Paid Foreign Contractor $1600 - How Do I Report This Deduction in TurboTax?
So I'm trying to figure out how to handle this in TurboTax and hitting a roadblock. I hired a web developer from India to build my portfolio website for my small marketing business. Paid them $1600 total over a couple months. When I get to the TurboTax section about business expenses, I see this screen:
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NebulaNova
You're right that foreign contractors generally don't receive 1099 forms. For payments to foreign contractors, you typically need to handle this differently than domestic contractors. In this situation, you should still select "Yes" to that question in TurboTax since you did pay a contractor over $600. However, when TurboTax asks for more information, you'll need to indicate that the contractor was foreign. TurboTax should then guide you through the process correctly. For foreign contractors, you generally need to document the expense, but instead of issuing a 1099, you might need to file Form 1042-S if you're required to withhold taxes. However, many service payments to foreign contractors are exempt from withholding if they performed the work entirely outside the US. The $1600 is absolutely deductible as a legitimate business expense, regardless of the 1099 requirements. Just make sure you have documentation of the payments and the business purpose.
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Yara Sayegh
•Thanks for explaining! So, should I just continue through the 1099 questions and then there'll be an option to specify they're foreign? I got scared when it started asking me about preparing 1099s and stopped.
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NebulaNova
•Yes, continue through the questions and you should see an option to specify that the contractor is foreign. TurboTax will adjust its guidance based on that information. The key is to not abandon the process when it starts asking about 1099s - just keep going until you can indicate the contractor's foreign status. If you don't see a specific option for foreign contractors, you can still deduct the expense under your business expenses section as "Contract Labor" or "Professional Services." The important thing is that you can document the expense as legitimate for your business if ever questioned.
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Keisha Williams
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Paolo Conti
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Keisha Williams
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Paolo Conti
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AstroAdventurer
For the TurboTax specific question - I had the same issue with a Filipino contractor. Here's exactly what I did: Select "Yes" to that contractor question, then on the next screens, when it asks for the contractor's info, there's an option near the bottom that says something like "This contractor is not a US person" or "Foreign contractor" - click that. Then TurboTax will let you deduct the expense without requiring 1099 info. It's easy to miss that option but it's definitely there!
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Yara Sayegh
•Thank you so much! This is exactly what I needed to know. I'll go back and look for that option. Do you remember if it asks for any specific information about the foreign contractor?
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AstroAdventurer
•It will ask for their name and I believe their country, but not much else. You won't need their tax ID number or anything like that. Just make sure you have good records of the payments in case of an audit - invoice, proof of payment, contract, etc. The key is documenting that the work was legitimate and for your business.
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Javier Mendoza
Don't TurboTax and other software make everything so complicated? I miss the days of paper filing lol. Anyway - one thing to remember is that payments to foreign contractors for services performed entirely outside the US are generally exempt from reporting on 1042-S if there's no US-source income. You still deduct it as a business expense, but without the paperwork headache.
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Emma Wilson
•Actually, it depends on the tax treaty status with the specific country. Some countries require withholding regardless of where the work is performed. India (where OP's contractor is located) has specific provisions in its tax treaty with the US.
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