US to do this - she is simply freelance. Nobody will be providing her a W2.

I will check with my advisors as to whether they are filing as "married filing jointly".

Hoping this is going to be simpler than I thought...

Really appreciate your replies.

Re: Self-Employed Tax Question - Don't know where to start
 

As long as it's reported you'll be fine. Even better if you can "find" sorry, determine, expenses that negate any profit but nothing that will raise a red flag.

As you may know, in the absence of a paper trail, many people take money under the table without reporting it however I am not advocating that.

My personal inclination is to report everything honestly as that's a good trail to have.

Re: Self-Employed Tax Question - Don't know where to start
 

Slightly off-topic, but you are responsible for your tax return, even if prepared by someone else. Don't sign it without understanding everything that's in it (including lines showing zero).

Really - your tax adviser is only working on your return, nothing to do with your wife's? Never heard of that situation before. Have you filed your 2013 return yet, if so, what was the filing status?

Is there any obligation on her to pay self-employed Social Security?

Presumably your wife has an Employment Authorization Document and Social Security Number.

Re: Self-Employed Tax Question - Don't know where to start
 

My husband is self-employed, and I am employed by a company. We have a CPA who does our tax return each year. We file "married filing joint" so we can get tax credits for that. Our total income is reported to IRS. He has business expenses, so a separate schedule is done for that (Schedule C, I believe), which shows business income minus business expenses equals profit. He doesn't pay his self employment tax quarterly like most people, he pays lump sum at the end of the year. There's a small penalty for doing that (a few dollars).

Tell your tax preparer that your wife worked in 2014 so you'll be filing "married jointly". He will tell you what he needs from each of you.

If she has specific clients, she can ask to receive a 1099 from each client (that's akin to a W-2, but for self employed people).

Rene

Re: Self-Employed Tax Question - Don't know where to start
 

I've just gone freelance - that's a really useful answer Rene, thanks.

Re: Self-Employed Tax Question - Don't know where to start
 

Our tax return started to get complicated with my wife's numerous 1099s, several small businesses, the ranch, etc. We paid a CPA to do our return. It was close to $600 for the return to be drawn up. For subsequent years, as our tax circumstances had not changed, we used this former return as a basis to do subsequent returns ourselves. We used TurboTax, and referred to the previous return to ensure we hadn't missed anything.

Last year we formed another PLLC, and suddenly had employees, large capital expenditures, investments, etc. So we went back to using a CPA. The last return cost $2,000 to complete (which included some help with my QuickBooks accounting, as I hadn't used it before).

My point being, for simple returns, you can complete the return yourself with TurboTax or completely manually if you choose. Even if you receive 1099s, TurboTax makes accounting for these very simple.

For any services of $600 or more, these will be sent without the need to request one. At least they aught to be, it is a legal requirement of the payer that they be sent.

Re: Self-Employed Tax Question - Don't know where to start
 

I'm in the same situation and do the same thing. No problems at all. The only difference is I do my own taxes with taxact.com (premium for around $17). I may be cheap but I see no need for a CPA.

Re: Self-Employed Tax Question - Don't know where to start
 

Also good to know, thank you.

Re: Self-Employed Tax Question - Don't know where to start
 

I can't see why you're having so much difficulty, it's all explained here: Self-Employed Individuals Tax Center

In essence if you're self-employed, you set up the business, get a sales tax account with whatever local agency there is (usually the State or the locality, sometimes both), you may need a business licence also. Schedule SE is used to calculate the extra payroll tax that must be paid.

Typically you pay FICA payroll taxes, i.e. social security and medicare tax. The employer pays half and the employee pays half. If you're self-employed you pay both halves. I.e. 15.3% rather than 7.65%.

Given the standard deduction for married couples is $12,400, she may not owe any tax anyway.

Re: Self-Employed Tax Question - Don't know where to start
 

How will you know that you will be filing 'married jointly' when you haven't run the figures yet? It's reckless to automatically think filing married jointly will always result in the lesser tax burden.

Re: Self-Employed Tax Question - Don't know where to start
 

yes but if the preparer understands that could be an option he will advise them the correct information to gather (as rene says). they may still end up doing it another way but will at least have the right docs ready to make the best choice.

Re: Self-Employed Tax Question - Don't know where to start
 

The preparer should be the one making the judgement call. That's what they're paid for, right?

As far as I'm concerned, the documentation required is exactly the same regardless of filing jointly or separately.

What am I missing here?