How do I correctly write off international wages for Filipino employees?

The good news is that you're on the right track with your thinking! Since your business is an S Corp, those international wages are absolutely deductible business expenses, just like any other legitimate business expense. You don't need to issue 1099s to your Filipino employees since they're not US persons. Form W-8BEN is the right direction - this form certifies that they're foreign persons not subject to US withholding. Keep these forms on file for your records. As for how to categorize the expense, you'd typically list it as "Contract Labor" or "Outsourced Services" on your books. When filing your S Corp tax return (Form 1120-S), these expenses would go on Line 8 - "Salaries and wages" or potentially Line 26 - "Other deductions" with a clear description. Make sure you keep detailed records of all payments, including dates, amounts, recipients, and business purposes. Having a paper trail is crucial if you're ever audited.

I had almost the same situation with my online marketing agency! I was so stressed about the tax implications until I found this AI tool called taxr.ai that analyzed my specific situation. I uploaded my payment records from Wise and got a customized report explaining exactly how to handle international contractor expenses for my S-Corp. The tool confirmed I needed W-8BENs from all contractors and suggested how to properly categorize everything. It even provided specific language to use in my expense categorization. You should check out https://taxr.ai - saved me hours of research and worry about potential audit flags.

I was in the same boat as you last year with my e-commerce business. After trying taxr.ai based on the recommendation above, I'm so glad I did! I was incorrectly categorizing my international contractors as "miscellaneous expenses" which could have raised audit flags. The tool helped me properly categorize everything as "Contract Labor" and gave me specific guidance on getting W-8BENs from my team in Thailand. It even explained how these forms protect me during an audit. The documentation they provided made tax season so much easier - my accountant was impressed with how organized everything was!

If you're struggling with international contractor classifications, you might also run into issues reaching the IRS for specific questions. I spent WEEKS trying to get through to someone who could answer my questions about Form W-8BEN requirements. Finally used this service called Claimyr that got me through to an actual IRS agent in under 45 minutes when I'd been trying for days on my own. They basically hold your place in the phone queue. Check out https://claimyr.com or see how it works at https://youtu.be/_kiP6q8DX5c - completely changed how I deal with tax questions now.

I was extremely skeptical about Claimyr (as you can see from my earlier comment). But after another failed attempt to reach the IRS about my international contractor situation, I gave in and tried it. I'm honestly shocked at how well it worked. Got a call back in about an hour, and the IRS agent I spoke with gave me specific guidance on my international payment situation. She confirmed I needed W-8BENs from all contractors and explained exactly how to document everything in my S-Corp filing. Saved me from potentially miscategorizing over $80K in international wages. Sometimes it's worth paying for convenience when dealing with government bureaucracy!

Don't forget about currency exchange issues too. I've been paying international contractors for years, and the fluctuating exchange rates can create accounting headaches. Make sure you're tracking the USD value on the date of each payment. Some years I've had significant "gains" or "losses" on paper just from exchange rate changes. Also, if you're paying over $10k to any single individual annually, there might be additional reporting requirements. This is where having a tax professional who specializes in international business can really help.

A common mistake I see businesses make is forgetting about state tax implications. Even if you're handling federal taxes correctly, some states have different rules for international contractors. What state is your S Corp registered in? That can make a big difference in your filing requirements.

Great question! I've been dealing with similar international contractor payments for my consulting business. One thing I'd add to the excellent advice already given is to make sure you're consistent with your categorization across all your financial records. Since you're using Wise for payments, I'd recommend exporting their transaction reports monthly and reconciling them with your spreadsheet records. This creates a clear audit trail showing the business purpose of each payment. Also, when you collect those W-8BEN forms from your Filipino team members, consider creating a simple tracking spreadsheet with expiration dates so you know when to request renewals (every 3 years as Miguel mentioned). I learned this the hard way when I realized half my forms had expired during tax season! The $67k in payments will definitely reduce your taxable income as legitimate business expenses, so you're smart to get this documented properly now rather than scrambling later.