# Can/should you report a Loss on line 20a of the 2555 if Sch C is a loss



## Andrew! (May 3, 2021)

Hello Everyone, new to the Forum....gr8 wealth of information! Kudos

Tried to use the search feature so as not to post a repetitive topic. I have seen where one could combine SE (line 20a) and Foreign Earned income on From 2555 (possibly eliminating a Sch C if below the exclusion threshold) ....

...but if Sch C is a loss for the tax year, should/can a negative number be reported on line 20a "in a business or profession?"
Seems to reduce line 8 on Sch 1 as well?

Thank you in advance,
Andrew


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## Andrew! (May 3, 2021)

Apologies, I phrased this poorly, just excited to be here...lol. There is no SE (Self employment) form or taxes, Schedule C shows a loss for the first time in years. Does this loss (or a share of this loss) have to be reported on the FEIE (form 2555, line 20a?)?

Thank you in Advance


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## Moulard (Feb 3, 2017)

There is a bunch of stuff to potentially unpack here which you may not have factored in..

1) You cannot deduct expenses related to income that you exclude using the FEIE
2) The FEIE applies to gross income and not net income
3) SE Tax applies to your net income
4) You cannot use the FEIE to reduce SE taxes.

Have a read here... a really nice walkthrough common faulty understanding of the FEIE and its impact of SE Income and SE taxes.. 






Foreign Earned Income Exclusion and Self-Employment Income


Self-employed people are enterprises engaged in commerce without using a business entity, like a corporation or limited liability company.




hodgen.com


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## Andrew! (May 3, 2021)

Moulard said:


> There is a bunch of stuff to potentially unpack here which you may not have factored in..
> 
> 1) You cannot deduct expenses related to income that you exclude using the FEIE
> 2) The FEIE applies to gross income and not net income
> ...


Hi and TYSM!
Great resource! I have been to that site before, but have not seen that breakdown/explanation...makes much more sense of the IRS publications way they explain it.

Even though "gross" income" from Sch C would fit with earned income from salaries this year in the FEIE, that will not be the case for the next two years. I know there is a totalization agreement for the SE portion (next tax year, loss this year, 2020), and have seen statements on this forum of either tossing the SE form or making certain adjustments in Turbo Tax re: the tax treaty (perhaps another topic)

Our remaining question would be (since there was a loss for 2020 on Sch C):

May we report self employment income on just the Sch C income, and take the FEIE on just salaries/wages (employer), or do we have to combine them as the example from the Hodgen resource....adding the gross income from Sch C into the FEIE as well as wages?

Again, TYSM in advance
Andrew


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## Moulard (Feb 3, 2017)

I do not believe so.

Further, I suspect that by taking a position on the return that is inconsistent with claiming the exclusion you are in essence revoking your election to exclude foreign earned income.

Have you in fact done your sums to determine which is more beneficial - FEIE or FTCs?


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## Andrew! (May 3, 2021)

Moulard said:


> I do not believe so.
> 
> Further, I suspect that by taking a position on the return that is inconsistent with claiming the exclusion you are in essence revoking your election to exclude foreign earned income.
> 
> Have you in fact done your sums to determine which is more beneficial - FEIE or FTCs?


Again, your advice is most appreciated, Thank you so very much!

We were so happy with no US tax liability this year (haven't filed yet) that we weren't sure we wanted to go through the learning curve of the FTC (but needed knowledge for 2021/2022). After starting to see posts here that suggest it may be possible to carry forward foreign tax credits, the comparison between the FEIE and FTC is tomorrow's mission.

Any resources/advice you or anyone can point out would be great, thank you in advance. (Especially on FTC carry forwards as we are searching this site as well, (saw some some "suggested reading" below, a great site feature)) Our main questions would be:

Do we have to use the actual amount of taxes paid (converted to usd), the bottom-line on our Canadian return once reduced by our RRSP contributions or gross taxes before RRSPS offsets? Assuming the former.

Does one have to apportion those taxes between interest/dividends/wages/self employment on say a weighted percentage of each income category?

Sorry, even more of a novice when it comes to the FTC...and as mentioned, really grateful to be here!
A


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## Andrew! (May 3, 2021)

As our tax education grows, and we have decided to take the FEIE this year (2020) while both the gross income and wages fit in the exclusion and we don't want to accidently (TY)revoke it, Our question is:

Using line 19 on form 2555 for wages and line 20 for Allowable share of self employment income (100% this year) Gross Income Line 7 from Schedule C....

Do we go back to Sch C line 28 "Total Expenses" even though depreciation is included and enter that on line 44 of the 2555? It's the depreciation, that is resulting in a loss versus a profit. Seems the answer is in the question, but it would be nice to verify please?

And as mentioned, everything fits neatly in the Exclusion amount for the FEIE

TYSM in advance

A


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## Moulard (Feb 3, 2017)

Sorry, I have to say I don't really know - I haven't really had to deal with this scenario IRL so all I can do with any certainty is to point you in the direction of a number relevant IRS Pubs. Worth a read if you are not familiar with them already.

About Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
About Publication 463, Travel, Entertainment, Gift, and Car Expenses
About Publication 535, Business Expenses
About Publication 946 How to Depreciate Property


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## Andrew! (May 3, 2021)

Moulard said:


> Sorry, I have to say I don't really know - I haven't really had to deal with this scenario IRL so all I can do with any certainty is to point you in the direction of a number relevant IRS Pubs. Worth a read if you are not familiar with them already.
> 
> About Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
> About Publication 463, Travel, Entertainment, Gift, and Car Expenses
> ...


You've been Brilliant my Friend! Thank you so very much! 
2020 is away with confidence!


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