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Posted by akennis on June 3, 2007, 10:29 pm
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> akennis wrote:
>> I'm trying to confirm my understanding that income earned
>> while living abroad as a sole proprietor (of a US LLC) can
>> be excluded via form 2555 as foreign earned income.
>>
>> Here are the important details of my arrangement:
>>
>> 1. US LLC creating and selling software products and
>> services.
>> 2. Sole owner of said LLC - living and working abroad as a
>> bona fide resident of Japan.
>>
>> Let's say that the business has a net profit for the year as
>> computed on Schedule C. This income then gets added into my
>> personal income calculation on Form 1040 - line 12. We then
>> include this same amount on Form 2555 - line 20a as our
>> foreign earned income, "Allowable share of income for
>> personal services performed... in a business or profession."
>> Further down in section IV of Form 2555 we then compute our
>> foreign earned income exclusion, and enter this back into
>> Form 1040 - line 21 as a negative value concluding the
>> exclusion.
>>
>> The verbiage given in the instructions for Form 2555 is
>> minimal with regards to its line 20. My understanding of
>> the whole exclusion is that so long as the work is actually
>> done abroad, regardless of the company it is done for and
>> other remuneration details, the resulting earned income can
>> be excluded. In this understanding, earned income from the
>> business you're running while abroad is no different.
>> Right?
>>
>> As a note, because I know the questions will come up:
>>
>> 1. I am a US citizen.
>> 2. I do pay local and federal taxes here in Japan.
>> 3. I have chosen to establish my business as a US domestic
>> LLC because I intend on moving back to the US in the future.
>>
>> Any advice would be greatly appreciated.
> One point you didn't cover is your US state of residence,
> presumably the one in which you formed the LLC. They will
> certainly want state income tax, if that state has one.
Hello, and thanks for your reply:
The LLC is incorporated in Delaware. I did this because for
2 reasons: 1. When I move back to the US, I'll probably live
somewhere in that general area. 2. Their gross receipts tax
is much simpler than the way many states do sales tax.
I have worked through their non-resident income tax return,
and it looks like despite the fact that I am a non-resident,
all the proceeds from income sources of their state get
taxed as normal. This is quite fine for me, and actually
relieving; I really want to besure that I'm fulfilling my
tax responsibilities, not minimizing them.
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