My client is a US citizen living in Germany. He qualifies for foreign earned income exclusion, however is there anything to exclude his foreign income from US self employment tax?
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Unfortunately the foreign earned income exclusion does not shield the self employment income from self employment tax. This hardly seems fair but this is the rule.
Per the IRS Article - Foreign Earned Income Exclusion (http://www.irs.gov/businesses/article/0,,id=182017,00.html)
"Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual's regular income tax, but will not reduce the individual's self-employment tax."
Note that if the client had self employed health insurance then this would assist to reduce the self employment taxes. (http://www.irs.gov/newsroom/article/0,,id=233824,00.html
Please let me know if you have any further questions on this.
the ability to use se health ins to reduce se tax was only available for the 2010 tax year.
Thank you for confirming the answer that I was fairly certain of.
Yes, that's right about the health insurance only being a 2010 self employment tax break. (it does not apply for 2011) I suppose.
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