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What are the tax consequences if my S corporation earns money in a foreign country?
Be careful here: If ACME were in California, I would pay taxes on USD 17,000 because I   had revenue of 20,000 and expenses of 3,000. To CALIFORNIA. And California taxes S-Corps. And, in addition, you'd pay $800 for the right of doing business in the State. All that in addition to the regular Federal and State taxes to the State where you're resident. Suppose that ACME is in Britain (or anywhere else for that matter). My   revenue and expenses are the same, but now my money has been earned   and my expenses incurred in a foreign country. Same thing exactly. Except that you'll have to pay taxes to the UK. There may be some provision in the tax treaty to help you though, so you may end up paying less taxes when working in the UK than in California. Check with a licensed tax adviser (EA/CPA licensed in your State) who won't run away from you after you say the words "Tax Treaty". Does it even make sense to use my S-Corporation to do business in a   foreign country? That should be a business decision, don't let the tax considerations drive your business.