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Self employment tax on business abroad

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Level 1

Where do I enter self employment  income on business abroad on 1040. Should it be on Form 2555 or

Schedule C. If entered on Form 2555  how is the self employment tax computed?

If entered on Schedule C, how can the foreign earned income exclusion be claimed?

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7 Replies 7
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Level 13

I like to start with available resources. If you google:

us self-employment tax on foreign business income

You get, for instance, these:

https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad

https://www.irs.gov/individuals/international-taxpayers/social-security-tax-consequences-of-working-...

As a great place to start. I find the IRS is always a great place to start.

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"Level Up" is a gaming function, not a real life function.
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Level 1

Thanks for your help.

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Level 15

NP, @Giri!

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Still an AllStar
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Level 15

When it comes to operating businesses overseas, clients are often wrong about how their businesses should be classified and income reported for US tax purposes.  Getting these wrong can have detrimental effect on your client's tax liability and could toll the SOL.  If you haven't already, you may like to ask a few more questions of your client (P.S. how an entity is classified legally and for tax purposes in the country of formation is not relevant under the IRC).

For a high level technical discussion about social security and overseas business, you may also like to take a look at this thread: https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/i-have-a-self-employed-...

As far as input is concerned, you will need to do the following:

  1. Create a F.2555 and make all the relevant entries provided your client is eligible for FEIE;
  2. Create a Sch C, make all the usual input for income, expenses, etc.; and
  3. On the Sch C you created with step #2, click on the Less Common Scenario tab and link it to the F.2555 you created in step #1.

 

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Still an AllStar
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Level 1

Thanks for your response.

 

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Level 1

Can you please be more specific on linking form 2225 with Schedule C.

I don't see the less common used scenario tab.

Is this in the basic or professional software version.

 

Thanks

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Level 15

My apologies for confusing you.  Somehow, I was thinking about PTO when the question is about PS.

PS does not link Sch C to F.2555 automatically, AFAIK.  You will first need to prepare the Sch C as you normally do.  You will then generate a F.2555 and manually plug in the foreign source gross income on Line 20a(2) of the 2555 Inc Wks-T or S with the relevant coding for sourcing followed by entering the deductions allocable from Sch C on Line 44.

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Still an AllStar