Thank you again!
1. A US person having a foreign tax home ( Dubai) and working for a local entity. Yes. she is a U.S. Citizen working for a school in Dubai.
2. Having met the Physical Presence Test ( 330 days away from US in a continuous 12 month test period), she is eligible to exclude the foreign income that falls both within the test period and the tax year under consideration. --- hope this makes sense. Yes it does - she now qualifies under the bona fide residence test.
3. Because ( per your explanation), the taxpayer is getting part of her remuneration as wages and the rest as a deposit into an investment account ( shares of the entity ? ), her total remuneration is to be included as Foreign Earned Income ( So it is wages plus this extra bit as wages + housing + COLA etc. etc. ) --- does this make sense ? Yes it does - It makes sense the retirement benefit payment by the employer is current income -as it is not going into any tax deferred 401K or IRA program.
4. Absent a totalization agreement between US SSA and the local govt. , the taxpayer is subject to SECA ( same as FICA but at the full 15.3 % because there is no employer participation). Use Schedule-SE. Just make sure that the Schedule-SE has the correct total remuneration entered ( it may not flow from form 2555 that you use for Foreign Earned income Exclusion ). For many the easiest way is to use a Schedule- C -- self-employed --- as the entry point of income and then ( go to Foreign Earned Income Exclusion , ) make sure form 2555 has the same income as Schedule-C. This will result in auto population of Schedule-SE. Just be careful that there is no doubling of the income. Thank you for your input on this. There is no totalization agreement between the U.S. and the U.A.E. Because it is a foreign school with no location / base in the U.S - the school does not pay into Social Security nor do they collect Social Security payments from the employees. I don't think she considered paying into Social Security as self employed (As the school employs her) and also her foreign income exclusion. I will advise her to look into that.
5. Since this way the "Extra bit of income" is being recognized / taxed, the basis of the stocks is established. Thus when she disposes of these , it will be a simple capital gain and tax thereon.
Does this make sense ? Yes, Thank you very much!
Is there more I can do for you ? Not that I am aware of. Thank you again!
