Living abroad. How do I get credit for foreign tax on self-employment income?

Forum|Forum|4 years ago
May 1, 2022
1 reply
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We use "credit" for foreign taxes paid (Canada), form 1116. This works for my foreign employed income,
but not my wife's self-employment income from schedule C. Credit on Schedule 3, line 8 is limited to employed income. Schedule 3, part II is empty (including line 15). I don't know what I need to change in Turbotax to get the credit. Thank you.

TurboTax Self Employed Online

pk_

Level 15

@taxing times , yes indeed ( name that is ).

1. Both a salary ( employment ) and self-employment ( sole proprietor / schedule--C ) income are eligible for foreign earned income exclusion.

2. For self-employment income fill out schedule-C; note down the net income that shows up as business income

3. For salary , you do not fill out the W-2 area but under -- "personal income "--> "I will choose what I work on ..." ---> from the list of income categories, way at the bottom under " Other uncommon incomes", select "Foreign Earned Income and Exclusion" --- here for total foreign income recognize the total of your foreign salary and Self-employment net income ( above). From here on follow the instructions for filling out form 2555 and follow through.

4. Then under deductions and credits , tell TurboTax you have foreign taxes paid to report and follow through --- note that ONLY foreign taxes on foreign income not excluded is reported as foreign income on form 1116 as also the taxes paid on that foreign income..

Does this make sense ? If you need more specific help, please consider sharing more of the actual situation here ( No personally identifiable info please ) or use PM with more details. I will circle bcak once I hear from you .

taxing timesAuthor

Level 2

Thank you for your reply.

> under " Other uncommon incomes", select "Foreign Earned Income and Exclusion"

I did this and entered self-employment income and employed income. I am excluding "neither of us" because I want to use the "credit" method (I do not use form 2555 at all). After I am done, the income overview shows under foreign earned income my employed income, and under self-employment, my wife's profit.

I then enter foreign taxes paid under deductions, once under the general category, and once for the passive income category. From the calculations I can tell that I got foreign tax credit for the employed income, but not for the self-employment income.

Any thoughts?

pk_

Level 15

@taxing times , thank you for your reply ---- the problem as I see it is (a) there is no need for two different 1116s ; Self-employment earning and employment earnings are both active income and come under the general category. Put all on the same 1116 .; (b) make sure that you have included the income taxes ( wages and self-employment/business income ) totaled on 1116; (c) also the schedule C for your wife should produce a self-employment tax Schedule-SE ( at 15.3% of most of the net income ) --- you need to make sure that this is applicable in your country of residence --- many have Totalization agreement with the USA and only country of residence or your home country charges FICA/SECA or equivalent.

Does this now make sense ? Do you need more help ?