What software are you using? I had the same confusion with TurboTax but they have a section that explains this. They specifically say that yes, NIIT is an additional tax on investment income - so your understanding is correct.

You're absolutely correct - this is indeed how the NIIT is designed to work! I went through the exact same confusion when I first encountered Form 8960. It does feel like double taxation because, in a way, it is. Think of the NIIT as a separate Medicare contribution tax that kicks in for higher-income earners. Your investment income gets taxed once as part of your regular income tax (on lines 2b and 3b of Form 1040), and then if your MAGI exceeds the threshold ($200K for single filers), that same investment income gets hit with an additional 3.8% tax. Your calculation looks spot-on: $20,250 in net investment income × 3.8% = $769.50. This is completely separate from and in addition to whatever regular income tax rate you're paying on that same $20,250. It's frustrating, but it's been the law since 2013 as part of the ACA. The good news is you're filling out the form correctly - many people get tripped up thinking they made an error when they see this "double taxation" effect for the first time.

Just wanted to add another perspective for anyone dealing with foreign income taxes. I'm a freelance graphic designer living in Portugal, and I went through this same confusion about Form 2555-EZ last year. What really helped me was breaking down Form 2555 into smaller chunks rather than trying to tackle it all at once. I created a simple checklist: 1. Gather all foreign income documents (pay stubs, 1099s, etc.) 2. Document your physical presence days (I used a simple spreadsheet) 3. Calculate housing expenses if applicable 4. Work through each part of Form 2555 systematically The key thing I learned is that even though Form 2555 looks intimidating compared to what the EZ version probably was, most expats with straightforward situations only need to fill out about half the form. Parts like III (revocation of exclusion) and VIII (business expenses) often don't apply to teachers and remote workers. Also, definitely keep detailed records of your days in and out of the country. I wish I had started tracking this from day one instead of trying to reconstruct it later from passport stamps and flight records!

I'm also teaching abroad (in Japan) and went through this exact same frustration last year! Just to confirm what others have said - Form 2555-EZ was indeed discontinued after 2018, so you'll need to use the regular Form 2555. Don't let the length intimidate you though. As a fellow English teacher with a single income source, you'll likely only need to complete these main sections: - Part I (basic info) - Part II (qualifying test - probably Physical Presence Test since you're teaching) - Part IV (foreign earned income) - Part VI (housing expenses if you qualify) - Part VII (calculating your exclusion) Since you're in South Korea, definitely look into the US-Korea tax treaty provisions for teachers that someone mentioned earlier. There might be additional benefits available to you beyond just the Foreign Earned Income Exclusion. One practical tip: start gathering your documentation now - all pay stubs, housing receipts, and definitely create a calendar tracking your days in Korea vs any trips back to the US. The Physical Presence Test requires you to be physically present in a foreign country for 330 full days during a 12-month period, so accurate day counting is crucial. You've got this! The form looks worse than it actually is for straightforward teaching situations like ours.

As someone who's been self-employed for about 5 years now, I can definitely confirm what others have shared here - you CAN deduct internet expenses separately from the simplified home office deduction, but documentation is absolutely critical. I went through an audit two years ago (totally random, not related to this issue), and my internet deduction was one of the items they reviewed. Having a simple monthly log saved me completely. The auditor was satisfied with my tracking method, which was similar to what @Max Reyes described - I noted business activities, approximate hours, and kept it consistent month to month. One thing I'd add that I haven't seen mentioned: consider your internet plan type when calculating business percentage. I have a high-speed plan specifically because I need to upload large files and do video calls - that's clearly business-driven. If you upgraded your internet for business needs, that strengthens your case for a higher business usage percentage. Also, @CosmicCrusader, your 60% estimate sounds very reasonable given your description of video calls, cloud software, and research. Just make sure you can back it up with actual activities if asked. The IRS isn't looking to trip you up - they just want to see that your claimed percentage makes sense for your actual business use. Start tracking now and you'll be in great shape for next tax season!

This has been such a comprehensive discussion! As someone just starting out with a home-based consulting business, I was completely lost on whether I could claim internet separately from the simplified home office deduction. Reading through all these real experiences - especially @Emma Davis sharing her audit story and @Zara Shah's professional perspective - has given me the confidence to properly track and claim this deduction. I love how this thread evolved from the initial tax court case question to practical implementation advice. My situation is similar to many here: about 65% business use for client video calls, cloud accounting software, and file sharing. I was being overly conservative and probably missing out on $500+ annually in legitimate deductions. The activity-based tracking method that @Saleem Vaziri outlined seems perfect - detailed enough to be defensible but simple enough to actually maintain. I'm setting up my monthly log template this weekend and will finally start claiming what I should have been all along. Thanks everyone for turning what seemed like a complex gray area into clear, actionable guidance. This is exactly why I love this community - real business owners helping each other navigate the tax maze with practical, tested solutions!

Another important consideration that hasn't been fully explored is the potential impact of currency fluctuations on your tax liability. Since you'll need to convert all your foreign transactions to USD for US tax reporting, the timing of when you calculate these conversions can significantly affect your gain or loss. For example, if your home country's currency has weakened significantly against the USD since you purchased the property, your cost basis in USD terms might actually be lower than you expect, potentially increasing your taxable gain. Conversely, if the currency has strengthened, it could work in your favor. I'd recommend documenting the exchange rates not just for your original purchase and final sale, but also for any major improvements or expenses along the way. The IRS has specific guidance on which exchange rates to use (generally the rate on the date of transaction), but having this documentation ready will make your tax preparation much smoother. Also, consider the impact of any outstanding mortgage or loans against the property. If you have a foreign currency mortgage, the exchange rate fluctuations affect both your cost basis calculation and any gain/loss when the loan is paid off at sale. This adds another layer of complexity that's worth planning for early in the process.

Reading through all these experiences has been incredibly eye-opening! I'm in a somewhat similar situation - moved to the US 2 years ago with a green card and own property back in Canada that I'm considering selling. What I'm finding most challenging is coordinating all the different reporting requirements and making sure I don't miss anything. One question I have that I don't think has been fully addressed: if I sell my Canadian property and realize a capital gain, but then reinvest those proceeds into purchasing a primary residence here in the US, are there any provisions that allow me to defer or reduce the tax impact? I know there used to be like-kind exchange rules for investment properties, but I'm not sure how that works when you're talking about foreign property to US primary residence. Also, has anyone dealt with the situation where your foreign property was jointly owned? My property is owned 50/50 with my spouse who is not a US resident. I assume I only need to report my portion of any gain, but I'm wondering if there are any complications with the joint ownership structure when it comes to US tax reporting. The currency fluctuation point that was just raised is particularly concerning for me since the Canadian dollar has weakened quite a bit against the USD since I purchased the property. Sounds like this could actually increase my taxable gain in USD terms even if the property value in CAD hasn't changed much.

This thread has been incredibly helpful! I'm in a similar situation doing freelance graphic design without any formal business registration. I've been terrified about reporting the income because I wasn't sure if I was "official" enough. Reading everyone's experiences really clarifies that reporting income and having proper licensing/registration are two completely separate issues. The IRS wants to know about ALL income regardless of whether you have the right permits or certifications. I'm definitely going to start implementing some of the tracking systems mentioned here - especially using an app to photograph receipts right away. I've probably missed out on so many legitimate deductions because I'm terrible at keeping paper receipts organized. The advice about setting aside 25-30% for taxes is also a wake-up call. I've been treating all my freelance income as "fun money" and would be in serious trouble come tax season. Starting a separate savings account for taxes this week! Thanks to everyone who shared their real experiences - it's so much more helpful than trying to figure this stuff out from confusing government websites.

This whole discussion has been a lifesaver! I've been doing mobile pet grooming without proper licensing and was losing sleep over whether to report my income. Seeing everyone's experiences makes it so clear that the IRS and state licensing boards operate completely independently. I'm definitely going to implement the expense tracking tips mentioned here - I had no idea I could deduct things like my phone bill or even YouTube Premium if I use it to learn new grooming techniques! I've probably been leaving hundreds of dollars in deductions on the table. The 25-30% tax savings rule is going to be a game changer too. I've been spending everything I make and would have been in serious trouble come tax time. Opening a separate savings account tomorrow and starting fresh with better habits. One thing I wanted to add for other mobile service providers - don't forget to track your mileage between clients! I drive all over town for appointments and apparently that's a legitimate business deduction I've been missing out on. Every mile adds up! Thanks everyone for sharing your real-world experiences. It's so much more helpful than trying to decode IRS publications on your own!