Income From Foreign Sources must be reported on the 1040 individual tax returns!
Both United States citizens and resident aliens will be receiving money from foreign sources. The IRS tax code states that "these taxpayers must remember that they must report all such income on their tax return, unless it is exempt under federal law."
Per the IRS Tax Code, "all U.S. citizens and residents are taxed on their worldwide income and must report their foreign income on their US tax return irrespective of whether or not the person receives a Form W-2, Wage and Tax Statement, a Form 1099 (information return) or the foreign equivalent of those forms."
What is Foreign Source Income?
The IRS code section specifically identifies what is included in "Foreign source income" and these have been identified as:
1. Wages and tips .
4. Capital Gains.
Annual Exclusion of Foreign Income
There is some good news regarding foreign source income, which is that the Tax law currently allows individuals living outside the U.S. to exclude up to $85,700 of their 2007 foreign earned income if they meet certain requirements.