Us Foreign Earned Income Tax Exemption

[dave111223]

I have a fairly specific question about the Foreign Earn Income Exclusion:

Does the exclusion apply to the "Other Taxes" section of the 1040?

This section comes near the end of the form and includes the "Self Employment" tax field, which applies for me.

There doesn't seem to be any field to input your Foreign Earned Income Exclusion, so i'm not sure at which point this should be calculated into the equation?

Hoping there are a few other members how are in a similar position of being self-employed here.

If you don't know don't post please.

[taxout]

The foreign earned income exclusion does not reduce your earnings from self-employment for self-employment tax purposes.

Edited January 22, 2007 by taxout

[lanny]

The Foreign Earned Income Exclusion is calculated on Form 2555 (for Form 2555EZ) and is entered as a negative number on the miscellaneous income line. It applies to income tax but not to other taxes. If you are subject to the self-employment social security tax, you still have to pay that just as though you were still in the US.

If you don't know where to enter the exclusion on your return, how can you be sure you are calculating it properly? If 2006 is the first year you are claiming the exclusion, how do you know you qualify and how much of the exclusion you may take? Remember, the $82,400 is the maximum exclusion -- if you are outside the US for the full year. If you became an expat after January 1, you cannot qualify as a bona fide resident so must use the physical presence rules. Under these rules, you cannot file a return claiming the exclusion until you have actually qualified -- meaning you have been outside the US for at least 335 days.

[billd766]

Can anybody tell me if, as a Thai based UK contractor I would have to pay income tax in the US if I were contracted to work for a US company but was paid offshore by a non US agency?

[dave111223]

So is there any other ways to reduce the Self-Employment Tax? (Aside from reducing your net income)

[PeaceBlondie]

So is there any other ways to reduce the Self-Employment Tax? (Aside from reducing your net income)

Not that I can think of. Basically, you usually just take the net profit line from Schedule C or F (or partnership earned income from Sched. E), plug it into the Form SE, makes some adjustments, and that's it. You get a slight reduction in the forumula, and whatever SE tax you do pay ends up as a 50% exclusion against Adjusted Gross Income, so it's not really 15.90% net. If you're in a high income tax bracket, it's more like 12% net. Of course, there's a ceiling for OASDI portion of the tax, around $85,000, but not for the Medicare portion. Unless the laws changed in the last 8 years.

[dave111223]

My (Thai) wife works with me, but is not American (doesnt have green card etc..) so doesnt have to file any return.

Is it ok to put down the money that i pay to her as an expense on the Schedule C?

[lanny]

My (Thai) wife works with me, but is not American (doesnt have green card etc..) so doesnt have to file any return.

Is it ok to put down the money that i pay to her as an expense on the Schedule C?

A reasonable salary for the work done would be OK. What is reasonable for a Thai would have to be measured by Thai standards, i.e. you would have to pay a Thai salary, not an expat salary.

And, of course, you would then need to file as Married Filing Separate. You could not file a joint return not claim her as an exemption. Otherwise, you would have to claim her income as well as yours.

[poorfarang]

Is it time to fill this stuff out already?

Some tax questions:

How does one file from Thailand?

I sold an asset a few months ago (large website) for $21,000 and had the cash transfered to my bank in USA. Since I have been in Thailand for a while I am allowed this 80k tax break as well. Does this tax break include the sale of this website?

[lanny]

Is it time to fill this stuff out already?

Some tax questions:

How does one file from Thailand?

I sold an asset a few months ago (large website) for $21,000 and had the cash transfered to my bank in USA. Since I have been in Thailand for a while I am allowed this 80k tax break as well. Does this tax break include the sale of this website?

You have to mail your tax return to IRS -- the exact address depends on whether or not you owe anything.

The foreign earned income exclusion applies only to income earned outside the US. It does not apply to gains on sales of any assets, whether in the US or not. It is not your location that is the real determining factor, it is where and how you earned the money.