Q: Could paying overseas freelancers via Ria Money Transfer cause legal/tax issues in California?
I plan to pay my overseas freelancers approximately $30,000 annually through Ria Money Transfer using my business debit card, without formal contracts or agreements in place. My business is registered in California, and the payments will be made monthly. The freelancers are working on building my real estate listings website. I intend to send the funds through only one of the freelancers to minimize fees. Could this approach cause any legal or tax issues?
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A:
Paying overseas freelancers via Ria Money Transfer itself isn't inherently problematic, but your described approach could lead to tax or legal concerns. Because your business is registered in California, you're required to accurately report all business expenditures and payments to contractors, regardless of their location. Sending $30,000 annually without formal agreements or contracts can attract scrutiny from tax authorities, especially if payments aren't clearly documented.
Using just one freelancer to distribute funds could complicate matters further. It may appear you're paying a single individual $30,000, potentially creating tax-reporting confusion or unintended tax liabilities for that recipient. The IRS could interpret this arrangement as payments to one contractor rather than multiple freelancers, requiring additional documentation or resulting in tax complications for both you and your freelancer.
To minimize potential issues, you should establish clear contracts or service agreements with each freelancer, documenting payments explicitly. Maintain detailed records of the work performed and amounts paid individually, even if using one primary transfer recipient. Consulting with an accountant or tax advisor about proper reporting and withholding requirements is strongly recommended to avoid unintended legal or tax consequences.
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