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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I am a U.S. citizen living in Belgium with a full-time job

Customer Question

I am a U.S. citizen living in Belgium with a full-time job on a "local" Belgian contract. I am planning to start a small side business where I sell services online. I was thinking of incorporating the business in the US where I am likely to return in a few years rather than do so in Belgium. I'm trying to understand the tax implications - If I pay income taxes in Belgium for my full-time job located in Belgium (I also file taxes in the US every year) will I do the same for this side business or report them in the US? If I use a U.S. address to register my company is it subject to u.s. Taxes or Belgian? Are there other considerations I should keep in mind?
Submitted: 8 months ago.
Category: Tax
Expert:  Lev replied 8 months ago.

As You are US citizen - you file your US tax return and report all worldwide income - that is regardless of your Belgium tax responsibilities - and regardless where the business is located.
There are two aspects you need to consider.
If you are living abroad - you may exclude foreign earned income from US taxable income.
The limit in 2016 is $101300.

Expert:  Lev replied 8 months ago.

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.

Please also be aware that this exclusion is not granted automatically - you need to file a tax return and claim the exclusion on form 2555.

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Another issue - if the same income is subject to income tax in the US and abroad - you may claim a credit for foreign taxes. Thus effectively will avoid double taxation of the same income.

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.

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