Foreign Earned Income Exclusion - Service vs. Product?
"Even though you will meet the physical presence test, you cannot claim the FEIE because your tax home will remain the US. From the IRS: Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Having a ""tax home"" in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes.   ...   You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. However, your abode is not necessarily in the United States while you are temporarily in the United States. Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling.   ...   The location of your tax home often depends on whether your assignment is temporary or indefinite. If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away from home expenses (for travel, meals, and lodging) but you would not qualify for the foreign earned income exclusion. If your new work assignment is for an indefinite period, your new place of employment becomes your tax home, and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion.   If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. If you expect it to last for more than 1 year, it is indefinite.   If you expect your employment to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. For guidance on how to determine your tax home refer to Revenue Ruling 93-86. Your main place of business is in the US and this will not change, because your business isn't relocating. If you are intending to work remotely while you are abroad, you should get educated on the relevant laws on where you are going. Most countries don't take kindly to unauthorized work being performed by foreign visitors. And yes, even though you aren't generating income or involving anyone in their country, the authorities still well may disapprove of your working. My answer to a very similar question on Expatriates." As the name says, its for income earned in a Foreign country. If you have been paying US income tax on this while living in the US, nothing is going to change here. You should be informing yourself on how to avoid double taxation in your new country of residence. Passive income earned abroad (dividends, interest) also do not fall under this exemption.  The purpose of the Foreign Earned Income Exclusion is to make it easy for expats who work abroad to avoid double income taxation without going through the complicated process of applying for tax credits. The US is the only industrial country that taxes its residents regardless of where they reside. That is also why it only goes to about $100,000 a year. If you are a high earner, they want to make it more difficult. Also as a side note, since you are going to be abroad for a year. I will point out that if you have more than $10,000 in foreign accounts at any point in the year you need to declare this in an FBAR form. This is not advertised as well as it should be and carries ridiculous penalties for non-compliance. I can't count the number of times I have heard a US expat say that they were unaware of this. Fear tactics posted above, likely by IRS agents. Yes, you qualify based on the residence test. You perform your work outside the US. You gather business data in a foreign country. The income is excluded.
"Where goes the Delta? To the sea, of course.  Your question is very valid and for once, I think most of the answers are too involved into mechanical details and are badly missing the big picture.  At the risk of over simplifying things, let me try to describe the situation in broad strokes: Inflation: the volume of money grows faster than production (including services).  Deflation: production increase faster than the volume of money.  Imagine an economy with 10 products and $10. 1 product = $1. In an inflationary scenario, money available increase: $20 for 10 products. 1 product = $2.  In a deflationary scenario, money available decrease: $5 for 10 products. 1 product = $0.5.  So far, it's pretty textbook. Now onto the stuff that you don't usually read in textbooks: Time.  Say 10 people are attending an auction, each with $10 bucks. 10 items are for sale. $100 and 10 items. Item price is $10. Now, if just before opening the bidding, you go around and give each person $40, every one has $50. Each product sells for $50. That's the picture people have of inflation. Prices have increased, but everybody has more money, so it comes down to the same thing.  Now, let's bring this example closer to reality: You have to distribute $400, so the total amount of money is $500, which means that the normal price of each item should be $50. Now, imagine that instead of giving money to everyone at the same time, you started by giving $40 to 1 guy who was hanging out in front. The auction starts. While you go around distributing the money, the first guy manages to buy 2 items at $10 each. Now, there is $480 in the market, and only 8 items, making each item $60 on average. The next guy to get money manages to snap 2 items at $15. 6 items left and $450 in play. Each item now costs $75....and keep increasing in price as things move along. People who get the money early buy items under their real value, and people who get paid at the end pick up the tab, because by then, there are only a few items left. Back to reality, while inflation means that wages eventually increase (and they do), actual purchasing decrease for most people due to this simple trick. Employees are pretty much at the end of the chain. Income tax Another major source of ""signal loss"" is income tax. It works by brackets, as you certainly know. Simplifying again because I am lazy: Take a guy who earns $100. Pays no taxes. Can buy 100 products at $1 each. Now, put in some inflation... He earns $500. He pays $50 in taxes and can buy 90 products at $5 each. By the time he earns $10,000, he can only buy 50 products on account of income tax. So this is another area where you are bleeding purchasing power, and why income tax, which was originally presented as a tax for the ultra-rich is now a fact of life for most people (except the ultra-rich, of course).  Money as debt Next stop: Money itself. Money is created as debt in our society. At the risk of over-simplifying things again, let's say Bank A has $1000 in assets. In the fractional reserve system (our current system), Bank A can lend out many times over that amount. Let's say $9,000, for a total of $10,000 (much more in reality). And of course, it lends that money at interest. When bank A has made $10,000 available through 10% interest loans, the total amount of money has increased by $10,000, but when the loans are paid back, $11,000 must be paid to the bank, so the net result of the operation is that $1,000 get taken out of the market.  This system explains why almost all companies and governments have huge debts, and why most of the world's large companies belong to financial institutions of some kind, and why most of the world's wealth rest in very very few hands.  To fully answer your question and provide details and references and names, one would have to write a book or 5. There is a lot more than can be said on the subject, and of course, all the examples given here are extremely simplified, but I think they illustrate the key issues pretty well.  Bottom-line is that our system is designed that way. Our economic system is rigged and the delta bleeds out on automatic." Running a sandwich shop and, say, a software consulting service are quite different things.  I had two employees at one point, following the kind of thinking in the article.  But I found what that meant was that I had to spend more time being a manager and salesperson and much less time doing the work I enjoyed.  To make it viable I would have had to scale up to the point where I had at least one salesperson and maybe a manager, which would have required more income-producing staff to support them.  Instead, I scaled back to just myself, and have been very happy with that decision.  The article also underestimates what can be made in consulting or IT contracting.  Rates well above $100/hr are common for people with expertise (as opposed to commodity providers), and billing at least 40 hours a week is not usually a problem.  It's certainly true that a one-man operation is much more likely to put a ceiling on your earnings, but (a) that ceiling can be a lot higher than the article suggests, and (b) depending on the business, breaking that ceiling and earning much more is certainly possible in some businesses, for example where you have the opportunity to sell your work in product form rather than hourly. How can foreign companies open Liaison/Project/Branch office in India?   Foreign company can set up Liaison/ Branch Offces in India after obtaining approval from Reserve Bank of India. Reserve Bank of India has given general permission to foreign companies to establish Project Offces in India subject to certain conditions. A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such office is therefore, limited to collecting information about possible market opportunities and providing information about the Company and its products to the prospective Indian customers. Know More @ M+V First, you'll need to find a service that can handle transferring that amount of money, whether it's using a bank, or wire transferring service. Any major Wall Street bank (Wells Fargo, Chase, Bank of America, etc.) should be able to handle it. You could also use services such as Western Union. As for your legal and tax obligations, according to Western Union: Individuals in Canada and the U.K. don’t have any tax considerations,   unless international payments are received as income or in the form of   capital gains. Only then must they report it on their income taxes,   says Ilyas Patel, director at Ilyas Patel Chartered Certified   Accountants based in Preston, U.K., and the director of Tax Expert, a   tax advice website. To that end, when considering their tax obligations, individuals   should take care to look into the reporting requirements on foreign   income or gifts ranging up to a certain amount. For example, in the   U.S., the Internal Revenue Service (IRS) requires individuals who   receive more than $100,000 U.S. dollars from a foreign source to   report it on a Form 3520. “You may not owe taxes on the money, but it   informs the IRS that you received it,” Gragg says, stressing the   importance of consulting with a professional. “They’re looking for   certain terrorist activities and other illegal activity.” Due to the large sum of money your transferring, it would be in your best interest to speak with a banker (maybe even a lawyer or CPA) about this. "If this is truly hobby income (you do not intend to operate as a business and don't have a profit motive) then report the income on Line 21 (""other income"") of form 1040.  If this is a business, then the income and expenses belong on a Schedule C to form 1040. The distinction is in the treatment of profits and losses - your net profits on a business are subject to self-employment tax, while hobby income is not. Net losses on a business are deductible against other income; net losses on a hobby are miscellaneous itemized deductions in the ""2%"" box on Schedule A.  From a tax point of view, selling apps and accepting donations are different. Arguably, donations are gifts; gifts are not taxable income.  The hobby/business and income/gift distinctions are tricky. If the dollar amounts are small, nobody (including the IRS) really cares. If you start making or losing a lot of money, you'll want to get a good tax person lined up who can help you decide how to characterize these items of income and expens, how to put them on your return, and how to defend the return on audit if necessary." They might be concerned with having to charge sales tax in California if they have a single employee in California, creating a nexus situation with CA. If that's the case, or even if there is some other issue, you might be able to switch from being a W2 employee to being a 1099 independent contractor. There's a host of additional issues this could cause, but it alleviate the nexus problem (if THAT is the problem). Here's a terrible solution you can bring up, but shouldn't do under any circumstances: offer to set up a mailing address in an allowed State, and give your company plausible deniability with regards to your legal residence. Obviously, this is a terrible idea, but exploring that option with your employer would help you suss out what the actual objection is. Ultimately, anything said here about the reason is just conjecture. You need to talk to the decision maker(s) about the real reason behind the denial. Then you can talk through solutions. Also - don't forget that you can get another job. If you are serious about a future with your girlfriend, you should put that relationship ahead of your current employment comfort and security. If you are willing to walk away from your position, you are in a much better situation to negotiate. "Your employer can require a W8-BEN or W-9 if you are a contractor, and in some special cases.  I believe this bank managing your stock options can as well; it's to prove you don't have ""foreign status"".  See the IRS's W-9 instructions for details." My concern is if I need to report and pay extra taxes for the part of   the company that will be under my name Yes, d'uh. Of course. It's actually quite complicated when it comes to foreign companies owned by US people, and you'll need a good tax adviser (EA/CPA licensed in your State) who's fluent in that area. Citizenship has nothing to do with this, from tax perspective there's no difference between a green card holder and a citizen (except that green card holder cannot claim non-resident exemptions and certain tax treaties' exemptions).