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Self-Employment & the Foreign Earned Income Exclusion


Self-employed persons working abroad may claim the foreign earned income exclusion and the foreign housing deduction. Both the income exclusion and the housing deduction will be calculated based on your net income as figured on Schedule C or Schedule F. So, calculating the right amount of the exclusion depends on figuring your business income accurately.


Foreign Earned Income Exclusion

Self-employed persons may claim the foreign income exclusion on self-employment income. This will reduce the federal income tax, but it will not reduce the self-employment tax.


Foreign Housing Deduction for Self-Employed Persons

Self-employed persons working abroad do not qualify for the foreign housing exclusion. Instead they can deduct allowable housing expenses under the foreign housing deduction. The foreign housing deduction is calculated on Form 2555 Part VI and IX. The foreign housing deduction reduces the federal income tax, but does not reduce the self-employment tax.


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