Self-Employed Subject to Confusing Rules
Any self-employed American expatriate can qualify for the Foreign Earned Income Exclusion. Unlike an employed expat, however, a multitude of complex issues arise concerning what can be deductible against foreign income. Consider tax home versus main home. Suppose you provide a consulting service from your main home in your foreign country of residence, but your work takes you stateside where you work for six weeks in the offices of a client in Baltimore Maryland. There you generate 80% of your earnings in 2007. Do these earnings qualify for the Foreign Earned Income Exclusion.
As long as you report and pay taxes on these earnings to the foreign tax authority, they should qualify. But what about expenses for lodging and meals? If IRS considers Baltimore your tax home, these expenses are not deductible. IRS publication 463 states: ‘Generally your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. . . . your tax home (can be) your main place of business.’ But elsewhere IRS states: If you expect an assignment or job to last for one year or less, it is temporary. In this instance, those lodging and meal expenses would be deductible. As long as the auditor agrees.