# Why bother with deductions if already exempt from U.S. tax?



## OliverNimrod (Jun 11, 2016)

I'm hoping someone here might be in a similar situation to me. I'm a self-employed artist and a U.S. citizen living in Japan and this is my second year filing U.S. taxes from abroad. 

My income is well below the Foreign Earned Income Exclusion and I pay into the Japanese social security system (I have a Certificate of Coverage), so I am exempt from U.S. Self-Employment tax.

Last year, I took the time to calculate and claim my usual business deductions, such as materials, supplies, etc, on my U.S. taxes, but I am wondering what the point of doing this is if all of the income, even before deductions, is excluded from U.S. tax anyway. Should I even bother filling in all of those expenses just to reduce my already excluded business income? I could simply file my U.S. taxes with my gross business income, claim the Foreign Income Exclusion, and be done with it, no? I'm trying to figure out if there is some point I am missing.

Any help would be greatly appreciated!


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## Bevdeforges (Nov 16, 2007)

Technically speaking, you still have to file if your worldwide income (before deductions, etc) exceeds the filing threshold for your filing category. (The threshold for filing is well below the FEIE. See here: https://www.irs.gov/publications/p554/ch01.html )

But seriously, you're right - if your self-employment income is less than the FEIE limits, just file with that, and don't worry about the deductions and expenses.
Cheers,
Bev


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## Clarebarr (Dec 14, 2011)

I am in the same position in the UK. I do not bother with expenses as I can't see how it is worth the time spent on form filling.


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## BBCWatcher (Dec 28, 2012)

It's much more relevant if you're skipping the Foreign Earned Income Exclusion/Foreign Housing Exclusion and relying on the Foreign Tax Credit instead -- something worth looking into if you're a resident of Japan, by the way. (And maybe also for U.K. residents.)


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## Bevdeforges (Nov 16, 2007)

Clarebarr said:


> I am in the same position in the UK. I do not bother with expenses as I can't see how it is worth the time spent on form filling.


For a truly simple tax situation, say, salary or self-employment comfortably under the FEIE and no more than a few hundred $$ bank interest, the forms take only about 10 or 15 minutes. But admittedly, it does depend on whatever ties you do or don't have back to the US as to how much it "matters" if you are filing those "no tax due" returns. 

If you have worked in the US long enough to qualify for social security benefits, those 10 or 15 minutes a year may be well worth it.
Cheers,
Bev


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## OliverNimrod (Jun 11, 2016)

Thank you for the replies, everyone. I'm definitely going to save myself the hassle from now on. Sorting through all of my purchases again, trying to figure out how to handle the home office (studio) deduction, doing the currency conversion, and so on, only for it not to make any difference whatsoever is really not worth the trouble. I've already done it all for my Japanese taxes, where obviously the deductions still matter.

The only way I can see it making any difference is if someone is still paying into the U.S. Social Security system with the Self-Employment tax, either because they live in a country without a totalization agreement with the U.S., or they can't get coverage in their new home country for some reason. Obviously, one would have to deal with all of their income and expenses as usual if that were the case.

Thanks again for the advice!


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## BBCWatcher (Dec 28, 2012)

OliverNimrod said:


> The only way I can see it making any difference....


Not the only way. Any time there's substantial income that somebody either chooses not to exclude(*) or that is non-excludable there can be differences, sometimes large ones.

(*) To repeat, there is no obligation to take the Foreign Earned Income Exclusion (FEIE), and there are many occasions -- many of them in Japan! -- when one really should not take the FEIE.


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