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What factors are involved in outsourcing overseas when it comes to tax and accounting?

By: Rick Gossett



I have a home based LLC and no employees. I am considering hiring a few Virtual Assistants that are in the Philippines. They will be freelancers/contractors. How does this affect my business: is it just seen as a business expense? Is there anything else I need to consider before I start outsourcing overseas when it comes to tax and accounting?

Amounts paid to IT developers or other business service providers in foreign countries are qualified business expenses. Also, if a foreign worker, or firm, does not physically conduct any business activities in the U.S., then you generally would not have U.S. income tax withholding or payroll cost implications. In addition, you are correct that, in your basic example, you would have a gross profit margin of $4,500 that would be included in the taxable income calculations for your business.

As you begin to engage overseas service providers, you will want to review the details of your business contracts and arrangements with them with your local business tax advisor in order ensure that you properly handle the accounting and tax reporting for each transaction. To help consider using offshore service providers, you can review industry discussions like the following on the pros and cons and other issues and considerations with this approach:

Published: March 19, 2014

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Rick Gossett

As COO of Tarkenton Companies for more than 20 years, Rick has been responsible for business software development, unique partnerships, business educational content and consulting, and more. Rick was the originator of Tarkenton Companies’s consulting service and initially handled all of the questions himself. Prior to joining Tarkenton Companies, Rick owned and operated a private practice as a CPA. Prior to that, he was a Senior Manager at Pannell Kerr Forster in tax and audit, as well as Principal in Ernst & Young's small business advisory group.

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