Being a freelancer in the US: legal/fiscal status
Thread poster: Mirella Soffio

Mirella Soffio  Identity Verified
Italy
Local time: 00:09
Member (2002)
English to Italian
+ ...
Dec 22, 2005

I've recently moved to the US for a two-year stint. I have an L2 visa and have applied for a work authorization which I hope to get in three months or so. For this fiscal year, having spent more than 180 days in Italy before leaving, I've kept my VAT registration in Italy so as to invoice my clients from my Italian business address. Next year, though, things will be different, as I'll spend most of the year in the US and willl start making business *in* the US (meaning that I will have to use my American address as business address and report my income to the IRS).
How do you establish yourself as a self-employed professional in the States? Which taxes are there to pay, apart from the (too good to be true) 15% tax on income? Anything else I should know?
Thanks a lot and have a great holiday season!

Mirella


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Rosa Maria Duenas Rios  Identity Verified
Local time: 18:09
Talk to an accountant... Dec 22, 2005

Mirella Soffio wrote:

How do you establish yourself as a self-employed professional in the States? Which taxes are there to pay, apart from the (too good to be true) 15% tax on income? Anything else I should know?
Thanks a lot and have a great holiday season!

Mirella


Hi Mirella,
I think speaking to an accountant will be your best bet. As for the income tax, it varies depending on the state you live in (Florida, for instance, does not impose an income tax), and on the amount of your earnings. To establish yourself there are also several options: you can be a free-lancer, a sole proprietor, or incorporate a company. That is why my recommendation is to get the advice of a professional. Good luck!


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Kathi Stock  Identity Verified
United States
Local time: 17:09
Member (2002)
English to German
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Chamber of Commerce Dec 22, 2005

In addition to visiting an accountant, it will be useful to go to the local Chamber of Commerce. They give free advice about setting up your business.

Good luck!

Kathi


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Mirella Soffio  Identity Verified
Italy
Local time: 00:09
Member (2002)
English to Italian
+ ...
TOPIC STARTER
Thanks for the advice. Dec 22, 2005

I will definitely talk to an accountant, but before doing that I'd like to do a quick informal poll and ask you which path you chose (freelancer or sole proprietor?), and why.
Provided that's not a sensitive piece of info, that is:-)


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Rosa Maria Duenas Rios  Identity Verified
Local time: 18:09
I am a free-lancer... Dec 22, 2005

...because it was the simplest thing to begin in the business... however, now that things have progressed (and according to advice I get from my accountant), becoming a sole-proprietor might be a good option...

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Becky Katz  Identity Verified
United States
Local time: 17:09
English to Spanish
+ ...
I set up a Small (S) Corporation Dec 22, 2005

Mirella

I set up my business as a small corporation. My accountant said I should do this if I expected to make at least US$5,000 per year in this line of business (I should hope so!)

Please note that the effective Federal tax rate is much higher than 15% for most people. Also, depending on where you live, you have to pay State and even in some places City taxes (in places like Florida, where you don't pay State and City taxes, you get hit by an unfortunate 6-7% sales tax on almost everything you buy).

Like everyone else said, though, get the advice of an accountant before you do anything else.

Good luck!


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Can Altinbay  Identity Verified
Local time: 18:09
Japanese to English
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A good book Dec 22, 2005

Rosa Maria Duenas Rios wrote:

...because it was the simplest thing to begin in the business... however, now that things have progressed (and according to advice I get from my accountant), becoming a sole-proprietor might be a good option...


Get a book called "Working for Yourself" from Nolo Press. It has a lot of good information about all of the options. And, of course, talk to an accountant. ole propriator is the easiest - you just start making money. You just want to make sure you pay those taxes.


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Henry Hinds  Identity Verified
United States
Local time: 16:09
English to Spanish
+ ...
Easy Dec 23, 2005

Once you have work authorization there is nothing to it. I would assume then you would then get a Social Security number which you would have to use as a tax ID when requested by those paying you.

Then just work. As a self-employed person, all of your self-employment income is subject to a 15.3% tax which is for Social Security. Your income is also subject to income tax, a second hit. If you have a husband who is working you would probably file jointly and the tax would be based on your total combined income. If working on a salary his income (if there is a "he") would be subject to tax withholding which may be increased, so just make sure it is enough to cover the tax for all of your income.

If there is no "he" and your income is from self-employment then you must make quarterly payments (Jan.-Apr.-June-Sept., not quite quarterly) to the IRS including the 15.3% plus the estimated income tax.

After the end of the year those clients who have paid you over a certain amount ($600 I believe) during the year are required to submit a form 1099 to the IRS and they also send one to you. You know, of course, that the IRS knows about that income so... don't try to cheat. However, you may deduct business expenses.

It's actually simplicity itself. I'm no accountant, but you don't need one, save yourself the expense and check out the IRS website for futher clarification, it's all there.

Now when it comes to the actual income tax return, yes, you may need an accountant there.


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Can Altinbay  Identity Verified
Local time: 18:09
Japanese to English
+ ...
Good information, Henry. Just a little note... Dec 24, 2005

Henry Hinds wrote:

Then just work. As a self-employed person, all of your self-employment income is subject to a 15.3% tax which is for Social Security. Your income is also subject to income tax, a second hit. If you have a husband who is working you would probably file jointly and the tax would be based on your total combined income. If working on a salary his income (if there is a "he") would be subject to tax withholding which may be increased, so just make sure it is enough to cover the tax for all of your income.

If there is no "he" and your income is from self-employment then you must make quarterly payments (Jan.-Apr.-June-Sept., not quite quarterly) to the IRS including the 15.3% plus the estimated income tax.

After the end of the year those clients who have paid you over a certain amount ($600 I believe) during the year are required to submit a form 1099 to the IRS and they also send one to you. You know, of course, that the IRS knows about that income so... don't try to cheat. However, you may deduct business expenses.

It's actually simplicity itself. I'm no accountant, but you don't need one, save yourself the expense and check out the IRS website for futher clarification, it's all there.

Now when it comes to the actual income tax return, yes, you may need an accountant there.



You can file estimated taxes quarterly even if you have a spouse that works. It may be easier to increase the spouse's deductions. Depends on your situation.

It's good to have an accountant on hand. You can ask questions! And, as Henry points out, one is good to have for your tax returns.

I think the $20 or so for the book I recommended is a good investment. It is also deductible, because it is a business expense.


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Maria-Jose Pastor
Local time: 18:09
English to Spanish
+ ...
Seek the advise of an accountant Dec 29, 2005

All the above advise is good and sound - however, each individual case is different with regards to taxation - especially if you are/will be paying taxes in Italy - are not a citizen/resident but have a working visa. Dependent also on how long you plan to be in the country, what your estimated income will be - do you have dependents? As a non-citizen/resident, here only for two years time - do you have to pay FICA, Medicaid and Medicare? A CPA, will be I think your best bet.

Best of luck!


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Mirella Soffio  Identity Verified
Italy
Local time: 00:09
Member (2002)
English to Italian
+ ...
TOPIC STARTER
Thanks! Dec 30, 2005

Thanks to all for the priceless advice - I'll definitely get in touch with a CPA before taking any further steps. I somehow hoped it was all clear-cut and fool-proof, but apparently nothing is easy when it comes to taxes...))

Season greetings to all and sunder,

Mirella


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