Home Page link  

Schedule C Earned Income - Excluded as Foreign Earned Income?

  
Groups | Search | About
User Password
Register Now! Lost Password?

Taxes General Forum - Tax professionals meeting place and answers to queries. (Moderated)

 Post an article  get this group's latest topics as an RSS feed add this group's latest topics to your My MSN content add this group's latest topics to your My Yahoo content  add this group's latest topics to your Google content  YahooMyWeb Yahoo!  Google Google  Windows Live Favorites Windows Live  del.icio.us del.icio.us  digg digg  Add to Netscape Netscape
Subject Author Date
Schedule C Earned Income - Excluded as Foreign Earned Income? akennis 05-31-2007
Posted by akennis on May 31, 2007, 12:58 am
Please log in for more thread options
 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.

Sincerely,

Albert Kennis

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Harlan Lunsford on June 1, 2007, 10:42 am
Please log in for more thread options
 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.

ChEAr$,
Harlan Lunsford, EA n LA

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by L K Williams on June 1, 2007, 10:42 am
Please log in for more thread options

> 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.
>

Your basic understanding is not quite correct.

You are right that the income is excludable under the
circumstances described. You would use line 20 of Form 2555
to report the income -- line a for a single-member LLC, line
b for your share of a multi-member LLC.

On Form 2555 the amout shown on line 20 a is the "Gross",
not the net income from the business. Then, after you
calculate how much of this is excludable, you go to line 44.
There, you enter a percentage of the deductions claimed on
Schedule C. The actual exclusion is the net of these two
amounts -- plus any housing exclusion you may have.

This may or may not give you a different result but it is
the correct way to do the calculation.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

Similar ThreadsPosted
Re: Schedule C Earned Income - Excluded as Foreign Earned Income? June 3, 2007, 10:29 pm
Re: Schedule C Earned Income - Excluded as Foreign Earned Income? June 3, 2007, 10:29 pm
Re: Foreign Earned Income + 1099 + Schedule SE April 23, 2006, 3:13 am
Is this foreign-earned income? April 12, 2007, 6:32 pm
Foreign earned income exclusion April 11, 2007, 11:47 pm
Foreign Earned Income Exclusion & Foreign Tax Credit May 21, 2008, 9:29 am
Foreign Earned Income & 1099-misc February 25, 2007, 12:01 am
Foreign Earned Income Exclusion & Moving Expenses??? May 21, 2008, 9:28 am
foreign earned income exclusion for part year of living abroad January 11, 2008, 12:29 pm
Foreign Earned Income exclusion: bona fide resident rule allows > 30 day vacation in the USA? March 19, 2007, 2:23 am

Contact Us | Privacy Policy
This site is not affiliated with Intuit - makers of Quickbooks and Quicken software
This site is not affiliated with Sage Software - makers of Peachtree accounting software
XML SitemapXML Sitemap