Hello,

I waited to the last minute to finish my taxes and need some help.

I am a US citizen that worked abroad all of 2010 and received a 1099-Misc for $50,000 from a US company that I perform consulting work for. Also, I did not pay any tax to the foreign country I resided in during this period.

Can this $50,000 in income be excluded from US income tax? If so, does this income still need to be reported under Sch C? If not, where? Since it is well below the $91,500 allowed by the IRS, is there any reason to claim legitimate business expenses such as hotel, airfare, meals and communication expense to reduce my AGI?

If I cannot exclude this income from my US tax liability, I would assume the legitimate business expenses spent overseas I mentioned above are acceptable to claim as a sole-proprietor to help reduce my taxable income including?

I just read the following thread and now wonder if my "tax home" would be considered this foreign country.

Foreign Tax Exemption for 330 days overseas for 12 consecutive months

I was not formally a resident of this country, but I did have a drivers license and long term business Visa in this foreign country and lived in a hotel from December 2009 through February 2011 and then an apartment through May 2011 before returning to the US permanently. During this period, I did return to the US for 10 days each during Christmas 2009 and 2010. I had a primary residence in the US, which I sold in April 2010 while overseas. Do you think I meet the requirements by the IRS to consider the foreign country my "tax home" in 2010?

Thanks in advance
JC

In addition, I purchased a personal vehicle in this foreign country for personal and business use. I financed the entire purchase price through the company that employed me and they kept registration in their company name. I made approximately $6,000 in P+I payments to them and then sold the car back to them for the balance owed when I left the country.

Can I use these payments as an auto expense even though the vehicle was never titled in my name and there was never a purchase contract? This was all done under goodwill. Any chance I can depreciate the vehicle for tax purposes? I guess I essentially rented this vehicle from the company, but there is no supporting documentation. The most I probably can get is a loan payment history from the company.

Thanks again
JC

“ Also, I did not pay any tax to the foreign country I resided in during this period. “---> Then you are NOT subject to foreign tax credit on your US returns, federal and state return.
“Can this $50,000 in income be excluded from US income tax?”--->It depends on the situation; as you can see, as a US citizen, you are subject to US taxes, federal and state taxes, on both US source and world wide income(WW income that you earned overseas, in this case, $50,000). However, as long as you meet the requirements, you, as a U.S. citizen who lives and works abroad, may qualify to exclude all or part of your foreign earnings from your taxable income on your tax return;to qualify, you need to be physically present in the foreign country for at least 330 full days during any period of 12 consecutive months; you must have established such a residence, tax home, in the foreign country(Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Having a "tax home" in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes). As long as you qualify FEIE ,then you can exclude all of the $50,000. If you are married, and both of you earn income and reside and work abroad, you can also exclude up to another $91,500 (for tax year 2010) of your spouse’s income from taxation. These exclusions can only be claimed on a filed tax return and is not automatic. The maximum amount of the Foreign Earned Income Exclusion is $91,500 for 2010. You must attach Form 2555 to your Form 1040.
Please visit the IRS Website here for more information: Foreign Earned Income Exclusion - Can I Claim the Exclusion or Deduction?
“ If so, does this income still need to be reported under Sch C? If not, where?”---->For you, I guess so;for example, , if you are self employed by contract, and no foreign social security or other payroll taxes, I menan forinf SECA taxes, are being withheld from your earnings ( in other words an independent contractor) you must file a Schedule C with your U.S. tax return and pay U.S. self employment tax (social security taxes by the self employed) on your net earnings as long as the amount on Sch SE line 4 is $400 or exceeds $400. The self employment tax rate is 13.3% for 2011, NOT 15.3% and is not reduced by the previously mentioned foreign earned income exclusion or foreign tax credits. For both 2010 and 2011, the first $106,800 of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security tax, or railroad retirement (tier 1) tax. I guess this MAY NOT be your case; however, an exception to paying social security on your foreign self employment income occurs if you reside in a country which has a social security agreement with the US. In that event you can elect to have your earnings covered by the foreign country's social security (only if they have a social security agreement with the US), and not have to pay US self employment tax (social security).ALSO, as you are filing as a sole proprietor, an I.C. and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return; you do not have to pay estimated tax for the current year if you had no tax liability for the prior year;you were a U.S. citizen or resident for the whole year; your prior tax year covered a 12 month period.
“ Since it is well below the $91,500 allowed by the IRS, is there any reason to claim legitimate business expenses such as hotel, airfare, meals and communication expense to reduce my AGI?”---->As said above, as long you qualify for your FEIE, you can exclude the whole $50,000;you can report you business expenses overseas on your Sch C to reduce your SE business tax liability and SE net earnings on your US retirns.
“If I cannot exclude this income from my US tax liability, I would assume the legitimate business expenses spent overseas I mentioned above are acceptable to claim as a sole-proprietor to help reduce my taxable income including?”----> As said above, since you didn’t pay your foreign taxes to the foreign taxing authority(ies) on your foreign earned income, you can NEVER claim foreign income tax credit on your US returns. You can deduct your business expenses on Sch C. you can deduct the entire cost of the trip come tax season.The other expenses of the trip like hotels and food can also be deducted as long as the meals were spent talking about business and the hotel stay was also for business purposes. As long as you are self-employed , an I.C. in a foreign country and qualify as a bona fide resident. Your income was $50,000, but you had business expenses( assume the amount of your business expenses is $25,000). Then in preparing your tax return, you will first fill-out Schedule C without regard to your overseas status. This means you will report $50,000 of income and $y25,000 your business expenses, leaving you a net profit , say $25,000 which is reported on Form 1040.
I just read the following thread and now wonder if my "tax home" would be considered this foreign country. Foreign Tax Exemption for 330 days overseas for 12 consecutive months
“I was not formally a resident of this country, but I did have a drivers license and long term business Visa in this foreign country and lived in a hotel from December 2009 through February 2011 and then an apartment through May 2011 before returning to the US permanently. During this period, I did return to the US for 10 days each during Christmas 2009 and 2010. I had a primary residence in the US, which I sold in April 2010 while overseas. Do you think I meet the requirements by the IRS to consider the foreign country my "tax home" in 2010?”---->Please visit the IRS Website here for tax home definition; Foreign Earned Income Exclusion - Tax Home in Foreign Country

Wnhough,

Thanks for the help!!


Do you have an opinion in regards to my desire to expense P&I payments I made to my employer for an automobile I purchased during my stay overseas?

In addition, I purchased a personal vehicle in this foreign country for personal and business use. I financed the entire purchase price through the company that employed me and they kept registration in their company name. I made approximately $6,000 in P+I payments to them and then sold the car back to them for the balance owed when I left the country.

Can I use these payments as an auto expense even though the vehicle was never titled in my name and there was never a purchase contract? This was all done under goodwill. Any chance I can depreciate the vehicle for tax purposes? I guess I essentially rented this vehicle from the company, but there is no supporting documentation. The most I probably can get is a loan payment history from the company.

Can this be claimed under schedule C?

Thanks again
JC

“In addition, I purchased a personal vehicle in this foreign country for personal and business use. I financed the entire purchase price through the company that employed me and they kept registration in their company name. I made approximately $6,000 in P+I payments to them and then sold the car back to them for the balance owed when I left the country.”--->Your situation is very complex. I guess you need to contact an attorney for professional help. Even though the vehicle was registered to a business in the business name, registration is not title or proof of ownership of the car. If your name was on the pink slip, it's yours . If NOT, then the car is NOT yours;so, as an employee( hired as an I.C.), you can deduct business use of car expenses if your employer did not reimburse (If the car is titled in your name, then you can deduct car-related expenses, such as gas expenses, on your taxes). So, if you use your car for business purposes either as an employee or a business owner, you can deduct your auto expenses from your taxes. IRS rules are very specific in this area. You need to keep a record of how much you use your car for business purposes throughout the year. You do not have to provide documentation of your business use with your taxes, but you may have to produce supporting evidence of your claim if you are ever audited. Things really get complicated when a car is used for both business and personal reasons. As you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. The company must apply a business-use percentage to its automobile costs, and good record keeping is essential. The business portion of these costs is deductible by the company. The portion of a car's costs that can be attributed to personal use is also deductible by the company as compensation to the individual owner. Your employer is required to report as taxable income to you the value of personal use of company car. These rules apply whether the company or the individual owns the car. The time you spend driving back and forth from your home to your business in the foreign country is considered commuting, and it is not deductible as a business expense. As long as there was any gain generated on the sale of the car back to your employer for the balance owed when you left the country, then you need to report the gain on Sch C line 6 as kinds of misc. business income, I guess.
“Can I use these payments as an auto expense even though the vehicle was never titled in my name and there was never a purchase contract? This was all done under goodwill.”---->I do not think that you can deduct your car P+I payments, $6,000, as an auto expense; as you said, the car was NEVER titled in your name. Congress, which enacts tax breaks, and the U.S. Treasury Department, which interprets laws and writes regulations, have created a complex system of rules affecting the use of company cars. Boiling the rules down to essentials, there are two basic choices involving ownership: Either the company owns the car as in your case, or you as the owner/employee can own it. (You have to be an active, participating owner/employee to qualify for the tax break.) Either approach can get you the desired tax-free fringe benefit, although record keeping may be simpler if the company owns the car. As an owner/employee, you may prefer to own the car. A plan can be set up for you to account properly for the car's use.
“ Any chance I can depreciate the vehicle for tax purposes?.”--->As long as the car was registered and titled to the business as a business car, then you can NEVER depreciate the car for your tax purposes; it is NOT your car for business use. If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes UNLESS business use car expenses were reimbursed by your employer. The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year.
“I guess I essentially rented this vehicle from the company, but there is no supporting documentation. The most I probably can get is a loan payment history from the company.”--->I guess I do not think so; you may need some paperwork from your employer for renting the car. However, as long as you lease a car for your trade or business and use it only for company purposes, then this is the only way to deduct 100 percent of car payments as a business expense (unless the car qualifies as luxury vehicle, in which case some of the deduction may be excluded). If you lease a vehicle and use it partly for personal reasons, only the proportion of the payment related to business use will be tax deductible.

Thanks again Wnhough!

Your information has been very informative in helping me finalize my taxes. I am going to pass on claiming the $6,000 I spent on the vehicle during my stay. Too much brain damage. I just wish I registered the car in my name from day one. Oh well.

Cheers
JC