For Self-Employment Tax, You Cannot Exclude Any Income You Earn While Abroad.
If you are a self-employed U.S. citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad. In other words, you must pay self-employment tax on all of your net profit, including the amount excluded under the Foreign Earned Income Exclusion (FEIE).
What’s the Foreign Earned Income Exclusion (FEIE)?
The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555), is a tax benefit that allows you to exclude income earned in a foreign country from your taxable income for U.S. purposes.
- For tax year 2020 (filing in 2021) the exclusion amount is $107,600.
- For the tax year 2021, this amount increases to $108,700.
Again, the exclusion applies only to foreign earned income.
Foreign Earned Income Exclusion Eligibility
As published on IRS.gov, in order to be eligible for the foreign-earned income exclusion, you must meet the following three requirements:
- Your tax home must be in a foreign country. Your tax home is defined as the general area of your main place of employment—where you are permanently or indefinitely engaged to work as an employee or self-employed individual—regardless of where you maintain your family home. It’s important to note that your place of residence can be different from your tax home.
- You must have foreign-earned income.
- You must be either:
- A U.S. citizen who is a bona fide resident of a foreign country for an entire tax year.
- A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country for an entire tax year.
- A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
Daniel Ahart Tax Service® prepares all tax returns, helps solve tax problems, and prepares back taxes. 22 Area Locations in Georgia.
What About a Tax Checkup for Year 2021?
This is also definitely a good time for filers to prepare for next year’s tax season by reviewing withholdings, retirement contributions, child tax credits, unemployment income and more.
With recent law changes, there are new things to monitor as the year progresses. A tax checkup or tax audit by a firm like Daniel Ahart Tax Service would show if you’re on track and may uncover ways to save over the next months,” says Daniel Ahart, chief tax officer at the tax preparation company Daniel Ahart Tax Service®
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