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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?
Already Tried: Searched German US tax treaty
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Hello,
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.
Best regards,
Experience: US Taxation specialist.
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.
Anyhow please accept or provide a rating so that I can get credit for my time.
Additionally, let me know if you have any further questions.