What Is Worldwide Income?
Let me explain worldwide income directly: in the United States, it means the total of all your income, whether you earned it here or abroad. This worldwide income determines what you owe in taxes. If you're a US citizen or resident alien, you're taxed on everything you make globally.
Understanding Worldwide Income
You have to tell the IRS about every bit of your worldwide income, taxable or not. This includes wages paid to you as a US citizen or resident alien, payments as an independent contractor, or unearned income from pensions, rents, royalties, and investments—all of which the IRS might tax. There are exceptions if you live abroad, so keep that in mind if it applies to you.
Measuring Worldwide Income
When we measure worldwide income comprehensively, it includes every revenue source for you as a taxpayer: foreign, domestic, passive, and active income from your operations and investments. You must report each one to the IRS for tax purposes. The IRS might let you exclude or credit some earnings if you've worked abroad, which helps avoid double taxation—meaning you don't pay taxes twice if you've already paid in another country.
Strategies for Multinational Corporations and Wealthy Individuals
Multinational corporations and wealthy people often hire international tax specialists—lawyers and accountants—to cut down or shield their worldwide tax liabilities. These strategies can delay payments, allowing for compound growth and bigger capital increases. In any tax system, advisors find ways to shift or recharacterize income to lower taxes. Many places have rules on shifting income between related parties, known as transfer pricing rules. Systems based on residency see attempts to defer income via related parties, and some jurisdictions limit this. Tax treaties between governments try to sort out who taxes what, usually providing ways to resolve disputes.
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