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kharaku
05-03-2013, 11:43
Has anyone heard of this?

I'm not sure if it applies to me.

I haven't been to the US in nearly 3 years.

AstarD
05-03-2013, 12:04
This is the tax exemption you can claim if you:
Are are a U.S. citizen or a resident alien.
Earned wages/salaries in a foreign country.
Had total foreign earned income of $95,100 or less.
Are filing a calendar year return that covers a 12-month period.

You must have been bona fide resident of a foreign country or countries for a period that includes an entire tax year
or You must have been physically present in a foreign country or countries for at least 330 full days during 2012
or Your tax home must have been in a foreign country or countries (not USA) throughout your period of bona fide residence or physical presence, whichever applies.

You need form 2555 (http://www.irs.gov/pub/irs-pdf/i2555.pdf)

kharaku
05-03-2013, 19:04
This is the tax exemption you can claim if you:
Are are a U.S. citizen or a resident alien.
Earned wages/salaries in a foreign country.
Had total foreign earned income of $95,100 or less.
Are filing a calendar year return that covers a 12-month period.

You must have been bona fide resident of a foreign country or countries for a period that includes an entire tax year
or You must have been physically present in a foreign country or countries for at least 330 full days during 2012
or Your tax home must have been in a foreign country or countries (not USA) throughout your period of bona fide residence or physical presence, whichever applies.

You need form 2555 (http://www.irs.gov/pub/irs-pdf/i2555.pdf)

Now this is where it get's tricky.

I am a US citizen

I haven't been to America in 3 years, nor do I per se plan to ever return, though I wouldn't rule it out, which is mostly why I'm bothering to file.

I have earned income while living here but the origin of the income isn't from here. It's from all over, Belgium, US, France, I do freelance programming (I did notice that freelance income is mentioned on their site about this). The income comes through a pre-paid debit card from the freelancing company but all the work has been done in abroad, save a few times I've gone on visa runs.

I definitly meet the physical presence test.

For 2011 I reported zero since I was living in monastaries the whole time with ocassional gift money from relatives and friends to get from here to there.

rubyrussia
05-03-2013, 19:37
Now this is where it get's tricky.

I am a US citizen

I haven't been to America in 3 years, nor do I per se plan to ever return, though I wouldn't rule it out, which is mostly why I'm bothering to file.

I have earned income while living here but the origin of the income isn't from here. It's from all over, Belgium, US, France, I do freelance programming (I did notice that freelance income is mentioned on their site about this). The income comes through a pre-paid debit card from the freelancing company but all the work has been done in abroad, save a few times I've gone on visa runs.

I definitly meet the physical presence test.

For 2011 I reported zero since I was living in monastaries the whole time with ocassional gift money from relatives and friends to get from here to there.

The United States is the only first world country that requires it's citizens to declare all income regardless of where you where or if you'd like to return. If that income is more than what AstarD mentioned, you will also have to pay tax on it. Also, if you have more than 10,000 dollars in bank accounts total overseas you are also now required by law to declare that as well. If you have millions of dollars and you would like to renounce your citizenship for the purpose of avoiding taxes, you must pay an exit tax on all assets, and there is a law that isn't commonly being used but states that you may be refused entry to the USA under any visa.

Good luck and don't forget to vote for Obama's 3rd term. :trampoline:

kharaku
05-03-2013, 19:42
The United States is the only first world country that requires it's citizens to declare all income regardless of where you where or if you'd like to return. If that income is more than what AstarD mentioned, you will also have to pay tax on it. Also, if you have more than 10,000 dollars in bank accounts total overseas you are also now required by law to declare that as well. If you have millions of dollars and you would like to renounce your citizenship for the purpose of avoiding taxes, you must pay an exit tax on all assets, and there is a law that isn't commonly being used but states that you may be refused entry to the USA under any visa.

Good luck and don't forget to vote for Obama's 3rd term. :trampoline:

You're ignoring the entire crux of the question.

If my income comes from sources including the US but I do not maintain a presence physically or financially in the US then is that foreign income or not?

I work abroad, the money I get is sent abroad.

Further, i cannot open a tax account where I am living, i do not have investments, i have no retirement, health or life insurance anyway so i am not worried about any of that nonsense.

rubyrussia
05-03-2013, 19:57
You're ignoring the entire crux of the question.

If my income comes from sources including the US but I do not maintain a presence physically or financially in the US then is that foreign income or not?

I work abroad, the money I get is sent abroad.

Further, i cannot open a tax account where I am living, i do not have investments, i have no retirement, health or life insurance anyway so i am not worried about any of that nonsense.

The US government considers ANY INCOME from ANY COUNTRY including the USA over $95,100 taxable. All sorts of rich people have renounced citizenship for this very reason. You can read why, that might help you more. To put it bluntly, if I made a million dollars a year teaching English working for a Russian company, the USA would require me to pay tax on $904,900.

The exclusion concept is anything under 95,100 you don't have to pay taxes on if you don't reside in the USA. If you make anything over $95,100 for 2012, you are required to pay tax. I'm not avoiding any question but trying to help you understand the greatest country on earth's ridiculous tax code that makes War and Peace look like a short story. :book:

kharaku
05-03-2013, 20:44
You're ignoring the entire crux of the question.

If my income comes from sources including the US but I do not maintain a presence physically or financially in the US then is that foreign income or not?

I work abroad, the money I get is sent abroad.

Further, i cannot open a tax account where I am living, i do not have investments, i have no retirement, health or life insurance anyway so i am not worried about any of that nonsense.

BANK account (I actually have a tax id number here)

rubyrussia
05-03-2013, 21:06
If you have a work visa, HQS, ИП, ООО, or residence permit w/permission to work you should have a local tax number. BTW, according to Russian tax code depending on what your status is, you should ALSO be paying income tax of either 6, 13, or 30 percent depending on what was mentioned above. I'm not sure why you mentioned you have a tax number or BANK in capital letters. You can open a bank account on any visa with or without a tax number. Why did you mention it? I was referring to the fact that if you have a bank account in Belgium with 5,000 dollars and one in Russia with 5,000 dollars, you are now required by the US authorities to declare both.

If you are hinting that you are trying to figure out how to avoid paying taxes there are easy ways, but I won't give you any advice as I recommend following the law if you have long term plans in Russia.

It sounds like you make a lot more money than most of us do. Congrats. The USA 95,100 rule is sad and a demotivation for me as I expect that I'll never earn that much in a year, but if I do the bureaucracy on the American side gets much worse. What language are you programming in?

kharaku
05-03-2013, 21:10
The US government considers ANY INCOME from ANY COUNTRY including the USA over $95,100 taxable. All sorts of rich people have renounced citizenship for this very reason. You can read why, that might help you more. To put it bluntly, if I made a million dollars a year teaching English working for a Russian company, the USA would require me to pay tax on $904,900.

The exclusion concept is anything under 95,100 you don't have to pay taxes on if you don't reside in the USA. If you make anything over $95,100 for 2012, you are required to pay tax. I'm not avoiding any question but trying to help you understand the greatest country on earth's ridiculous tax code that makes War and Peace look like a short story. :book:

You're ignoring my question, I'm not sure why.

Is income made from working as a freelance contractor when it is coming from the United States and the contractor is living in a foreign country considered foreign earned income.

I know all about bla bla america taxes all expats wherever whatever.

That is not my question at all.

My question is since I'm an American, and the money is coming from an American client, but the work is being performed abroad is is still considered foreign earned income.

To change your example; what if you made 90 grand a year teaching Americans Russian over skype while residing in Russia?

kharaku
05-03-2013, 21:23
If you have a work visa, HQS, ИП, ООО, or residence permit w/permission to work you should have a local tax number. BTW, according to Russian tax code depending on what your status is, you should ALSO be paying income tax of either 6, 13, or 30 percent depending on what was mentioned above. I'm not sure why you mentioned you have a tax number or BANK in capital letters. You can open a bank account on any visa with or without a tax number. Why did you mention it? I was referring to the fact that if you have a bank account in Belgium with 5,000 dollars and one in Russia with 5,000 dollars, you are now required by the US authorities to declare both.

If you are hinting that you are trying to figure out how to avoid paying taxes there are easy ways, but I won't give you any advice as I recommend following the law if you have long term plans in Russia.

It sounds like you make a lot more money than most of us do. Congrats. The USA 95,100 rule is sad and a demotivation for me as I expect that I'll never earn that much in a year, but if I do the bureaucracy on the American side gets much worse. What language are you programming in?

Bank was a correction from my previous post.

I live in Ukraine not Russia; I cannot open a bank account (only a prepaid debit card).

I am married to a Ukrainian which is why I'm here and because I'm married to a Ukrainian I get the privelege of being able to have a national id/tax id number even though I cannot legally work for any Ukrainian firm.

I make so far 4 grand a year.

I program in php perl and javascript

I don't have any bank accounts (well i have a bank account in ny i haven't used in three years).

I work freelance over the internet on sites like Elance. Elance told me that where the work is being done is what's important and that they cannot send someone working in Ukraine a 1099. I've lived in the same city / apartment for well over 365 days.

All the programming I do is either on a copy of a site on my computer, or on a remote server (sometimes the server is in America, sometimes it isn't, even if the client is in America it's not uncommon for the server to be somewhere else too).

Aside from my computer I don't really have any assets.

I definitly meet the time frame (I've been here almost double the time frame, and outside America almost triple the time frame).

I definitly meet the physical residence test AND bonafide residence test (same apartment, and registered with the local tax authorities for over 365 days).

My only question is about the income. I am self employed.

rubyrussia
05-03-2013, 22:07
To change your example; what if you made 90 grand a year teaching Americans Russian over skype while residing in Russia?

By law you should inform the US government of every penny and file for the exemption, which you may need to prove supporting documents. None of it would be taxed however as I have already stated twice now. Strange that you accuse me of avoiding your questions. The expat offers free help and advice out of goodwill. I am finished trying to help you. I do wish you luck.

kharaku
05-03-2013, 22:29
By law you should inform the US government of every penny and file for the exemption, which you may need to prove supporting documents. None of it would be taxed however as I have already stated twice now. Strange that you accuse me of avoiding your questions. The expat offers free help and advice out of goodwill. I am finished trying to help you. I do wish you luck.

My concern is not reporting it my concern is that they will count it as domestically earned income since it's from America to an American.

kharaku
06-03-2013, 02:02
By law you should inform the US government of every penny and file for the exemption, which you may need to prove supporting documents. None of it would be taxed however as I have already stated twice now. Strange that you accuse me of avoiding your questions. The expat offers free help and advice out of goodwill. I am finished trying to help you. I do wish you luck.

Found it.

Found the answer!

"Source of Earned Income

The source of your earned income is the place where you perform the services for which you received the income. Foreign earned income is income you receive for working in a foreign country. Where or how you are paid has no effect on the source of the income. For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. "

http://www.irs.gov/publications/p54/ch04.html

frankjohn2
06-03-2013, 08:47
Let me complicate things a bit ...

You are self employed "running a business" in the Ukraine... you've paid your taxes to the Ukraine, and have the necessary permits to operate a business, right?

Just saying ...

and where is your legal residence anyways ???

Someone is gonna wanna tax that income that you are excluding from US income. The reason this exclusion exists is to keep Americans from being taxed twice on employment income.

Just saying ... :rules:

Oh, and you might want to check but that income may still be subject to Self-Employment tax.

And, back on the residency thing ... see my next post.

frankjohn2
06-03-2013, 08:50
I definitly meet the time frame (I've been here almost double the time frame, and outside America almost triple the time frame).

I definitly meet the physical residence test AND bonafide residence test (same apartment, and registered with the local tax authorities for over 365 days).

My only question is about the income. I am self employed.

and what about the Tax Home test???

Who Qualifies

You qualify for the tax benefits available to taxpayers who have foreign earned income if both of the following apply.

You meet the tax home test (discussed later on this page).

You meet either the bona fide residence test or the physical presence test, discussed later.

Taken from the instructions for Form 2555.

Bogatyr
06-03-2013, 11:13
Found it.

Found the answer!

"Source of Earned Income

The source of your earned income is the place where you perform the services for which you received the income. Foreign earned income is income you receive for working in a foreign country. Where or how you are paid has no effect on the source of the income. For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. "

http://www.irs.gov/publications/p54/ch04.html

Yes you found the right thing. Foreign earned income is income earned while satisfying the FEIC tests (bona fide residence test, physical presence test), it is not "income that comes from a foreign company." I worked for a US company while living in Russia and satisfied the FEIC tests, so that income was all foreign sourced income and deductible via the FEIC.

It is important to note that the meaning of the foreign earned income exclusion is NOT that you don't have to file a tax return if your foreign-sourced income is below the threshold. In fact, you *must* file the tax return and claim the exclusion, or you lose the right to claim it -- if you lose the right to claim the exclusion them you are liable for the full taxes just as if you were living in the US.

The proper way to look at it is that the FEIC is a big deduction, not that "you are not taxed" on the income. You may end up paying nothing, but the income is subject to the tests and filing a tax return.

Also, note that the FEIC does apply to income earned as a self-employed person (in terms of the self-employed income counting towards your 1040 adjusted gross income), but the FEIC does NOT affect the self-employment tax! In other words, if you earned $50,000 via contracting/freelancing/anything-but-a-employer-employee-relationship as foreign-sourced income, then you are liable for the approx. 15% self-employment tax on that income!

Also note, pertaining to your original question, if you are a US citizen and your income comes from a US source, even if it is considered "foreign-source" for purposes of the FEIC, you must pay US social security tax on that income. That's the difference between a US and a non-US employer for a US citizen residing abroad, and it accounts for about 7% on the first approx. $90,000 dollars of income.

One other thing of note (looks like it does not apply to you) -- if a state considers you a resident, most states (like CA and NY) do NOT recognize the FEIC. This is more for people who work abroad a year or two and then return. Apparently states can be very aggressive in pursuing these sorts of situations, and use information like: do you maintain a home, a driver's license, a bank account, etc. in the state. This is one reason why I did not renew my US driver's license after I left the US (despite it being a big pain in the butt not to have renewed it, I'm drivers-license-"homeless" until I get a Russian license).

Bogatyr
06-03-2013, 11:16
One other thing of note (looks like it does not apply to you) -- if a state considers you a resident, most states (like CA and NY) do NOT recognize the FEIC.

However, if you do NOT reside in the state, and can't reasonably be claimed to be a resident (via the "attachments" like driver's license, home, etc.), they usually won't tax you. Like CA and NY I think. But you do need to file a return with the state and claim non-resident status so that owed tax is zero (e.g., my US company was in NY, so I had them do no state withholding and no federal withholding via the W4, but I had "state income" on my w2 so I needed to file a non-resident return with NY so that I officially owed them no income).

Bogatyr
06-03-2013, 11:22
However, if you do NOT reside in the state, and can't reasonably be claimed to be a resident (via the "attachments" like driver's license, home, etc.), they usually won't tax you. Like CA and NY I think. But you do need to file a return with the state and claim non-resident status so that owed tax is zero (e.g., my US company was in NY, so I had them do no state withholding and no federal withholding via the W4, but I had "state income" on my w2 so I needed to file a non-resident return with NY so that I officially owed them no income).

One more p.s.: Turbo Tax online home-and-business supports the FEIC. It can be tricky getting all the right things filled out when you have both employee and self-employed income under FEIC, but this was a godsend for me -- about $100 including e-filing instead of $700-$1000 for a flesh and blood CPA to do an expat return. Turbo Tax also includes an option to buy audit protection insurance, which seems to be a good deal. This is my third year filing using TT and I did my entire tax including e-filing in about 4-5 hours in one evening this year, and that included a smidgen of self-employed income as well as employee income, claiming the FEIC.