# Foreign Earned Income as employee and employer



## jacobs (Sep 12, 2010)

Ok, I am currently live in the USA and planing to move to UAE but here is my current situation:

1 - I am employed as a programmer and my employer will allow me to work remotely from UAE.

2 - I have a corporation here in the US that export autos oversees and I run the business by my self. I have people that buy me cars from the auctions and I pay them commissions ( form 1099)

My questions are:
1 - Do I qualify for the Foreign Earned Income on the income I get paid for as a programmer from my employer here in the states?

2 - since I will operate my auto export business from oversees, I will have to pay my self a salary, and also I have to rent an office over there, so do the earned income from my business qualify for Foreign Earned Income, and can I deduct business expenses for operating my business oversees?

Thank you.


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## justlooking (Jun 12, 2010)

Um, you need professional advice. If someone other than a CPA answers, take his/her response as if you're talking to a friend at a BBQ. I'm giving you a link. Try these guys. They are experts in overseas taxes and they answer some questions on their website for free. 

Expatriate Tax returns | Expat Life tips | Foreign Earned Income Exclusion tips | US Taxes |


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## Bevdeforges (Nov 16, 2007)

1. You will qualify once you have been physically present outside the US for 12 consecutive months or one entire calendar year.

2. A bit trickier to determine. It may depend on how this business is set up (legally, that is) - is it a corporation, a partnership or a sole proprietorship? Are you currently reporting it on Schedule C or does the business file its own tax returns? If you are truly paying yourself a salary, with the business settling its own tax obligations back in the States (state and federal company taxes), then your salary should fall under the exclusion. (And your business expenses will be expenses of the company, not personal deductions.)

But, if you're running it as a Schedule C, you're considered to be "self-employed" and may have to pay self-employment tax (i.e. both halves of social security) as well as adding a considerable level of complication to your personal return. 
Cheers,
Bev


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## Elphaba (Jan 24, 2008)

jacobs - seperate to the tax issues, have you explored obtaining a residency visa in the UAE? 
-


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## jacobs (Sep 12, 2010)

Bevdeforges said:


> 1. You will qualify once you have been physically present outside the US for 12 consecutive months or one entire calendar year.
> 
> 2. A bit trickier to determine. It may depend on how this business is set up (legally, that is) - is it a corporation, a partnership or a sole proprietorship? Are you currently reporting it on Schedule C or does the business file its own tax returns? If you are truly paying yourself a salary, with the business settling its own tax obligations back in the States (state and federal company taxes), then your salary should fall under the exclusion. (And your business expenses will be expenses of the company, not personal deductions.)
> 
> ...


Bev,
Thanks for your prompt input. 
My busineess is Incorporated as an S corporation. Currently I don't pay my self any salary because I live off my first job as a programmer and my business makes money and I keep the money in the corporation BUT if I live oversees I will have to change that and start designate a salary to my self.

I have few points to clear as well:

1 - I will pass the physical test

2 - I may buy a gas station in the US soon and it will be operated by a management team and I will remotely monitor as well and ofcourse this business will generate profit for me in the US under a new corporation for sure, so would this business affect my stay oversees and my FEIE?

3 - I also have 2 houses in the US rented which is considered Income, would this also affect my FEIE?

4 - If I qualify for FEIC, can I deduct kids school tuition, living expenses, moving expenses oversees, ??

Thank you.


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## jacobs (Sep 12, 2010)

Elphaba said:


> jacobs - seperate to the tax issues, have you explored obtaining a residency visa in the UAE?
> -


No, not yet but this would be my next step in the process.


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## Bevdeforges (Nov 16, 2007)

jacobs said:


> 1 - I will pass the physical test


OK, just realize this makes for a slightly complex filing the first year or so, because normally you have to postpone filing your US taxes in the year you move. You extend your tax deadline until 30 days past the date that you qualify under the physical presence test. You then are entitled to the exemption only for that part of the year you were overseas.



> 2 - I may buy a gas station in the US soon and it will be operated by a management team and I will remotely monitor as well and ofcourse this business will generate profit for me in the US under a new corporation for sure, so would this business affect my stay oversees and my FEIE?


I've been out of the US for quite a while now, and my knowledge of S Corporations is very much out of date. I'm not entirely sure if S Corp profits are subject to the exemption, as they don't fall under the definition of "earned income." I would check on that with a tax advisor before you leave the US. It might be worth considering a change to the structure of your businesses.



> 3 - I also have 2 houses in the US rented which is considered Income, wold this also affect my FEIE?


Rental income is normally not "earned income" for purposes of the exemption. This would be taxed normally in the US on your US tax returns.



> 4 - If I qualify for FEIC, can I deduct kids school tuition, living expenses, moving expenses oversees, ??


You can certainly deduct your moving expenses - however you will have to apportion the deduction between your excludable income and your non-excludable income. (Though it could come under scrutiny in an audit precisely why you moved, given that your business has no office and apparently no business overseas. Read the instructions for "moving expenses" carefully and see if you qualify.) Vastly simplified, if half your income is excludable and half not excludable (either over the exclusion limit or not "earned income") then only half of your moving costs will be deductible. Living expenses may be partially deductible if they qualify under the "housing allowance" section (see the instructions for form 2555). Your kids' tuition is a personal expense - and even if paid for by one of your businesses, it would have to be added to your salary as compensation in kind.
Cheers,
Bev


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## vincetruong (May 10, 2009)

*Feie*



jacobs said:


> Bev,
> Thanks for your prompt input.
> My busineess is Incorporated as an S corporation. Currently I don't pay my self any salary because I live off my first job as a programmer and my business makes money and I keep the money in the corporation BUT if I live oversees I will have to change that and start designate a salary to my self.
> 
> ...


Note that you get an automatic 2 month extension to file and can apply for a six month extension, thereby giving you time to qualify for the physical presence test.

The US gas station does not have its main place of business in a foreign tax home and so that income does not fall under FEIE.

As Bev said, rental income is not earned income and in this case, it's not a foreign tax home.

If you structure your "package" from your S corp to include an education allowance, then that would be part of your earned income and would be excludable. Same thing for moving expenses; pay yourself a moving allowance and a housing allowance as well to take advantage of the separate housing exclusion.

You will want to seek advice from a tax attorney or CPA who is experienced with expat issues in terms of whether your S corp might come under Controlled Foreign Corporation rules if the main place of business is foreign. Then you have a whole other set of rules to follow.

If the company paying you as a programmer is withholding payroll taxes, ie treating you like a US employee, FEIE is irrelevant on that income.


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