# FEIE question



## lat19n (Aug 19, 2017)

I've been reading up on filing amended returns and taking the FEIE...

My wife - who hasn't even been to the US in about 3 years - was a self employed contractor - with no earned income for either the US or Mexico. We filed a Schedule C for her 'business'. We also made a SEP contribution for her. 

When it comes to the FEIE - does that SEP contribution come into play ? When I complete form 2555 can I take the amount on line 12 of the 1040 (Business Income) and use that ?


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## Bevdeforges (Nov 16, 2007)

As far as I know, SEP contributions are subject to pretty much the same restrictions as IRAs - you can't take the deduction for the contribution on any income that you've excluded from taxation using a form 2555.
Cheers,
Bev


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## lat19n (Aug 19, 2017)

Bevdeforges said:


> As far as I know, SEP contributions are subject to pretty much the same restrictions as IRAs - you can't take the deduction for the contribution on any income that you've excluded from taxation using a form 2555.
> Cheers,
> Bev


I understand I need to complete forms 1040X and 2555 to amend a return for FEIE. But - at the moment I am modifying our 2016 return directly using TurboTax. When I complete form 2555 it brings over -101,300 to line 21 of the 1040. In fact - that is the only change that has occurred. I went to the SEP worksheet, unchecked the 'calculate max contribution' box, rechecked it and once again It calculated a SEP contribution of 19,500. Not only that - it left the 'self employed heath ins' and 'deductible part of self employment tax' as they were... I have not over-ridden any fields on the return.


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## Bevdeforges (Nov 16, 2007)

I'm not all that familiar with SEP plans - though I did research the matter of IRA deductions pretty thoroughly when I moved overseas. Best I can do is to point you to the IRS's information on SEP contributions https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps-contributions
Cheers,
Bev


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## lat19n (Aug 19, 2017)

Bevdeforges said:


> I'm not all that familiar with SEP plans - though I did research the matter of IRA deductions pretty thoroughly when I moved overseas. Best I can do is to point you to the IRS's information on SEP contributions https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps-contributions
> Cheers,
> Bev


Thanks. I just spent the last half an hour on the phone with a woman at the IRS and between us we could not come up with an answer. I think I'll wait until Tuesday and see if I can get a more knowledgeable person. But my sense is that TurboTax knows what it is doing - particularly if I let it do its thing without over-riding anything...


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## lat19n (Aug 19, 2017)

Called the IRS once again this afternoon - it is AMAZING that these people pick up on the first ring...

Anyway - Today I asked, since my wife was self employed, what exactly we could use on for 2555 as 'earned income'. I was pointed to the instruction sheet - line 20.

"Line 20. If you engaged in an
unincorporated trade or business in which
both personal services and capital were
material income-producing factors, a
reasonable amount of compensation for
your personal services will be considered
earned income. The amount treated as
earned income, however, can't be more
than 30% of your share of the net profits
from the trade or business after
subtracting the deduction for the
employer-equivalent portion of
self-employment tax.
If capital is not an income-producing
factor and personal services produced the
business income, the 30% rule does not
apply. Your entire gross income is earned income"

We had no capital investments in her business...

Those instructions don't really answer my question regarding SEP contributions. Or maybe they do. The person on the phone could not answer that question.


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## lat19n (Aug 19, 2017)

Called the IRS again this afternoon - twice. I had a lot of trouble communicating with the first individual but it was a snap with the second person.

Regarding filing an amended return to claim the FEIE... in a year in which we took a SEP deduction - I was pointed to publication 560 which states :

"Net earnings from self-employment. For
SEP and qualified plans, net earnings from
self-employment is your gross income from
your trade or business (provided your personal
services are a material income-producing factor)
minus allowable business deductions. Allowable
deductions include contributions to
SEP and qualified plans for common-law 
employees and the deduction allowed for the
deductible part of your self-employment tax.
Net earnings from self-employment doesn't
include items excluded from gross income (or
their related deductions) other than foreign
earned income and foreign housing cost
amounts."

So the gentleman on the phone and I agreed that I can claim the FEIE/1040X stating the earned income from my wife's business not needing to make any adjustments for either her SEP contribution nor her deductible portion of self-employ tax.

Just mentioning this in case someone comes across this topic down the road. 

None of these people know the answers off the top of their heads - there must ba an Oz like guru behind the curtain...


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