I received yet another Anonymous comment this week (I really wish you guys would at least leave a nickname or something).
Maybe a crazy question but I'll ask anyway as I know you have experience at least from Australia. If you are being paid money from a location such as this in the U.K., do you pay any type of taxes there in addition to where you might reside. I am in the U.S. and I know that I would have to check with tax people here but I was wondering if you have any idea.
Yes I have a fair idea how it works. Here's how I see it:
You're a writer in the US. If you write for a company in the UK, then it's very likely you'll be paid in UK pounds into your PayPal account. You can't spend pounds in the US, so the first thing you'll do is click the link inside your PayPal account that says "Manage Currency". You exchange your UK pounds for your own currency right there inside your PayPal account.
If you want to spend the money you earned, this means you'll need to withdraw your money from PayPal into your own bank account. Because you're transferring money in your own local currency, that means you're earning that many dollars in US dollars.
The amount that reaches your bank account in US dollars is the amount you report to the IRS as your taxable income.
In my personal situation, I do plenty of freelance writing for clients all over the world. I earn money from Europe, UK and the US every month. It all arrives in my paypal account in various currencies. I change the currency over to Australian dollars and then withdraw it to my local bank account in my local currency.
The amount that reaches my bank account in Australian dollars is the amount I report to the Australian Taxation Office (ATO) as my taxable income.
Earning foreign income really isn't as scary or as difficult as people seem to think it is. The US dollar is fast becoming worthless, so if you can spread your income around to include money coming in from other currencies, then you stand a chance of increasing your income dramatically.
Hope this helps.
It's quite easy once you take a moment to figure out how it's done.
8 comments:
Do you know if foreign currency is added to the Paypal MoneyMarket account (I think it is MoneyMarket) before you convert it? Or do you have to convert it first?
From my perspective US dollars are "foreign currency". My local currency is Australian dollars. I receive the majority of my income in US dollars. I also receive UK pounds, Aussie dollars, New Zealand dollars, Hong Kong dollars and Euros on a regular basis.
I only convert them when the exchange is right for me. This means I leave them in my account in the currency that I received for as long as possible.
Each of these different currencies is added to the MoneyMarket and invested accordingly regardless of which currency it's in when it's added to your PayPal account.
So, when you say "foreign currency" - keep in mind that US dollars ARE foreign currency too.
One of the advantages of paypal is that it effectively gives us a free foreign currency account. I am a NZ tax resident living in Australia - most of my payments are in Us$ and so are most of my expenses (software, hosting) - so thats cool because it removes the exchange risk. At the moment I am delighted to be earning US$ because both the NZ$ and A$ is in the toilet against it. But I can manage the exchange rate risk. Its not just when you withdraw cash to a bank account - when you earn the income (or when you are paid depending on your accounting basis) is when you start to earn a tax liabiltiy.
I work on a cash-accounting basis, so I declare the income only as it hits my bank account here in Australia.
Hi there,
Thanks for your blog - have just stumbled upon it as I'm looking to do some freelance work in Australia for a UK company.
One question - where can I find out what tax rate I'll have to pay as a freelancer? I'm trawling through the ATO website but if you had a link handy, I'd really appreciate it!
Cheers.
I think both the original poster and the commenters slightly missed the point of the question. However, if anyone has any insights into this problem, I would also be interested in finding out more about your knowledge and experiences. The question was, I believe, not focussed on the currency issue, but on the issue of whether or not you could, in certain situations, be required to pay taxes or, at least, report income anywhere but in your own country of residence. Say you lived and worked as a freelancer in the United States, but did a job for a client in Germany (whilst never physically leaving the States, that is): Would you only have to report and pay taxes on the income gained from this job in the US or could you also be required to do so in Germany, because the work was done for a Germany-based client and payment was made from a German account? And, more to the point, how would you reflect taxes on a bill for international clients like this, who live in countries where other taxes and tax amounts apply?
Actually, Anonymous (brave of you not to leave a nickname or anything, huh?) I didn't miss the point.
You may have missed the logical answer inside my post though. Read it again.
If you are in the US and you earn money from Germany, you DO NOT pay taxes in Germany. that money is paid to you in whatever currency and YOU convert it US dollars, which is the money you withdraw from your bank account and use to spend on stuff in the US.
THOSE US dollars are the amounts you report to the IRS - or wherever you are.
So Bianca, thanks for the info. I'm in this situation, living in a different country than the one I'm writing for. Do you have a reference for further info on this?
Thanks.
Post a Comment