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If I am a US taxpayer stationed overseas (not military nor

government civilian) and claim the...
If I am a US taxpayer stationed overseas (not military nor government civilian) and claim the foreign income tax exclusion on my W-2 income but I also have a US based business that has income and expenses overseas too, do I put my foreign income and expenses on my schedule C? How do I adjust for currency exchange? Should I just use the dollar to foreign currency exchange on the date the foreign bill was paid? The business is a US business but deals with sports teams that travel around Europe and incur expenses for travel, tournament entrance fees, equipment, and other expenses. These normally are paid in Euros and include VAT.
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Answered in 26 minutes by:
1/12/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,245
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D :

Hello and thank you for using Just Answer,
Your business would show the foreign expenses and income on the Schedule C. If you are an employee and have a business that you are involved in abroad you can exclude your earned income (up to the limits yearly).
You will be allowed to claim your total earned income on the 2555, this means if your W2 income is lower than the limit, your self employment net can be added to the 2555.
The exchange rate should be the date of the payment.

Robin D :

Your Self Employment tax cannot be lessened because of the foreign nature of the business. For 2013, the foreign earned income exclusion rises to $97,600, up from $95,100 in 2012.

Robin D :

In addition to the exclusion, you can also claim an exclusion or a deduction from gross income for your housing amount if your tax home is in a foreign country. Housing expenses include your reasonable expenses actually paid or incurred for housing in a foreign country for you and (if they lived with you) for your spouse and dependents. The limit on housing expenses is generally 30% of the maximum foreign earned income exclusion, but it may vary depending upon the location in which you incur housing expenses.

Robin D :

Although the foreign housing exclusion and/or the deduction will reduce your regular income tax, they will not reduce your self-employment tax either.

Robin D :

Getting back to your question about expenses and the Schedule C, only your business expenses should be on the Schedule C. If you have employee expenses they will not be on the C.

Robin D :

I think I have addressed all your original questions but please let me know if you need clarification on a specific point.

Robin D :

The system advises you are Standing By, I will give you the time to enter the CHAT and if you respond I will be notified. If you do not have any additional questions on this information, I thank you in advance for a positive rating.

Customer:

Robin,

Robin D :

Hi

Robin D :

Did you have a question?

Customer:

For 2013 my w-2 income will exceed the $97k exclusion, normally by a fair amount. The business that I am doing will be new. Basically I am setting up sports clinics, both in the US and in Europe that train people in my sport. Also I will develop video training and the income will be mostly advertising revenues that will be generated in the US. Many of my expenses will be in Europe as our team travels through europe -- in 2013 I don't expect to make a profit so I am trying to find if I can claim the european expenses on my schedule C (using the days exchange rate) and in the end have a lower tax burden.

Customer:

Like any business it probably will take 2-3 years to start making a profit, however, you never know.

Robin D :

Yes, you may claim all the expenses for the business on the Schedule C.

Customer:

Excellent. And I just use the published exchange rate for the day the bill was paid?

Customer:

Most bills will be in Euros but also some in Pounds and some in Czech Krowns.

Robin D :

You may use the exchange rate for the day the bill was paid, that would be fine.
FYI
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit. An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year.

Customer:

Great. So now being new to this system. I just rate you and that closes the question (and you get paid)? :-)

Robin D :

Yes it does but you can always come back.

Customer:

Will do. Its a good service and I appreciate your information. Thanks and take care.

Robin D :

Your positive rating is thanks enough.

Customer:

:-) Does the system have a way to save off a person like you for future questions?

Customer:

Or do they all go into a general question box so to speak...

Robin D :

Yes, you can request me or just put for Robin D in your initial post.

Customer:

Ok. Will do. Thanks again and take care.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,245
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
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Robin D.
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Category: Tax
Satisfied Customers: 16,245
16,245 Satisfied Customers
Experience: 15years with H & R Block. Divisional leader, Instructor

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