<440gtx[at]email.com> wrote:

- quote -

I would think so, based on the following:

He was present in a foreign country at least 330 days out
of a 365 day period.

He has foreign earned income. Pub. 54 defines foreign
earned income as: "Foreign earned income generally is income
you receive for services you perform during a period in
which you meet both of the following requirements.
1. Your tax home is in a foreign country.
2. You meet either the bona fide residence test or the physical
presence test."

If someone else is "operating" the business from the US, and
he only takes the profits, he is likely out of luck. But if
he does most or all of the "work" that has to be done to
maintain the business, even if it is checking on its
automated process or paying the web hosting bill, then it
seems he is performing services while living out of the
country. (But please don't try to twist my last sentence
too far. It gets into the IRS material participation rules.
But if he meets those requirements, I think we are home
free.)

Of course, there will be US self-employment tax.

- quote -

Sorry, no. You either need to claim it or not claim it.
BUT, since he has no taxable income at the moment, is it
likely that just investing the $3000 in a regular account
would cause any tax anyway, or so little tax that that would
be the better choice in the long run? The traditional IRA
might not be the best choice in his case, anyway. Think it
through......

Bryan

--
Bryan Kellar, EA
Oregon Tax Help, Inc. -- Portland, Oregon
www.oregontaxhelp.com
www.canadatax.org

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Consider this:

John is a US citizen, has a US sole proprietorship,
developed engineering software in California in 2003, and
set up a web site to sell it to corporations worldwide. John
can just as well live anywhere and decided to move to
Thailand and resided there all of 2004. Other than a mailbox
required by his merchant bank, John has no possessions or
home in California and no plans to move back. John does not
have a work permit in Thailand and does not need to do much
of anything to keep the business going as everything happens
between customers and the web site without human
involvement. Does John qualify for the foreign earned income
exclusion?

Bonus question: If John qualifies for the FEIE, can he at
his discretion choose not to include $3K as foreign earned
such that he can also make a full traditional IRA
contribution?

Any other advice?

TIA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->