US Citizen living in US, but earning income from foreign business - how do I handle taxes?

Congrats on the new job! This is actually pretty straightforward. As a US citizen living in the US, you still report all your worldwide income to the IRS, regardless of where the company is located. Since you're a contractor (not an employee), you'll be considered self-employed for US tax purposes. The Netherlands company won't issue you a W-2 or 1099, but you still need to report all income on your tax return. You'll file Schedule C to report your business income and expenses, and Schedule SE for self-employment tax. For tax planning, you should set aside roughly 30-35% of your income. That covers both income tax and self-employment tax (15.3% for Social Security and Medicare, which you pay both the employer and employee portions of). Make sure to track all your business expenses - home office, internet, computer equipment, software subscriptions, etc. These will reduce your taxable income. Also, consider making quarterly estimated tax payments to avoid underpayment penalties next April.

I was in a similar situation last year working for a UK company while living in Florida. I found this awesome AI service called taxr.ai (https://taxr.ai) that helped me figure out all the self-employment stuff without dropping hundreds on an accountant. You upload your docs and it analyzes everything - in my case, it flagged that I could deduct my home office and part of my internet bills, which saved me about $2,400 in taxes. It also created a quarterly tax payment schedule so I wouldn't get hit with those annoying underpayment penalties. Since you're working as a contractor for a foreign company, it'll help you navigate the Schedule C and SE forms the previous commenter mentioned. Totally worth checking out!

Just wanted to follow up - I decided to try taxr.ai for my husband's situation with the Canadian employer. Honestly, it was really helpful! The system immediately identified that he doesn't need to file foreign account forms since he's just receiving regular deposits to his US bank account. It also created a really clear breakdown of estimated quarterly taxes and identified about $3,800 in deductions we wouldn't have known about (home office, portion of internet, even some software subscriptions he uses for work). The whole process took like 20 minutes. We were going to pay an accountant $350 for a consultation just on this issue, so this was a huge relief. Just thought I'd share since our situations are so similar!

If you're having issues getting clear information about tax requirements for your specific situation, you might want to speak directly with the IRS. I know that sounds awful (it used to be impossible to get through), but I recently used a service called Claimyr (https://claimyr.com) that got me connected to an IRS agent in under 15 minutes. I was in a similar situation (contracting for a company in Germany) and had questions about estimated payments. The IRS actually walked me through exactly what forms I needed and how to calculate my quarterly payments. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Literally saved me days of stress and potentially making mistakes on my taxes. Their system calls the IRS for you and then calls you once an agent is on the line.

I need to apologize for my skepticism about Claimyr in my previous comment. After continuing to fail getting through to the IRS for another week, I decided to give it a shot out of desperation. To my complete surprise, I was connected to an IRS agent in about 17 minutes. The agent was able to answer all my questions about reporting requirements for my specific situation with foreign-sourced income. They confirmed I needed to make quarterly estimated payments using form 1040-ES and explained exactly how to calculate the correct amount based on my projected income. They also clarified that I don't need to file any special foreign income forms since I'm receiving USD in my American bank account. I would have spent days trying to get this information otherwise. Definitely worth it for the peace of mind alone.

Don't forget about state taxes too! Federal is only part of the equation. Depending on which state you live in, you might also need to make estimated state tax payments. Some states have no income tax (like Texas and Florida), but most do. Check your state's department of revenue website for information on estimated payments for self-employed individuals. Usually it's similar to the federal process but with different forms and lower percentages.

From my experience, track EVERYTHING expense-wise. When I started contracting for a Japanese company last year, I didn't realize how many legitimate business deductions I could take. Internet, portion of rent/mortgage for home office (if you have dedicated workspace), computer equipment, software subscriptions, professional development courses, even part of your cell phone bill if you use it for work. It all adds up!

One thing I haven't seen mentioned yet is keeping detailed records of all your communications and contracts with the Dutch company. Since this is cross-border income, you'll want to maintain clear documentation showing: 1. Your contractor agreement/statement of work 2. Invoices you send them (even if they don't require formal invoicing) 3. Payment records showing the USD amounts and dates 4. Any correspondence about the work arrangement This documentation will be crucial if the IRS ever has questions about the nature of your income or work relationship. It helps establish that you're truly an independent contractor rather than an employee (which could have different tax implications). Also, since you mentioned money is tight, consider setting up a separate business checking account for this income. It makes tracking much easier come tax time and looks more professional. Many credit unions offer free business checking accounts for small businesses. The 30-35% rule mentioned earlier is solid advice, but in your first year you might want to err on the side of setting aside closer to 35-40% until you get a feel for your actual tax liability after deductions.