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I am negotiating a software development contract with a client in the UK and I am US-based. I would be working for them part time and they would not be filing a 1099 for me with the IRS.

Am I still responsible to declare that income as a self employed person, which would then levy me a 15% self employment tax, before all other federal and state taxes?

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All income that is not from an employer is considered self employment, regardless where or who pays who, as long as it is US currency.

As a sole proprietor you'd report the income, pay income tax, plus self employment taxes and should also pay estimated taxes.

It's not as bad as it sounds. Online tax software really helps.

  • It's bad that it's an extra 15% off my money – amphibient Jun 23 '16 at 3:07
  • The good news though, as a sole proprietor you can deduct a large percentage of all expenses related to the business. Computers, gas, employee wages, legal fees. When done correctly, the 15.3℅ tax is not so bad. – Kris Jun 23 '16 at 3:52
  • If I'm working from home, can I charge myself rent for business space and deduct it ? – amphibient Jun 23 '16 at 3:54
  • By "charge yourself" you probably mean expenses to operate your business. If you also use the area for personal use, then you'd only deduct the % used for work. As a rule, you would want to keep separate accounts for business and personal so if and when you are audited there is no questions or issues. – Kris Jun 23 '16 at 4:02
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    A bit of advice for any small business owner: open up a separate account with your bank and all transactions related to the business goes through it. Then estimate your revenue and expenses by doing simple monthly forecasts. Also, this makes figuring deductions a snap. – Kris Jun 23 '16 at 4:08

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