Friday, April 20, 2007

Foreign Earned Income

Hello Annie,

Sorry for the tardy response, there have been sooooo many questions.

I've embedded responses below. Seems a bit easier this way.

It's good that
you're reading my book. I'm sure you'll learn much from it.


Hello June,
I'm 25, have filed my own taxes two times in my life, and in January 2007 I quit my job as a production editor to become a freelance production editor for the company I had just quit. I work about 20 hours a week and make about $30/hour. By the time April 15 rolls around, I will have received paychecks totaling about $2000. I'm reading your book right now and trying to figure out the estimated quarterly taxes I'll be paying, but I have other questions about my situation.

I've applied to grad school in Australia and will be moving there in July. On a student visa I can work 20 hours a week in Australia, but my company will also let me continue freelancing.

Do I have to pay taxes to the IRS on the work I complete while in Australia? ... yes

If you are out of the States long enough there is an exclusion for income tax on foreign earned income up to $82,400 . However, although you are living abroad, it appears as if your income is "virtually" earned in the USA. If so you'd get no deduction on your indie income. .

If I stay in Australia for 5 years but keep freelancing for American companies, do I owe tax? ... yes, but how much depends on where it's earned.

If I buy a $1000 laptop before April 15, can I deduct any of it on my first quarterly estimated tax payment? Estimated taxes don't work that way. Read this Estimated Taxes here on my blog.

And finally, I don't have a tax professional, but should I get one even though I'll only be in the US for three more months? Yes, you should get advice because you have foreign earned income. Be sure to consult with a tax pro who understands foreign income and USA reciprocal tax treaties with foreign governments as well as self-employed income!

Good Luck in Australia.

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