My wife is a writer. All her income(book royalties) comes from a foreign country. Does it have to be reported in both Schedule C and Form 1116?

[chang1]

My wife is a writer. All her income(book royalties) comes from a foreign country. Does it have to be reported in both Schedule C and Form 1116? She has paid tax to that foreign country.

[PatriciaV · Accepted solution]

Yes, enter your Business Income from the Business tab in TurboTax Home & Business (or Self-Employed). Then enter the amount of business income you wish to exclude from the Personal tab (Less Common Income) to claim the Foreign Earned Income Exclusion.

The income you enter for the Foreign Earned Income Exclusion is used to calculate a tax credit. The amount should not increase your total taxable income.

Per the IRS Foreign Earned Income Exclusion: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income.  The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax.

[AnneB]

You can only take the foreign earned income exclusion if you live abroad.  If you are a US resident, then you have a couple of options.  The first is that you can take a business deduction for the foreign taxes paid.  Another option is that you can take an itemized deduction on schedule A for the foreign taxes paid. This is less desirable because it will not lower self employment tax the way a business deduction would.  The third option is to file form 1116 to get the tax credit.  This can be complicated and the deduction can be limited depending on the percentage of foreign income to total income on your tax return.  It also does not lower self employment tax the way a business deduction would.

[Critter]

It cannot be a deduction on the Sch C ... it is either a Sch A deduction or the 1116 Credit ... whichever is best for the situation. 

[Carl]

All her income(book royalties) comes from a foreign country.

Ummmmmmm... since when is royalty income reported on SCH C? Did I miss something? Last I checked, royalty income is reported on SCH E. Doesn't matter if it's foreign income either.

[ckb1]

TurboTax says that the Foreign Tax Credit is only for people "living and working overseas." For the OP's wife, a writer, and for me, a composer, that's not the case. We earned royalties from overseas but we didn't live and work there. So I don't believe this is the correct route to take.