Dealing with the IRS as a PHP Freelancer in the USA

Just so you know, I contacted the IRS the other day and asked if I have to pay extra taxes if I build websites for non-domestic clients in Europe, Canada, etc. Would I have to pay some exotic foreign work tax, or have a limit on how much I could take in per client per month?

The answer I got back was no, that the IRS treats foreign work that you perform under your USA-based LLC, sole proprietorship, corporation, or partnership as domestic work and is taxed just like that. The only exception is that other countries won't issue you a 1099-Misc form as a contractor -- although your non-domestic clients may request your Federal ID for their special government forms in some cases. And just so you know, even if you do the work on foreign soil, but get paid back to your business entity, then this is treated as domestic work and is taxed like domestic work.

The other thing you have to remember is the quarterly estimated income tax on the moment you start to earn your first check and can make a draw on the account. Now, if you never make a draw or a W2 or pay anyone at all, such as just filing checks into the bank for safekeeping and paying expenses only with that, then you never have to pay the company's federal or state income taxes until you actually make your first draw or personal payment to you or any employee or contractor in the business.

Now, a quarterly estimated income tax is a real racket. The IRS wants you to guess your next quarter's earnings. Guess too low and they could tax you more at the end of the year. Guess too high and they end up earning interest off that income, not you. So, the only realistic thing you can do is to take last quarter's earnings + the last quarter's earnings from the same quarter last year, and then divide by two to get the average estimated income tax going forward in the next quarter. This shows the recent trend as well as the seasonal trend for your business.

Plus, there are stiff penalties for missing your quarterly estimated income tax.

Now, realize that unfortunately this is how business works. I mean, do you want a whopper of a bill that you have to pay twice a year or, worse, once a year? I don't want that. So they have to break it up into quarters, but if they don't get their money, then you have placed the burden on other businesses that are like, in a sense, paying your tab while you miss paying yours.

But my beef with the IRS is that I am opposed to income and property taxes, and would prefer either a flat tax and a decent sales tax, or just give me purely a sales tax. However, this is the USA government here -- don't hold your breath.

I'm also opposed to the fact that the business estimated income tax is about 40% to 45% of your income + penalties if you have them. And if you look at big business -- remember that Enron in one year owed absolutely zero tax because they had worked all the loopholes and had the army of tax accountants and lawyers to cook the books like that. That's just not fair.

And when you look at what you get for that 40 and 45 percent, those dollars aren't spent very wisely in America.