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Foreign Earned Income Exclusion

I have been living outside US since Nov 2019. Had been on W2 then switched to self employment.  Am taking the Foreign Earned income exclusion only this year though ! 

My Tax home is a foreign country. But I travel to the US  every year anywhere between 30-60 days, to meet with the clients and work on their specific issues.  Such trips don't generate a separate business income. Technically I would still receive the pay even if I did not visit the US.

 

1. Does my pay during such US trips  count towards "Income Earned in U.S. on Business" - a question on "Trips abroad" page of FEI. 

a) If yes, should I  prorate my pay for the travel period ? If no, then its a zero and I report my entire earnings as FEI

 

b) If yes, does this income qualify for QBI then ?

 

2. What will my "Foreign Gross profit" be ? Is it the entire overseas income (1099 - NEC earnings) or should I exclude the business expenses ? 

 

 

My travel in 2022 has been 41 days and Turbotax still allows me to take the FEIE, but not in its entirety. Yet to figure that out too ! Any guidance on that is appreciated too. 

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1 Best answer

Accepted Solutions
DaveF1006
Expert Alumni

Foreign Earned Income Exclusion

The foreign Gross profit is your gross income before expenses. You are correct in stating that you are not eligible for QBI for work performed outside the US.

 

@Rubybird 

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3 Replies
Vanessa A
Employee Tax Expert

Foreign Earned Income Exclusion

Assuming you are a US Citizen with my answers. 

1. Does my pay during such US trips  count towards "Income Earned in U.S. on Business" - a question on "Trips abroad" page of FEI.  Yes, if you are physically present in the US doing work, it counts as income earned in the US. 

a) If yes, should I  prorate my pay for the travel period ? If no, then its a zero and I report my entire earnings as FEI. Yes, you would prorate your pay for the travel period based on the days you worked in the US. 

 

b) If yes, does this income qualify for QBI then ?  "Income that is not effectively connected with the conduct of business within the United States" is not qualified for the QBI.  If the income IS connected with the business here in the US, and if it meets the rest of the criteria for the QBI deduction, then yes, it would qualify. 

 

2. What will my "Foreign Gross profit" be ? Is it the entire overseas income (1099 - NEC earnings) or should I exclude the business expenses ? Are you taking the foreign earned income credit or the foreign earned income exclusion?  Your business expenses are deducted from your income in one form or another, however, your answers to questions such as did you pay foreign taxes, the amount you made, whether you are a foreign resident (you may have been in the US too many days to pass the Physical Presence Test depending on other factors)  so the best thing to do is to walk through the Foreign Income section to see what you qualify for and what works best for you. 

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Foreign Earned Income Exclusion

2. I'm a  US citizen living outside US since Nov 2019.  Am taking the "Foreign Earned income exclusion" only from  this year though ! 

Im a bonafide resident with a foreign tax home. I don't plan to take any foreign tax or the income credit. Just the foreign earned income exclusion.

My pay comes from only one source - 1099 -NEC and my entire income was for my work in the foreign country. ( My employer is CA based & my income is credited to my US account)

I have claimed business expenses on Schedule C, so while I enter my foreign earned income.....what do I enter in the  "Foreign Gross Profit " section ?  My entire 1099 income or deduct the business expense ?

My income is well within the excludable threshold !

 

1. With the entire income coming for work outside US, I don't think I qualify for QBI !

DaveF1006
Expert Alumni

Foreign Earned Income Exclusion

The foreign Gross profit is your gross income before expenses. You are correct in stating that you are not eligible for QBI for work performed outside the US.

 

@Rubybird 

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**Mark the post that answers your question by clicking on "Mark as Best Answer"
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