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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22704
Experience:  Taxes, Immigration, Labor Relations
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Hello, I have an LLC which operates a few websites. On one

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Hello,
I have an LLC which operates a few websites. On one of my sites, I got advertisers from outside USA that sent money to my LLC bank account. So it is an income from foreign country, to my LLC in the US. Is there a tax incentive for this, since I am making money for the US from foreign sources? or is it treated as ordinary income?

and as i said it is an LLC that operates several websites so it basically doesnt matter where I live in order to operate this. If I returned back to my native country would your answer to above be different? I am a naturalized US citizen.

i am the only owner of this LLC and this is a NJ based LLC. I live in NJ now.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to Just Answer!
First of all - if the payment is coming from a foreign source - that is not a foreign earned income.
The foreign earned income is the income for serviced performed in a foreign country.
Because all services you personally performed to run that LLC were in the US - that is US earned income.
If I returned back to my native country would your answer to above be different?
If you will live outside the US and will continue to run your website - all compensation will be treated as a foreign earned income - regardless if payers are in the US or are abroad.

Is there a tax incentive for this, since I am making money for the US from foreign sources? or is it treated as ordinary income?
As an US citizen - you are taxed on all worldwide income. In your situation income derived from a single member LLC - would be considered a self-employment income - subject of both income and self-employment taxes.
1.

For the person to qualify for the foreign earned income exclusion - he/she should:
-- Work and reside outside the United States for at least 330 days during the year(Physical Presence test), or
-- Meet either the Bona Fide test.
If the person qualifies, he/she may exclude up to $92,900 (2011) in foreign wages. The amount of foreign earned income exclusion for 2012 is $95,100.

2.

Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable - income from wages and self-employment. For instance - dividends, investment income, rental income, pensions, etc - are not excludable.

3.

If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 - http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

 

Let me know if you need any help.

Be sure to ask if you need any clarification.

Customer: replied 1 year ago.
ok thanks for a lot of information which is good, but my main question was this i guess:

because of earning money from foreign resources to the USA, which is something good for USA, is there a tax incentive for that income?

for instance, let me give an example... in my native country, if you export things, therefore make money to the country, you get a tax break or incentive whatever you call it....

i hope i could clarify the concept...

is there something similar in the US? i mean... if i made that advertisement money from a US based firm, vs a foreign firm... are they both treated the same ?
Expert:  Lev replied 1 year ago.
because of earning money from foreign resources to the USA, which is something good for USA, is there a tax incentive for that income?
As I mentioned above - that is NOT earned income from foreign sources - because all serviced you provide in the US - it is income from US sources.
Your customers (or payers) are foreigns - and there is no tax incentive for that income.

There used to be a federal income tax exclusion for qualified foreign income called the
Extraterritorial Income Exclusion (EIE).

Extraterritorial income is the gross income of the taxpayer attributable to foreign trading gross receipts (defined below). The taxpayer reports all of its extraterritorial income on its tax return. It then uses Form 8873 to calculate its exclusion from income for extraterritorial income that is qualifying foreign trade income.

The American Jobs Creation Act of 2004 repealed the exclusion provisions generally for transactions after 2004, subject to transition rules. Thus you may only claim the exclusion with respect to transactions in the ordinary course of a trade or business under a binding contract if such contract is between the taxpayer and an unrelated person (defined below) and such contract was in effect on September 17, 2003, and at all times thereafter.


So far - there is no such intensive as you mentioned in your home country.
There would not be any difference if payers are in the US or abroad.
Sorry if you expected differently.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22704
Experience: Taxes, Immigration, Labor Relations
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