Overseas Foreign Earned Income; Can I take the Home Office Deduction for a home office based outside the United States?
"You are pushing your luck, but not because you're not in the US, because it is likely that you're not qualified. From what you said, I doubt you can take it (I'm not a professional though, get a professional opinion). You say ""dedicated space"". It has to be an exclusive room. You cannot deduct 10 sq. ft. from your living room because your computer that is used wholly for your business is there. It has to be a room that is used exclusively for your business, and for your business only. I.e.: nothing not related to the business is there, and when you're there the only thing you do is working on your business. Your office doesn't have to be in the US necessarily, to the best of my knowledge. Your office must be in your home. If you take primary residence exclusion as part of your FEI, then I doubt you can deduct as well."
"If you are talking about a home office, you don't ""charge"" the business anything. If the area is used exclusively as an office you pro-rate by square footage just the actual expenses.  TurboTax recent published an article ""Can I Take the Home Office Deduction?"" which is a must read if you don't understand the process. (Note: I authored said article.)" "I don't see why you would need an ""international tax specialist"". You need a tax specialist to give you a consultation and training on your situation, but it doesn't seem too complicated to me. You invoice your client and get paid - you're a 1099 contractor. They should issue you a 1099 at the end of the year on everything they paid you. Once you become full-time employee - you become a W2 employee and will get a W2 at the end of the year on the amounts paid as such. From your perspective there's nothing international here, regular business. You have to pay your own taxes on the 1099 income (including SE taxes), they have to withhold taxes from your W2 income (including FICA). Since they're foreign employers, they might not do that latter part, and you'll have to deal with that on your tax return, any decent EA/CPA will be able to accommodate you with that. For the employer there's an issue of international taxation. They might have to register as a foreign business in your state, they might be liable for some payroll taxes and State taxes, etc etc. They might not be aware of all that. They might also be liable (or exempt) for Federal taxes, depending on the treaty provisions. But that's their problem. Your only concern is whether they're going to issue you a proper W2 and do all the withholdings or not when the time comes." "If you're a US citizen, money earned while in the US is sourced to the US. So you can't apply FTC/FEIE to the amounts attributable to the periods of your work while in the US even if it is a short business trip. Tax treaties may affect this. Most tax treaties have explicit provisions to exclude short trips from the sourcing rules, however due to the ""saving clause"" these would probably not apply to you if you're a US citizen - you'll need to read the relevant treaty. Your home country should allow credit for the US taxes paid on the US-sourced income, and the double-taxation avoidance provision should apply in this case. The technicalities depend on your specific country. You would probably not just remove it from the taxable income, there probably is a form similar to the US form 1116 to calculate the available credit." "If you are a telecommuter and in good terms with your employer, then all you need is contact your employer and explain your situation. Ask them for a short letter that indicates: ""1. they require you to work from a privately rented office (or from a home office for those who prefer working from home), 2. this is one of the terms of your employment, and, 3. they will not reimburse you for this expense."" With this letter in your hand, you satisify both the ""convenience of employer"" test AND the deduction of the rent for your private office as a unreimbursed employee expense.  The IRS cannot expect your employer to open an office branch in your city just for your sake, nor can they expect you to commute to your employer's city for work, which is an impossiblity considering the distance. Additionally, the IRS cannot ""force"" telecommuters to work from home. The key is to get a letter from your employer. You'd be surprised how easily they are willing to write such letter for you." how much taxes would I pay on my income from the rent they would pay me? The same as on any other income. California doesn't have any special taxes for rental/passive income. Bothe CA and the Federal tax laws do have special treatment, but it is for losses from rental. Income is considered unearned regular income and is taxed at regular brackets. Would I be able to deduct the cost of the mortgage from the rental income? The cost of mortgage, yes. I.e.: the interest you pay. Similarly you can deduct any other expense needed to maintain the property. This is assuming you're renting it out at FMV. If not, would I pay the ordinary income tax on that income? In particular, would I pay CA income tax on it, even though the property would be in WA? Yes. Don't know how WA taxes rental income, but since you are a California tax resident - you will definitely be taxed by California on this, as part of your worldwide income. If you have income in the US, you will owe US income tax on it, unless there is a treaty with your country that says otherwise. &gt; Posted tax rates vs actual effective rates differ, but you know that.  Yeah, but correct me if I'm wrong here, but aren't the allowable deductions which can drag the actual rate down only applicable for stuff that happens inside the US? Therefore, wouldn't any foreign sourced income always be taxed at the marginal rate?  Also, the US still has high actual rates too. [It's not exactly like other countries don't have the concept of deductions as well.](http://taxfoundation.org/sites/default/files/docs/sr195.pdf) This page and this page on the ATO website provide some information on tax rates. They're rather lengthy and there's a few exceptions, but essentially, your entire foreign income, even if held overseas, is taxable. Australians are taxed worldwide. Hi u/Sagiv1,  Short answer: Yes, you do have to pay taxes in Israel for all your worldincome.  Long answer: All countries within the OCDE consider you as a fiscal resident in the country where you spend over half a year in (183 days and up). If you do not spend that much time in any country, there are other tying measures to avoid people not being fiscal residents in any country.  Since you are living in Israel, you will have to pay all your worlwide generated income in Israel, following the tax regulation that is in place there. I am no Isarely Tax Lawyer so I cannot help you there.  Having a lot of business internationally brings other headaches with it. Taking for example the U.S. there is a possibility that they withold taxes in their payments. It is unlikely, though, as they have a Tax Treaty to prevent double taxation. You can ask for this witholded money to be returned from the U.S. or other countries through each country's internal process.  Another thing to take into account is that you can be taxed in other countries for any revenue you generate in said country. This is especially relevant for revenue that comes from Real Estate. The country where the real estate is will tax you in the country and you will have to deduct these taxes paid in your country, Israel in this case. If there is no tax treaty you might possibly be paying twice.  I know you said you do promotion, but I have to warn you about this, because I ignore what other countries tax or do not tax. So been giving more info won't hurt.  If the US is the main and/or only country you will be doing business with, I strongly recommend you real the Tax treaty with lots of love and patience. You can find it here: https://www.irs.gov/pub/irs-trty/israel.pdf or here:  Treaty:http://mfa.gov.il/Style%20Library/AmanotPdf/005118.pdf Amendment: http://mfa.gov.il/Style%20Library/AmanotPdf/005120.pdf  If you are from Israel and prefer it in Hebrew, here are the treaties in your language:  Treaty: http://mfa.gov.il/Style%20Library/AmanotPdf/005119.pdf Amendment: http://mfa.gov.il/Style%20Library/AmanotPdf/005121.pdf   Normally most IRS Departments have sections with very uselful help on these sort of matters. I'd recomment you to take a look at yours.   Last, what I've explained is the normal process that applies almost all over the world. But each country has their own distinctions and you need to look carefully. Take what I said as a starting point and do your own research or ideally try to find a tax consultant/lawyer who helps you.  Best of luck. "There's no ""183 days"" rule. As a US citizen you must pay taxes on all your income, where you live is irrelevant." "I'm working on similar problem space. There seems to be some working ambiguity in this space - most focus seems to be on more complex cases of income like Dividends and Capital Gains.  The US seems to take a position of ""where the work was performed"" not ""where the work was paid"" for purposes of the FEIE. See this link. The Foreign Tax Credit(FTC) is applied (regardless of FEIE) based on taxes paid in the other Country. In the event you take the FEIE, you need to exclude that from the income possible to claim on the FTC. i.e. (TOTAL WAGES(X) - Excluded Income) There is a weird caveat on TOTAL WAGES(X) that says you can only apply the FTC to foreign-sourced income which means that potentially we are liable for the on-US-soil income at crazy rates.  See this link.. Upon which... there is probably not a good answer short of writing your congressperson." "Yes. You do have to pay taxes in the UK as well but it depends on how much you have already been taxed in the US. http://taxaid.org.uk/situations/migrant-workernew-to-the-uk/income-from-abroad-arising-basis-vs-remittance-basis Say, you have to pay 20% tax in the UK for your earnings here. You ARE required to pay the same percentage on your foreign income as well. Now, if your ""home"" country already taxed you at 10% (for the sake of example), then you only need to pay the ""remaining"" 10% in the UK. However, the tax law in the UK does allow you to choose between ""arising"" basis and ""remittance"" basis on your income from the country you are domiciled in. What I have explained above is based on when income ""arises."" But the laws are complicated, and you are almost always better off by paying it on ""arising"" basis." Depending on what software you use. It has to be reported as a foreign income and you can claim foreign tax paid as a foreign tax credit. "Even though you will meet the physical presence test, you cannot claim the FEIE because your tax home will remain the US. From the IRS: Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Having a ""tax home"" in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes.   ...   You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. However, your abode is not necessarily in the United States while you are temporarily in the United States. Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling.   ...   The location of your tax home often depends on whether your assignment is temporary or indefinite. If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away from home expenses (for travel, meals, and lodging) but you would not qualify for the foreign earned income exclusion. If your new work assignment is for an indefinite period, your new place of employment becomes your tax home, and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion.   If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. If you expect it to last for more than 1 year, it is indefinite.   If you expect your employment to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. For guidance on how to determine your tax home refer to Revenue Ruling 93-86. Your main place of business is in the US and this will not change, because your business isn't relocating. If you are intending to work remotely while you are abroad, you should get educated on the relevant laws on where you are going. Most countries don't take kindly to unauthorized work being performed by foreign visitors. And yes, even though you aren't generating income or involving anyone in their country, the authorities still well may disapprove of your working. My answer to a very similar question on Expatriates." "I'll add a bit to Paul's excellent write up. Foreign Earned Income Exclusion (form 2555): notice the earned there. It doesn't exclude capital gains, interest, dividends, and basically everything that is not salary. You pay US taxes on it from the first cent. Foreign tax credit - foreign tax credit (form 1116) doesn't reduce your US tax dollar for dollar (even though it may appear that it does from the generic explanations). By using this form you may end up accumulating unused credit while still paying double taxes at the same time. Happened to me. Thank Congress for the logical and reasonable US tax laws. New FATCA form 8938: as opposed to FBAR (that goes to the FinCEN in the Treasury), this one goes to the IRS. it contains very similar info, but the threshold requirements are different. You may have to file FBAR, but not these, or you may have to file both. Being an American citizen, some European banks will refuse to provide services to you. Again, thank Congress for FATCA. It requires foreign banks to enforce US tax regulations on US citizens, and banks that won't will get penalized in the US. Many banks refuse to provide services to Americans because of that because what IRS requires is illegal in most countries. Some countries (like UK and some other EU countries) have signed treaties with the US to resolve this, but many haven't. Currency conversion - as I commented to Paul, you convert the amounts when you receive them, which may have your fixed EUR salary be converted to different dollar amounts every time. You need to make sure you do it right. Pensions, savings, investments - if you're doing these in non-US instruments prepare to be penalized. US taxes foreign investments much more aggressively than domestic. If you're investing in indexes/mutual funds, or you're a principle in a corporation, or you create a pension account - you'll get hit by additional reporting requirements and tax. Tax treaties - the US has tax treaties with many EU countries, and equalization treaties with some. The tax treaties affect the standard tax treatment by the US and some of the ""generic"" info you got here may not apply because of a tax treaty, and some other rules may apply. Equalization treaties work similarly with regards to the Social Security. Bottom line, and I know Paul disagrees with me on this - talk with a US-licensed adviser in the country you're going to. It is very important for your tax adviser to know the relevant treaty (and not read it the first time when you call him), and to understand each and every financial instrument in your country. Missing piece of paper in your tax return can cost you thousands of dollars in penalties (not exaggerating, not filing form 3520 triggers a $10000 penalty, even if there's no tax) and additional taxes."