Where to input foreign income (not qualified for foreign earned income exclusion)

[Kathy606]

One of my client had salary income from a foreign employer, and some self-empoyed foreign income in 2022. The client was not qualified for fofeign earned income exclusion. Just wonder where to input those income.

[itonewbie]

"One of my client had salary income from a foreign employer, and some self-empoyed foreign income in 2022."

From foreign employer?  Where was your client's employment base and where were services performed?

Self-employed foreign income?  How was the business structure (E.g. sole proprietorship, corporation, partnership)?  Where was the business located?  What was the nature of the business?  Where were the clients based?  Where were the services performed?

It's unusual for someone who has a foreign employer and foreign self-employed income to not take steps to ensure all the conditions for §911 could be met and FTC limitation would be maximized.  Just a bit curious.

[Kathy606]

Thank you for your response.

For salary from the foreign employer, the services were performed partially in China, and partially in US.

Regarding the self-employed foreign income, it was business consulting in sole proprietorship, and the service was performed partially in China, and partially in US.

[itonewbie]

What is the reason why your client doesn't qualify for FEIE?

[Mountain Car Service]

If your client received salary income from a foreign employer and self-employment income from a foreign source, they should report these amounts on their US income tax return, even if they are not eligible for the foreign earned income exclusion.

Your client should report their foreign salary income on Line 1 of Form 1040, and their foreign self-employment income on Line 4 of Schedule SE (Self-Employment Tax).

In addition to these forms, your client may need to attach other forms and schedules to their tax return depending on the specifics of their situation. For example, if your client paid foreign taxes on their foreign income, they may be eligible to claim a foreign tax credit, which would require Form 1116.

If your client had foreign bank accounts or other foreign financial assets, they may also need to file additional forms such as the FBAR or Form 8938.

As always, it's important to consult with a tax professional or use tax preparation software to ensure that your client is correctly reporting their foreign income and meeting all relevant reporting requirements.

[itonewbie]

When you talk about US tax reporting, you'd also need to consider Chinese IIT, which would generally seek to tax the entire income from domestic employment that is already subject to full withholding unless otherwise approved by the LTB.  Similarly for self-employment from domestic Chinese business too.

What you have in the end without proper planning is a highly inefficient tax structure.

Just need to understand the context before suggesting how you may want to code/report the income.

[itonewbie]

@Mountain Car Service That's an oversimplification.  Until the questions that have been raised are answered, all we know is that the income must be reported but not how because the implications and reporting requirements could be very different.

[itonewbie]

And are you sure what your client has in China is a sole proprietorship?  Is your client a Chinese national?  If not, I'm not sure the business could be run as a sole proprietorship.  Even a WOFE is not that simple to set up and a JV could be more likely.  If your client holds an employment visa, it would generally not permit outside employment or the operation of one's own business.

There has to be more to this story.

[Kathy606]

Thank you for your response.

Shall I imput the foreign salary on Lacerte Screen 10 Wanges, Salaries, Tips? It seems EIN needs to be entered.

Shall I imput the foreign self-employed income on Lacerte Screen 16 Business Income (Schedule C)? Is it also subject to self employment tax? If it is subject to self employment tax, doesn't it mean the client could get social security credits?

Thank you,

[sjrcpa]

You are ignoring itonewbie and he is very knowledgeable about these things.

Assuming client is an employee of a foreign company you enter the wages as any other wages. There is a place to indicate foreign employer.

Assuming it really is a Schedule C sole proprietorship, enter as any other Schedule C and subject it to SE tax unless/until you heed itonewbie and get more details.

[Kathy606]

Thank you for your kind reply. The client is a US citizen, and offered some business consulting services in China.

[itonewbie]

Then, what your client told you about foreign employment and self-employment income doesn't really add up.

[Kathy606]

Actually my question is very simple. If the foreign earned income is not qualified for foreign eaned imcome exclution, do I need to input it in 2555, or normal wages and self-employed income inputing screen?