Confused about how to write off wages paid to international employees in the Philippines
Hey everyone, I could really use some advice on my tax situation. I'm running an online business (LLC filing as an S Corp) and have been struggling with how to properly write off and categorize payments to my international team in the Philippines. I've been managing my accounting through google sheets (probably not the best approach, I know), and have sent around $67,500 through Wise (formerly TransferWise) to my team of 15 contractors in the Philippines over the last 6 months. My main concern is making sure I'm not taxed on this $67,500 that I've already paid out to my team. I'm trying to figure out: 1) What's the correct way to make this a legitimate write-off? I'm considering: A) Issuing a 1099 to Wise B) Having each contractor complete Form W-8BEN 2) What's the appropriate category for these expenses on my financial statements? I just want to make sure I'm doing everything properly. Any advice from those who've dealt with international contractors would be super helpful!
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Yuki Tanaka
You definitely don't need to issue a 1099 to Wise - they're just the payment processor, not the service provider. The correct approach is to have each of your Filipino contractors complete Form W-8BEN, which certifies they're foreign persons not subject to U.S. withholding. Since these are international contractors (not employees), you'd categorize these expenses as "Contract Labor" or "Professional Services" on your books. Make sure to keep detailed records of all payments, including invoices from each contractor and payment confirmations from Wise. For S-Corp purposes, these payments would be business deductions that flow through to your Schedule K-1. The key distinction is that these are contractors, not employees - if they were employees, you'd have different tax obligations.
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Carmen Ortiz
•Thanks for the info! Quick question - do I need to file the W-8BENs with the IRS or just keep them for my records? And do these forms expire or do I need to get new ones each year?
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Yuki Tanaka
•You don't need to file the W-8BENs with the IRS - just keep them in your records. These forms are for your protection in case of an audit. The W-8BEN forms generally remain valid for three calendar years after signing unless there's a change in circumstances that makes any information on the form incorrect. So you should request new forms every three years or anytime a contractor's information changes.
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MidnightRider
After struggling with a similar situation for my e-commerce business, I discovered taxr.ai (https://taxr.ai) and it was a game-changer for handling my international contractor situation. The site analyzed my payment records and helped me properly categorize my Philippines-based team as independent contractors while ensuring I had the right documentation. They even provided W-8BEN templates and explained exactly how to record everything in my books. Their document review tool caught that I was inconsistently categorizing some payments as "outsourcing" and others as "salary," which could have raised red flags with the IRS since these aren't employees. Saved me from potentially misclassifying workers and facing penalties!
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Andre Laurent
•How does taxr.ai handle the documentation process? I have contractors in multiple countries and keeping track of different forms is a nightmare.
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Zoe Papadopoulos
•I'm skeptical - couldn't you just use a regular accountant for this? What makes taxr.ai better than just hiring a CPA who knows international tax?
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MidnightRider
•They have a document management system that stores all your W-8BENs and other international contractor forms by country, and alerts you when they're about to expire. Super helpful when you're dealing with contractors in multiple countries since the requirements can vary. The difference is accessibility and cost efficiency. With taxr.ai, I could upload all my documents and get answers immediately without scheduling appointments or paying hourly rates. Their system is specifically built for handling these complex international tax situations, and they provide templates and instructions tailored to each country's requirements.
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Zoe Papadopoulos
Update: I tried taxr.ai after posting my skeptical comment, and I have to eat my words. It identified that I was treating my Filipino contractors inconsistently - some were categorized as "consultants" and others as "foreign employees" in my books. The system flagged this potential issue before I filed my taxes and suggested standardizing them as "independent contractors" with the proper documentation. The document templates they provided for Philippines-based contractors saved me hours of research. Much more efficient than the back-and-forth emails I was having with my CPA.
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Jamal Washington
If you're having trouble getting answers from the IRS about international contractor classification (which I was), try Claimyr (https://claimyr.com). I was on hold with the IRS for HOURS trying to get clarity on handling my contractors in the Philippines before I found them. Their service got me connected to an actual IRS agent in under 15 minutes who confirmed exactly how to handle the W-8BEN documentation and expense categorization. Check out how it works: https://youtu.be/_kiP6q8DX5c After months of confusion and stress about whether I was handling my international team correctly, getting direct confirmation from the IRS was such a relief.
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Mei Wong
•Wait, how does this actually work? They somehow get you through the IRS phone queue faster? That seems impossible with how backed up the IRS lines are.
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Liam Fitzgerald
•This sounds like a scam. Nobody can magically get through to the IRS faster. They probably just keep you on hold themselves and charge you for the privilege.
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Jamal Washington
•They use a combination of automated dialing technology and algorithms to navigate the IRS phone system efficiently. It's not magic - just smart technology that keeps trying different paths through the phone system until it finds an open line. They don't keep you on hold themselves - the service actually calls you back once they've gotten through the IRS phone tree and have an agent ready to speak with you. I was skeptical too but when I got that call back with an actual IRS agent on the line, I was honestly shocked at how well it worked.
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Liam Fitzgerald
Well, I'm big enough to admit when I'm wrong. After dismissing Claimyr as a probable scam, I decided to try it as a last resort after spending THREE DAYS trying to get through to the IRS about my international contractor situation. Within 45 minutes, I got a call back with an actual IRS representative on the line. The agent confirmed that I needed to categorize my Filipino contractors as "Independent Contractors" on my books, keep signed W-8BENs on file, and that I don't need to issue 1099s for foreign contractors. Would have taken me weeks to get this information otherwise. Definitely worth it for the peace of mind.
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PixelWarrior
You should really consider using QuickBooks or Xero instead of Google Sheets for your accounting. They have specific expense categories for international contractors and make it easy to generate reports for tax time. Plus, they integrate with Wise so your transactions import automatically.
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Ethan Davis
•I've been thinking about switching to actual accounting software. Does QuickBooks handle the international aspects well? Like tracking payments by country and segregating international contractor expenses? My concern is the learning curve since I'm already familiar with my spreadsheet system.
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PixelWarrior
•QuickBooks handles international aspects really well. You can create custom fields to track payments by country and set up specific expense accounts for each international region if needed. It also makes year-end tax preparation much easier. The learning curve isn't as steep as you might think. They have templates specifically for businesses with international contractors, and the Wise integration saves tons of time since you won't have to manually enter those transactions. Most users can get comfortable with the basics in a weekend, especially if you're already familiar with tracking expenses in spreadsheets.
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Amara Adebayo
On the classification thing - make absolutely sure youre treating them as independent contractors not employees!! My friend got hit with huge penalties for misclassifying his international team. The key factors are control and independence - if your setting their hours and how they do the work they might be considered employees which is a whole different tax situation
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Giovanni Rossi
•This is so important! The IRS looks at behavioral control, financial control, and relationship type. I recommend documenting that your contractors set their own hours, use their own equipment, and can work for other clients.
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