International Tax: Do I Need to Report My Assets/Activity in/From Foreign Countries?

Whether renting out your villa in Spain, opening a yoga studio in Bali, or investing in a startup in Singapore, international financial activity can open new doors—and gain the attention of the IRS if you’re not careful.

If you’re a U.S. business owner and taxpayer earning or investing abroad, let’s untangle what counts as foreign income, how to avoid paying taxes twice, and the key forms you’ll need to stay in the IRS’s good graces.

What Qualifies as Foreign Income?

Foreign income is money earned outside the country. It can include:

• Salary or wages from a job in another country
• Self-employment income from a gig abroad
• Rental income from properties outside your country of residence
• Investment income from foreign bonds, stocks, or interest-bearing accounts

It doesn’t matter if the income is deposited into a U.S. bank account or paid in another currency; the IRS wants to know about it. Keeping up-to-date, accurate records throughout the year can save you time and stress when it comes time to file.

How to Mitigate Double Taxation

Getting taxed once by the U.S. and once by the foreign country doesn’t sound fair—thankfully, the U.S. tax code agrees! If you’re subject to international taxation, you won’t want to overlook these two exclusions and credits:

1. Foreign Earned Income Exclusion (FEIE)

If you live and work abroad, you may be eligible to exclude a portion of your foreign earnings from U.S. taxes, which can help mitigate double taxation. To qualify, you must pass one of the following “tests.”

• Physical Presence Test: You were physically present in a foreign country for at least 330 full days during any 12-month period.
• Bona Fide Residence Test: You’ve established a home and permanent residency in a foreign country for an entire tax year.

If you pass either of these, you’ll need Form 2555 to claim this exclusion. Not sure if you’re eligible? Connect with our team to discuss your particular situation.

2. Foreign Tax Credit (FTC)

Have you paid income tax to a foreign government? Then you may be eligible to claim a dollar-for-dollar credit against your U.S. tax liability. This can be especially helpful for income that doesn’t qualify for FEIE, such as dividends.

You’ll need Form 1116 to claim this credit if you qualify. Make sure you have documentation that shows the amount of foreign tax you paid, as well as the source of the income.

Reporting Without a W-2

Even if you didn’t get a W-2, you still need to report foreign income. To help navigate international tax when you haven’t received the proper forms, keep close track of:

• Pay stubs
• Foreign tax returns
• Contracts

This will help establish your income, support your filing, and help you stay compliant with the IRS.

Have Foreign Income or Assets? Let’s Talk.

Here at Monocacy, we don’t simply offer international tax advice—we offer a full suite of financial services under one roof. No more bouncing between your accountant, financial planner, and tax advisor; let us be your single point of contact for fewer headaches and better communication. Book a discovery call to discuss international taxation and how we can make filing a breeze.