Is My Income Earned In A Foreign Country Deductible?

If you work for part of the year in a foreign country, whether or not you are taxed on your income by the other country, you may be entitled to exclude up to $75,000 of such income from your US taxable income under the Foreign Earned Income Exclusion. The exclusion is based on one of two rather involved tests, which are explained in the instructions for Form 2555 or 2555-EZ. Note that self-employment income from another country qualifies for the exclusion for income tax purposes, but not for purposes of self- employment tax. Expenses of producing the foreign income are not deductible to the extent that the income is excluded.

If your income is subjected to an income tax in the other country, you can generally claim a Foreign Income Credit (Form 1116) or a deduction (Schedule A) for the taxes paid. However, you cannot claim a credit or deduction for taxes paid on income you have excluded from your US tax return under the exclusion explained above.

[Back] [Home] [Up] [Next]

Disclaimer
We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.