Harlan Lunsford <hnslunsf...[at]bellsouth.net> wrote:
- quote -

Hello, and thanks for your reply:

The LLC is incorporated in Delaware. I did this because for
2 reasons: 1. When I move back to the US, I'll probably live
somewhere in that general area. 2. Their gross receipts tax
is much simpler than the way many states do sales tax.

I have worked through their non-resident income tax return,
and it looks like despite the fact that I am a non-resident,
all the proceeds from income sources of their state get
taxed as normal. This is quite fine for me, and actually
relieving; I really want to besure that I'm fulfilling my
tax responsibilities, not minimizing them.

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L K Williams <l...[at]loxinfo.co.th> wrote:
- quote -

Hello and thanks,

Yes, line 44 is required in order to reduce your gross to
net for exclusion purposes. This line was actually a little
confusing to me at first, but now more or less makes sense.

Do you know of any publications dealing with these such
circumstances?

Greatly appreciated!

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kennis <albert.kennis[at]gmail.com> wrote:

- quote -

Your basic understanding is not quite correct.

You are right that the income is excludable under the
circumstances described. You would use line 20 of Form 2555
to report the income -- line a for a single-member LLC, line
b for your share of a multi-member LLC.

On Form 2555 the amout shown on line 20 a is the "Gross",
not the net income from the business. Then, after you
calculate how much of this is excludable, you go to line 44.
There, you enter a percentage of the deductions claimed on
Schedule C. The actual exclusion is the net of these two
amounts -- plus any housing exclusion you may have.

This may or may not give you a different result but it is
the correct way to do the calculation.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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akennis wrote:

- quote -

One point you didn't cover is your US state of residence,
presumably the one in which you formed the LLC. They will
certainly want state income tax, if that state has one.

ChEAr$,
Harlan Lunsford, EA n LA

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I'm trying to confirm my understanding that income earned
while living abroad as a sole proprietor (of a US LLC) can
be excluded via form 2555 as foreign earned income.

Here are the important details of my arrangement:

1. US LLC creating and selling software products and
services.
2. Sole owner of said LLC - living and working abroad as a
bona fide resident of Japan.

Let's say that the business has a net profit for the year as
computed on Schedule C. This income then gets added into my
personal income calculation on Form 1040 - line 12. We then
include this same amount on Form 2555 - line 20a as our
foreign earned income, "Allowable share of income for
personal services performed... in a business or profession."
Further down in section IV of Form 2555 we then compute our
foreign earned income exclusion, and enter this back into
Form 1040 - line 21 as a negative value concluding the
exclusion.

The verbiage given in the instructions for Form 2555 is
minimal with regards to its line 20. My understanding of
the whole exclusion is that so long as the work is actually
done abroad, regardless of the company it is done for and
other remuneration details, the resulting earned income can
be excluded. In this understanding, earned income from the
business you're running while abroad is no different.
Right?

As a note, because I know the questions will come up:

1. I am a US citizen.
2. I do pay local and federal taxes here in Japan.
3. I have chosen to establish my business as a US domestic
LLC because I intend on moving back to the US in the future.

Any advice would be greatly appreciated.

Sincerely,

Albert Kennis

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