1245.Income of U.S. Citizen or Resident in Business Outside the U.S.

1245.1Is income earned from a trade or business operated outside the U.S. counted as net earnings?

If you are a U.S. citizen or resident alien, income earned from a trade or business operated outside the U.S. is counted as net earnings from self-employment.

Note: International agreements may provide that the earnings will be covered under the social security program of another country, see §107.

1245.2How have IRS rules changed regarding income earned outside the U.S.?

For many years, the Internal Revenue Code has provided special deductions or exclusions from foreign earned income of U.S. citizens and residents working outside the U.S. Effective with taxable years beginning after December 31, 1983, however, U.S. citizens or residents engaged in a trade or business outside the U.S. must compute net earnings from self-employment. This is true regardless of any foreign earned income exclusions for which they might be eligible for income tax purposes.