Does self-employment income count as foreign earned income if the business is outside of the United States?

[jeshii]

My wife (who qualifies as a resident alien) runs a business outside of the United States. Last year, I filed it as Self-employment income, but since the business is outside of the United States, I'm beginning to think I should have just filed it as foreign earned income. Do I need to go through the whole self-employment tax filing if the business is performed in another country?

[Critter-3]

If she is a sole prop then the Sch C is the correct place to enter the income.  If she also pays income  taxes  to the foreign company then you can use the foreign tax credit form 1116 so she is not "double taxed" however she cannot avoid the SE taxes. 

[Critter-3 · Accepted solution]

https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad

[rjs]

Where does your wife physically work? If she works in the United States, it is not foreign earned income, even if her business is located outside the U.S. Foreign earned income is income that you earn for work that you perform in another country. What makes it foreign earned income is where you do the work, not where the business is located.