QBI for expats (part year)

[sockfight]

My wife is a composer who makes money through global platforms like Spotify and the occasional in-person concert. We are Americans who lived overseas as expats at the start of the year, then moved to Texas in March. Her business is Schedule C. TurboTax asks if the income is qualified business income, and notes 'Income generated outside the United States' is excluded.

I assume all income from March onward counts because we were then living in the USA. But how do I handle income from January and February? Some of that income was made at a local concert, but most of it was worldwide streaming revenue. Similarly, some of our expenses were local, but many expenses were not (e.g. web hosting expenses).

Should I...

...adjust the QBI income to subtract all income and expenses that pertain to those months?

...adjust the QBI income to subtract only revenue earned overseas?

...just report all income as QBI?

[ErnieS0]

Yes, income earned from March qualifies for the Qualified Business Income Deduction. Income from January and February will not.

IRC Sec 862 defines gross income from sources outside the U.S. as compensation for labor or personal services performed without the United States so your concert income would not qualify for QBI.

The IRS sources royalty income to the jurisdiction of the underlying intangibles being used by the licensee so if your place of business in January and February was located outside the U.S., then your revenue and expenses would be considered foreign income.

[sockfight]

Thank you for that thorough reply! A follow-up question, when QBI refers to 'income' or 'net income', that's revenue minus expenses, right? So for any time period where revenue would be excluded, expenses during that time period would also be excluded, correct?

[PattiF]

Yes, the expenses incurred when the income is not included in the calculations for QBI would be excluded. You are correct that 'income' would be revenue minus expenses.