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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
Worldwide income taxable in U.S.
Tax Talk

IRS due taxes on foreign income

Dear Tax Talk,
My husband may be doing some consulting for a business in India. If we understand the IRS, he would be subject to federal income tax laws and would file like always and pay taxes accordingly. Am I correct? Thanks!
-- Rebecca

Dear Rebecca,
While most people can work with taxes all their life and never understand the Internal Revenue Service, you got this right. If you're a U.S. citizen or resident for tax purposes, you have to file and pay taxes in the U.S. on your worldwide income.

You're a U.S. resident for tax purposes if you have a green card or are present in the U.S. for more than 183 days (even if illegally for immigration purposes). Worldwide income means income earned from anywhere, which would include India. Tax credits for foreign taxes paid are allowed against your U.S. taxes to prevent double taxation. The credit only applies to taxes on foreign source income.

Income earned from providing services is sourced where the services are provided. If your husband provides the services in India, the consulting fees are foreign source income. If he is subject to taxes in India on this income, he can claim a credit against your U.S. taxes (assuming his consulting business is filed on Schedule C and you file a joint tax return). If the services are provided in the U.S., there should be no taxes due in India and you would not have any credit against your U.S. taxes. Individuals use Form 1116 to claim a credit for foreign income taxes paid.

Bankrate.com's corrections policy-- Posted: May 22, 2007
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