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tgraupmann

Death, Taxes, and the independent contractor

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I have a tax question that applies for game programmers.

If a Washington, USA resident works as an independent contractor for a company not based in the USA, why is the federal government entitled to tax the individual?

I'm sure independent contractors are plentiful.

Let's say you are a USA resident, and you work for a USA company then you get taxed. That's how it works.

But what if you are a USA resident, you move to a foreign country, you work for a foreign country. Should you be taxed by the foreign country or the USA?

And my original question, you are a USA resident, you live in the USA, you work for a foreign country. Should you pay federal taxes?

And by work, I mean providing a service. And that service is writing software.

Ideas, Thoughts!?

Thanks,

~Tim

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This doesn't seem like a technical question, but here are my thoughts:

I feel like it makes more sense to pay taxes where you live than it does for where your work ends up. If you live in the US, but send your code to South Korea, it's the US's government that's providing you with services. You're protected by the US military, US police, US utilities, US laws, and so on. Whether or not you think that that's enough reason for you to contribute to that country's federal government, it's certianly more of a claim than anywhere else has on you. And if you leave the US, you are no longer a US resident (although you would still be a citizen, assuming that you were one before). There's no citizenship fee or anything, just the taxes you contribute in exchange for the services you get.

If you're transferring funds from one country to another there are other rules that come into play, but the above seems reasonable to me.

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Its an *income* tax -- they tax *your* income -- from whence your income came is of no concern to them, nor should it be. As Khaiy pointed out, you're still in residence here, and still enjoy the services your tax dollars support, such as they are.

They're not taxing the fruits that your labor creates, only what you've been compensated for that labor. Otherwise they'd be taxing your employer (who's local government most certainly is).

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As mentioned above this is based on your location. The appropriate business taxes are based on that business location.

If you were to work in two nations, such as moving back and forth between Canada and USA, your taxes will be split between the nations.

When in doubt you should contact a local tax advisor or your state's tax commission. The government will generally answer questions like this for free after you explain all the details to them.

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Generally individual US residents are taxed based on their income, no matter where that income comes from. It's possible that your fees may also be taxed by a foreign country prior to transfer to you and in that situation you can seek credits to offset taxes due to the IRS. However if you are a US resident working outside the US, then you still have to report income to the IRS, although in that situation it is better to have a tax professional determine whether you have to pay taxes on that income. If you are a self-employed contractor, I would get a CPA to help you finalize your tax returns ASAP b/c your clients will most likely have filed 1099's with the IRS in January if they paid you over $600 last year.

To answer your over-arching policy question, b/c states and federal gov't need revenues to provide you and your neighbors with services in your locality.

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