Exeptions to 80,000 tax free rule?

I found this on bankrate.com.
Does this mean that you might have to pay US taxes if you work “under the table” in taiwan and file your taxes in america expecting the 80,000 exclusion?

AFAIK, the foreign earned income exclusion doesn’t apply to self-employment income. I don’t know if paying foreign taxes on said income matters or not. I do know that if you’re self employed, you pay through the nose no matter whare you are in the world.

I am not a lawyer, this is not legal advice, blah blah blah.

Also, that quote is a little strange. “To take advantage of the tax break”? As if I wouldn’t file a Form 2555 anyway? :loco:

yea, youre right
I posted too fast.
after some more reading i finally read the tax form itself.

as long as I make less than 7000 u.s dollars or so I dont even have to file.

gee I don’t think I’ve made even close to that much here in taiwan. I guess I dont have to file :wink:

[quote=“dix2111”]yea, youre right
I posted too fast.
after some more reading i finally read the tax form itself.

as long as I make less than 7000 u.s dollars or so I don’t even have to file.

gee I don’t think I’ve made even close to that much here in Taiwan. I guess I don’t have to file :wink:[/quote]

You should file anyway. The IRS guy at AIT told me to file even if you don’t make a dime.

Hmmm…June is coming. I should get busy. :slight_smile:

That’s the first I’ve seen that you must pay foreign taxes to qualify for the foreign income exclusion, and I can’t find a reference to that in the books or IRS publications on the subject. The only requirements I’ve seen are that it must be earned income from a foreign source, and that you be considered a foreign resident. While those two requirements are fairly complicated in themselves, I’ve not seen anything that states that foreign taxes must be paid for it to be foreign income. If that’s the only source of that information, I’d be dubious about trusting it.

Self-employment income does not count for the earned income exclusion, so it is important for US Citizens abroad to ensure their income is not considered self employment income. An accountant can help you structure your business in a way that you do not need to pay self employment tax legally. I would recommend that if you want to take the income exclusion that you file a return even if you have to pay no tax, to avoid the IRS taking a look to find out why you didn’t file a return at all.

For details on foreign sourced income and non-resident qualifications, I recommend the book The Expat’s Guide to US Taxes and IRS Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad.

Sorry, I screwed up this part. I should have written:

In other words, you can exclude your self employment earned income as far as income tax goes, but you still are subject to the self employment tax for the income. The self employment tax is a replacement for social security and medicare payments and is about 15% currently, up to around $87k of income. If you expect to rely on social security income at retirement, you may want to pay it, but otherwise you can look into ways of incorporating your business so you don’t have to pay self employment tax.

Can someone adjust the title to point out this only applies to Americans?

Self-Employment income is taxed as such at 15+% and goes towards medicare and social secuity. Of course if it is under the table income than you have to decide if you want to report it or not. A word of caution however, if you make a lot of under the table income, and you are sending this money home, you had better claim it. It is possible the IRS will look at that and ask you where it came from.