Receive prior year self-employed income in 2022

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okinawafl
Posts: 86
Joined: Sun Jul 11, 2021 12:38 pm

Receive prior year self-employed income in 2022

Post by okinawafl »

May I get some help. Have few questions:

I left Canada to U.S. in Sept 2021 for a job under TN visa. I didn't pass the SPT in 2021 but I will pass SPT this year for sure.

Before I left Canada, I have a self-employed income just from "May - Aug 2021" but two of my last invoices "dated in Aug 2021" (abt cad 3,500) has not been paid. They client said will pay me later on this year.

May I know, if luckily, if I can receive the payment this year, would this be considered as my U.S. income? and because I am under TN visa, would I violate any rules if I receive these payment?

Many thanks.
nelsona
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Re: Receive prior year self-employed income in 2022

Post by nelsona »

Since you aren't doing work it would not violate any immigration rules.

How did you normally report income on your business in the past? Did you normally include it when you accrued it (ie. when it was owed), or when you got paid?

Most do it based on the date of the invoice, which means you should have included it in your income on your 2021 Cdn tax return.
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nelsona
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Re: Receive prior year self-employed income in 2022

Post by nelsona »

If you use cash method, then it will be reported on your US 1040 in 2022 as self-employed income.
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okinawafl
Posts: 86
Joined: Sun Jul 11, 2021 12:38 pm

Re: Receive prior year self-employed income in 2022

Post by okinawafl »

Thanks nelsona. I just found this post.

Before I moved to U.S. in Sept 2021, I only have freelance job from May to August 2021 and all invoices have been issued. For sure, I will include all invoices (include those two overdue invoices) as my self-employed income in my 2021 Canada departure return (T2125 of T1).

I believe this is accrue method, may I know in this situation, is this means I don't need to report or put a note to my 2022 U.S. 1040 tax return in case I receive payments for those two overdue invoices in 2022?

And may I know if I need to keep any proof that I use accrual method instead of cash method? I only simple accounting record (not accounting program) as I only have several invoices and very little expenses for this few months temporary freelance job.

Your help is much appreciated.
nelsona
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Re: Receive prior year self-employed income in 2022

Post by nelsona »

The fact that you report these on your 2021 Cdn return will be sufficient proof that you are using the accrual method.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
okinawafl
Posts: 86
Joined: Sun Jul 11, 2021 12:38 pm

Re: Receive prior year self-employed income in 2022

Post by okinawafl »

I really appreciate your help nelsona.
I was so worry in the past few days. Thanks again....
okinawafl
Posts: 86
Joined: Sun Jul 11, 2021 12:38 pm

Re: Receive prior year self-employed income in 2022

Post by okinawafl »

hi nelsona

I told my u.s. accountant that I don’t need to report the payment I received in Dec 2021 from my self-employed income earned I Canada before I moved to U.S.
He said I am a cash basis taxpayer in the US because I had file 1040NR in prior year even I only have W2 for internship income in that year. She said I must file Form 3115 to request IRS approve to use accrual method. Otherwise, I must report the invoice payment I received in Dec 2021 as U.S. income. Is this true?

He referred me to see pub 538 but I can’t find anywhere said first 1040NR will default the taxpayer to use cash method even they don’t have business income. Am I wrong ?

Your guidance is highly appreciated.
nelsona
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Re: Receive prior year self-employed income in 2022

Post by nelsona »

You only asked about 2022 payments.

For 2021, did/will you report the December payments on your 2021 Cdn tax return? If so, then they do not need to be reported on your 1040NR, since they are sourced in Canada, not US. 1040NR only requires you to report US-sourced income.

If your accountant is saying that it is US-sourced, ask her on what basis?
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
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Re: Receive prior year self-employed income in 2022

Post by nelsona »

I know of no rule that forbids someone filing a 1040NR from using the accrual method.
And I donlt know what you filed in 2020 that would deem you to have already decided to use the cash method.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
okinawafl
Posts: 86
Joined: Sun Jul 11, 2021 12:38 pm

Re: Receive prior year self-employed income in 2022

Post by okinawafl »

I will include the Dec payment in my 2021 T1 departure return for sure because the freelance job was completed before I move to U.S.

The U.S. accountant mentioned that if I file 1040NR for 2021, then, the Dec 2021 payment would not need to include. But if I choose to file as dual-resident (1040 for Sept-Dec 2021), it will be included as she said I have filed US 1040NR return before (even it was only W2 income).

she said unless I file Form 3115 to elect to use accrual method, my future U.S. resident return (1040) return will be based on cash base. So any overdue invoice payment I received in 2022, although they were for job done in Canada before I move to U.S., will also need to report as self-employed income in 1040. She said it is the same for State tax return too.

I can't understand as well and I tried to look at IRS website and asked around but can't figure out. Your advice is much appreciated.
nelsona
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Re: Receive prior year self-employed income in 2022

Post by nelsona »

Btw, until you actually report business income in the US, you haven't "chosen" ANY accounting method, so there is nothing to "change". The first year you report US income, ie. 2022, will be year one of your business in terms of IRS.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
Posts: 17735
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Receive prior year self-employed income in 2022

Post by nelsona »

Btw, until you actually report business income in the US, you haven't "chosen" ANY accounting method, so there is nothing to "change". The first year you report US income, ie. 2022, will be year one of your business in terms of IRS.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
okinawafl
Posts: 86
Joined: Sun Jul 11, 2021 12:38 pm

Re: Receive prior year self-employed income in 2022

Post by okinawafl »

Thanks nelsona.
I really appreciated your help.
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