Foreign Earned Income & Exclusion Issue - Self-Employed

[Anonymous]

Hi all! First time using TurboTax (self-employed) and had a bit of an issue today. I live abroad and work for a foreign employer, but am considered as self-employed/an individual contractor.

I entered my gross income from this work in the self-employment section (I have to do this, I am NOT considered an employee). When I went on to the foreign earned income and exclusion section, I entered the same income again, because it is the income I earned in a foreign country. As you could guess, it ended up adding this income to the self-employment income previously entered, doubling my income, which is completely incorrect.

I know that I owe taxes because I am self-employed even though I live abroad, but my tax preparer last year did fill out Form 2555 and put in my self-employment income as foreign earned income and did "exclude" it. 

I mailed my tax return last year and it is my first time trying to e-file. I assume I have just misunderstood the system and entered things incorrectly. Your input and advice on how to properly report my income would be great. Thanks!

[KathrynG3]

Please see this IRS resource for international taxpayers who are self-employed in businesses abroad. It includes additional resources for the rules to follow. You will need to pay self-employment tax even if the income is fully excluded.

2019 Form 2555 Instructions Foreign Earned Income resource

Additional resources you may need

Sprintax for filing Form 1040NR 

[Anonymous]

Hi, thanks for this! However, I am asking for advice on specifically how to enter my income correctly using TurboTax. I already know that I have to pay self-employment tax, as shown in my initial submission...Are you implying that I cannot use TurboTax to file due to my situation? Thanks again. 

[KarenJ2 · Accepted solution]

You were correct to enter your self-employment income first in the Self-Employment section for Schedule C.

You will need to delete your previous foreign earned income exclusion income that was double counted.

Then when you go to the Foreign Earned Income Exclusion section, you check the box  on the first screen that you had a Form 1099-MISC or other self-employment income.

On the next screen you enter your Gross Profit from Foreign Self-Employment.  The screen states that your worldwide business income should already be reported in the Business section of TurboTax.  

Then continue to answer the questions to qualify for the foreign earned income exclusion.

[Anonymous]

Thanks Karen, super helpful 🙂 Makes sense now.

[milano]

Hello,

I am a bit lost. Living in the UK and being self employed, I have to pay taxes in the UK and in the US ? Do the US and the UK have an agreement to avoid double taxation ?

Thanks

[taxbreak1004]

Hi, 

I have a question on Foreign Earned Income Exclusion for self-employed.

When I enter the Gross Fit from Schedule C to Foreign Earned Income Exclusion, they also ask for "Deductions Related to Foreign Earned Income".

When I entered business expeses from Schedule C to here, my foreign income for exlucsion is reduced by this amount. I was expecting full exclusion of foreing earned self employment income.

When I did NOT enter the business expeses from Schedule C to "Deductions Related to Foriegn Earned Income", then I do get full exclusion which is puzzling to me.

Why is it that I get full foriegn income exlucsion when I did not enter the deductions and I don't get full exclusion when I enter the business expense? Is "Deductions Related to Foreign Earned Income" just for moving expenses, etc? 

Thanks