Foreign-earned income whilst living in the US?

[The Bloomies 7]

Hello all,

 

I wondered if someone could explain what constitutes foreign-earned income for a LPR for tax purposes. I’ve been filing joint taxes with my husband since 2018 and didn’t have any reason to question taxes on my income until now.

 

I live in the US and operate a sole proprietorship. I have one permanent client who is based in London. However, based on a few calls recently with my city and state, I’ve been made aware that income earned outside of the city or state does not get taxed so I don’t owe anything there. I was surprised by that and mentioned as much. I reiterated that I lived in my city and only the client was in London. They said they understood and that what they’d explained was correct.
 

Are federal taxes different then? I believe I have to report that income for federal taxes and I’m happy to report it, but I wanted to check. We’re not using a tax professional this year and sometimes it’s difficult to annotate nuances like this on TurboTax.

 

J

Edited February 4, 2022 by The Bloomies

[Redro 4,611]

23 minutes ago, The Bloomies said:

Hello all,

 

I wondered if someone could explain what constitutes foreign-earned income for a LPR for tax purposes. I’ve been filing joint taxes with my husband since 2018 and didn’t have any reason to question taxes on my income until now.

 

I live in the US and operate a sole proprietorship. I have one permanent client who is based in London. However, based on a few calls recently with my city and state, I’ve been made aware that income earned outside of the city or state does not get taxed so I don’t owe anything there. I was surprised by that and mentioned as much. I reiterated that I lived in my city and only the client was in London. They said they understood and that what they’d explained was correct.
 

Are federal taxes different then? I believe I have to report that income for federal taxes and I’m happy to report it, but I wanted to check. We’re not using a tax professional this year and sometimes it’s difficult to annotate nuances like this on TurboTax.

 

J

paging @Wuozopo

 ETA Look at posts under this username @The Bloomies he explains how foreign earned income and taxes work fairly well. 

 

 

Edited February 4, 2022 by Kor2USA

[The Bloomies 7]

11 minutes ago, Kor2USA said:

paging @Wuozopo

 ETA Look at posts under this username @The Bloomies he explains how foreign earned income and taxes work fairly well. 

 

 

Great! I’ll check their posts out. Thank you very much.

[Wuozopo 4,293]

@The Bloomies
You report your worldwide income on your US tax return, no matter where the payer of that income is and no matter if you were paid in £££ into a UK bank account. You owe the tax on it to the US since that is where you are physically living. You should not be paying any income tax to the UK since your move to the US. 

Foreign Earned Income usually refers to income you earn from a job while you are living in a foreign country like the UK.  It does not include Unearned income which is interest, dividends, and money you receive that’s not directly from working or providing a service. There is a Foreign Earned Income Exclusion form (IRS Form 2555). But you would have to be physically living in the UK to claim that exclusion on your US tax return. 

 

So convert your income from the client to US dollars and report it and pay US tax on it.

 

Edited February 5, 2022 by Wuozopo

[JeanneAdil 6,498]

u live in the US and operate the business here

that is US income not foreign income

[The Bloomies 7]

Thank you, @JeanneAdil. That’s what I thought too, but I was confused by the local taxes.

 

@Wuozopo, thank you. Ah, yes, of course—FEI is a very specific term, tax-wise. Good to know about it for the future though. Great stuff. Will continue as usual then