I am a US citizen living. working as a self employed artist and paying taxes in Germany.
In 2023 I received both a Pollock-Krasner Foundation grant (enables artists to create new work, purchase needed materials and pay for studio rent, as well as their personal expenses) https://pkf.org/our-grants/ and a Gottlieb Foundation Individual Support grant (The Individual Support Grant may be used in any way an artist determines it will assist their career; however, the program is not intended as exhibition or project funding. Please do not submit budgets for specific projects) https://www.gottliebfoundation.org/individual-support-grant-1
Are these grants considered part of the foreign earned income exclusion or do I pay taxes on them in Germany?
Thanks
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It depends on if the grants are taxable or not for US tax purposes. In reading this IRS publication, there is a stipulation in Part 2 (c) that states " if the grant's purpose is to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill or talent of the grantee" then it isn't taxable income. If your grant falls within this parameter, it is not taxable income. This may be taxable income in Germany however and you may need to check with the German tax code.
If the grant does not fall within the parameter listed above, the income could be excluded under the foreign income exclusion since it is taxable income. Be sure you can qualify either through the bonafide presence test or the substantial presence test. Even though the income is excluded for US tax purposes, it may be taxable in Germany and you will need to pay German taxes.
One last note, it you exclude your income through the foreign income exclusion, you will need to pay self-employment taxes on your self-employed income. Here are the steps to report this.
First you need to prepare a Schedule C declaring your income and expenses for the year, This is done to determine your self-employment tax for the year. After the self-employment tax is determined and reported, you will prepare an entry to exclude the net income from your return.
Next you will report your gross income and determine your exclusion from your return. Here are the order of steps that need to be completed. To prepare Schedule C.
After you have completed this, you will need to exclude the net income from your return, leaving just the self-employment tax, which you are required to pay. These are also referred to FICA taxes, which are your Social Security and Medicare taxes.
Now to report your foreign income. Remember in this case, you will report the full amount that is recorded on the 1099 NEC.
It depends on if the grants are taxable or not for US tax purposes. In reading this IRS publication, there is a stipulation in Part 2 (c) that states " if the grant's purpose is to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill or talent of the grantee" then it isn't taxable income. If your grant falls within this parameter, it is not taxable income. This may be taxable income in Germany however and you may need to check with the German tax code.
If the grant does not fall within the parameter listed above, the income could be excluded under the foreign income exclusion since it is taxable income. Be sure you can qualify either through the bonafide presence test or the substantial presence test. Even though the income is excluded for US tax purposes, it may be taxable in Germany and you will need to pay German taxes.
One last note, it you exclude your income through the foreign income exclusion, you will need to pay self-employment taxes on your self-employed income. Here are the steps to report this.
First you need to prepare a Schedule C declaring your income and expenses for the year, This is done to determine your self-employment tax for the year. After the self-employment tax is determined and reported, you will prepare an entry to exclude the net income from your return.
Next you will report your gross income and determine your exclusion from your return. Here are the order of steps that need to be completed. To prepare Schedule C.
After you have completed this, you will need to exclude the net income from your return, leaving just the self-employment tax, which you are required to pay. These are also referred to FICA taxes, which are your Social Security and Medicare taxes.
Now to report your foreign income. Remember in this case, you will report the full amount that is recorded on the 1099 NEC.
It depends on if the grants are taxable or not for US tax purposes. In reading this IRS publication, there is a stipulation in Part 2 (c) that states " if the grant's purpose is to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill or talent of the grantee" then it isn't taxable income. If your grant falls within this parameter, it is not taxable income. This may be taxable income in Germany however and you may need to check with the German tax code.
If the grant does not fall within the parameter listed above, the income could be excluded under the foreign income exclusion since it is taxable income. Be sure you can qualify either through the bonafide presence test or the substantial presence test. Even though the income is excluded for US tax purposes, it may be taxable in Germany and you will need to pay German taxes.
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