Tell me more, tax loophole, foreign earned income, I am a web site owner.

Foreign Earned Income - Tax Loophole

Below is the IRS (word for word) requirement on Foreign Earned Income. After reading, you should have two immediate questions, well maybe three.

1. Does my web site qualify as a foreign company or an affiliate of a foreign company? And can I be an employee of my web company, which is offshore?

2. Secondly, after you figure out how to make your web site company a foreign corporation, then you will need to have lived in the foreign country for at least one year!

You may have a third question? Is it legal to make my company an offshore corporation, and then hire myself and thus be an employee of a foreign company?

To this I say, speak with your tax attorney, and be sure you are legal. And I can also say to you, that there are a lot more web site owners moving offshore. It is NOT uncommon for a web site to generate an annual income of six figures, and this year the exclusion is a little over $90,000 (goes up each year)

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Five Facts about the Foreign Earned Income Exclusion

IRS Tax Tip 2010-57

If you are living and working abroad you may be entitled to the Foreign Earned Income Exclusion. Here are five important facts from the IRS about the exclusion:

The Foreign Earned Income Exclusion United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.


The General Rules To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.


The Exclusion Amount The foreign earned income exclusion is adjusted annually for inflation. For 2009, the maximum exclusion is up to $91,400 per qualifying person.


Claiming the Exclusion The foreign earned income exclusion and the foreign housing exclusion or deductions are claimed using Form 2555, Foreign Earned Income, which should be attached to the taxpayer’s Form 1040. A shorter Form 2555-EZ, Foreign Earned Income Exclusion, is available to certain taxpayers claiming only the foreign income exclusion.


Taking Other Credits or Deductions Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excluded income. If a foreign tax credit or tax deduction is taken on any of the excluded income, the foreign earned income exclusion will be considered revoked.

For more information about the Foreign Earned Income Exclusion see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and the instructions for Form 2555 or Form 2555-EZ.