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Comment by jasonkester | Hacker News Reader

Here's the relevant section explaining that yes, income from a US company is just groovy for use with the Foreign Earned Income deduction:

http://www.irs.gov/Individuals/International-Taxpayers/Forei...

Source of Earned Income

The source of your earned income is the place where you perform the services for which you received the income. Foreign earned income is income you receive for performing personal services in a foreign country. Where or how you are paid has no effect on the source of the income. For example, income you receive for work done in France is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City.

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On that IRS page it says:

"For this purpose, foreign earned income is income you receive for services you perform in a foreign country during a period your tax home is in a foreign country and during which you meet either the bona fide residence test or the physical presence test."

It sounds like one must also be tax resident in the foreign country for this to work?

That's right. The other piece of the puzzle is that you have to either show that you're a resident of a foreign country, or that you're physically outside of the USA for 330 days of the year. (as mentioned in the linked article)

The IRS page reads as though one must meet both those criteria, not just one of them?

You must either be a bona-fide resident for an uninterrupted period covering the whole tax year[0] or have been out of the US for at least 330 full days in the year[1] although in the latter case your presence in a foreign country must also be legal according to US law.

[0] http://www.irs.gov/Individuals/International-Taxpayers/Forei...

[1] http://www.irs.gov/Individuals/International-Taxpayers/Forei...

Yah, you have to be paying taxes to someone else to take the FEI deduction. Unless you are in a low tax country like Switzerland, Hong Kong, or Singapore, it's just a shortcut in doing your taxes, you don't actually save money since you can always deduct your foreign income taxes if you don't take it.

Kind of an aside, but it's sometimes not even worth doing the shortcut, again unless you're in a very low-tax country. I am eligible for the foreign earned income exclusion but purposely don't take it, and instead take the foreign tax credit, because excluded income is not eligible for IRA contributions [1]. It's entirely excluded, so doesn't count as earned income, and since you can't contribute more to an IRA than you have in earned income for the year, if you end up excluding all your income you have no basis for a contribution. But the foreign tax credit doesn't cause the same problem, because it's just a credit against tax owed, not an exclusion of income.

[1] http://www.irs.gov/Individuals/International-Taxpayers/Indiv...

I don't do FEIE either anymore. It was easy when I made under the limit, but over...is complicated and Chinese taxes are high enough that I still get to write in zero.

Yes. FEI is the IRS's bone to US citizens residing outside the US (in most countries, you only pay taxes if you're resident, citizen or not, the US is one of the few where you're taxed even when residing in an other country)

Interesting! I stand corrected.

Next thing I don't understand with that document is what is "earned" income. Are app store sales "earned?" I'd say so... constantly having to update the software -- I'm earning it.

Is this facetious? Because it's a little funny to expect the IRS to be so literal. In my experience, either it's "earned" in that it's been paid directly to you or it's indirect income (e.g. dividends you were paid on an investment you aren't directly working on or appreciation you haven't collected on) that are still going to be taxed on in one way or another.

They are incredibly literal in a few cases. Such as:

"Professional fees. If you are engaged in a professional occupation (such as a doctor or lawyer), all fees received in the performance of these services are earned income."

(great.. special rules for lawyers)

But they make up for it by loving artists: "Income of an artist. Income you receive from the sale of paintings you created is earned income."

I wish they sit down and analyze software and make some hard & fast rules -- it's the computer age and we are being treated like "writers" or "professionals" or whatnot

Your profits resulting from sales on the App Store (less such expenses as are reasonable and necessary to achieve that income) are, unquestionably, earned income resulting from your personal contribution to a business.

http://www.irs.gov/Individuals/What-is-Earned-Income

Most forms of "unearned income" are where you're getting compensated primarily for capital rather than labor. For example, if you were to sell the business, the proceeds from the sale would ordinarily not be earned income. (There are sticky wickets around that question, which you'd want to ask a competent professional adviser about. Any adviser who tells you App Store income is unearned just lost their status as a competent adviser.)

Yup, it seems that it may be OK for me to claim the Foreign Earned Income Exclusion. Too bad I didn't know about it and stayed too long in the US during 2010-2012. Still... for 2013 and on, I think I can claim it.

Last piece of the puzzle is the tax home. I travel from country to country about every 3 months. Do I even have a tax home?

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