Self employed - sole proprietorship in foreign country

[abtb00]

Question 1) If a US expat in foreign country is self employed as sole proprietorship (in other words, without any separate entity like corporation or limited company etc), can he / she still show this in schedule C as if he lived in the US? In other words, the schedule C is only for people in the US, or, US citizens living in foreign countries can also use it?

If the answer to question 1 is positive:

Question 2)

Does Turbo tax allow such use, or it forces / wants a US address to fill schedule C? Or we fill nothing and the primary foreign address is automatically written there or the address is left blank, since we show the primary foreign address on 1040 anyway - and the tax return can still be efiled? Or turbo tax doesn't allow US expats with foreign addresses to use schedule C but it is ok to print and mail the tax return ourselves?

[Vanessa A]

If you are earning income from self-employment in another country, you can report it on Schedule C if you do not qualify for the foreign income exclusion.

If you do qualify for the foreign income exclusion, then you would take the following steps to report your self-employment income. 

• Federal
• Income and Expenses
• Scroll down and click Show More next to Less Common Income
• Click Start next to Foreign Earned Income and Exclusions
• Enter your foreign Earned Income
• Continue through the questions until you get to "Would You Like to Try and Exclude Your Foreign Earned Income?" and click Yes then continue
• If you lived and worked in a foreign country click Yes to the next question.
• Continue through the questions.

As for your address.  You can select YES when asked if you use your home address.  This will auto fill your foreign address on the form. 

And yes, you can print and mail the return or you can e-file it. 

[abtb00]

So are you saying if I qualify for foreign income exclusion I will only use form 2555 but not schedule C? See IRS publication 54, page 25 of the pdf file, example 2. There it shows that you can use both schedule C and form 2555. Why would schedule C not be ok if we qualified for exclusion anyway?

But if it is as you say so, how am I showing all my expenses etc.. as in schedule C? Or you are saying, if I qualify for foreign income exclusion, whatever I do with my self employment income, expenses etc... in the foreign country, I calculate separately here, outside US tax forms, and just enter my net income result in the form 2555 so I will not be showing anything in detail as if I was in the US?

And what about self employment taxes? I will owe it anyway. I use schedule SE for that anyway? I thought schedule C and SE were somehow connected, or I am wrong?

[LeonardS]

If you are self-employed you report your self-employment on Form 1040 Schedule C regardless of where you perform your self-employment work.  Turbotax will calculate any self-employment tax you may owe based on your Schedule C entries.

Once you have completed Schedule C and know your net income you will report that income on Form 2555.  If you qualify for the Foreign Earned Income Exclusion (FEIE) your self-employment will not be taxed.  Your income may be excluded from income tax but you will still have to pay any self-employment tax to exclude the income if you qualify.

@abtb00

[nickjlow]

I filed through turbo tax and qualified for the foreign income exclusion as a sole trader but am still being asked to submit a schedule C by the IRS.  Is this correct?

[MariaS1]

The problem is that after entering all the expenses of the sole proprietorship when I click on less common income to try to exclude it says that I do not have any income to exclude.  How do I force Turbo Tax to enter the information on Form 2555

[DaveF1006]

You would not report this on a Schedule C. You would report this in the Foreign income and Exclusion section of the return so that it will be properly excluded from the 2555. To report, go to;

1. Click on Federal 
2. Click on Wages and Income  
3. Click on I'll choose what I work on (if shown)
4. Scroll down to Less Common Income
5. On Foreign Earned Income and Exclusion, click on the start or update button.

If you follow the prompts in this section, there will be areas in this that will address self-employment income you are excluding. Pay particular attention when it asks for the address of your employer. Here, you are the employer so you will list either/or your US or foreign address.

@MariaS1 

[MariaS1]

I really appreciate your response.  The reason I am confused because LeonardS and VanessaA had answered previously that it should be included in Schedule C which is fine except that Turbo Tax is not linking the schedule C to form 2555 in order to be able to exclude it.  What I have is a sole proprietor restaurant so I wanted to be able to include the sales and expenses on schedule c but could not get Turbo Tax to recognize it as foreign income

[ErnieS0]

Enter your self-employment income twice in TurboTax. Awesome Tax Expert @Vanessa A and Expert Alumni @LeonardS are correct about Schedule C.

U.S. citizens or residents living aboard report self-employment income the same way as taxpayers living in the States. The difference is that ex-pats can claim the foreign earned income exclusion, which is in a different section of TurboTax tax.

This discussion should clear things up: Where do I enter foreign self-employment income? Turbo Tax is telling me I need to enter it in the b...

@MariaS1

[MariaS1]

Thank you for your response.  That is what I thought but Turbo Tax does not prompt me to enter the stuff in Form 2555 by going to the section on turbo tax dealing with exclusions and it says that you have not entered any income to exclude.  So I gather that I would have to enter it manually in Form 2555