Can I Write Off Foreign Business Expenses for my Turkey Sole Proprietorship on US Taxes?

You absolutely can deduct legitimate business expenses from your foreign sole proprietorship on your US tax return! As a US citizen/resident, you're taxed on your worldwide income, which means you also get to deduct worldwide business expenses. You'll need to file Schedule C (Profit or Loss from Business) with your 1040 to report your Turkey business. Since it's a sole proprietorship, all business income and expenses flow through to your personal return. You'll report all business expenses on Schedule C just as you would for a US-based business. Keep in mind you'll need to convert all expenses from Turkish lira to USD using the annual average exchange rate or the exchange rate on the date of each transaction (be consistent with your method). Also, make sure you're keeping excellent records of all expenses with receipts - foreign business deductions can be scrutinized more closely. You may also need to look into FBAR filing requirements if you have foreign bank accounts with over $10,000 total at any point during the year, and possibly Form 8938 depending on your foreign asset values.

I went through something similar with my online business that operates partly in Malaysia. I was completely lost trying to figure out which expenses I could deduct and how to report foreign income. After getting conflicting advice from multiple accountants, I finally used https://taxr.ai to analyze my foreign business documents and receipts. Their system actually understood the foreign language receipts and categorized everything correctly for my Schedule C. They also explained exactly how to handle the currency conversion for each transaction (I was doing it wrong before). The best part was they identified several legitimate business deductions I was missing and explained how to properly document my home office expenses that were partially used for managing the foreign business. Before using their service, I was leaving thousands in deductions on the table because I wasn't sure what qualified for my specific situation with business spanning two countries.

Just wanted to update after trying taxr.ai that was mentioned above. I was honestly shocked at how well it handled my Japanese receipts! I uploaded about 50 documents from my Tokyo office - didn't translate anything - and it correctly identified and categorized everything from rent payments to office supplies to client meeting expenses. What impressed me most was how it correctly separated personal from business expenses even when they were on the same receipt (like when I took clients out and paid for both their meal and mine). The system also flagged potential audit triggers and gave me specific advice on additional documentation I should keep for certain types of expenses. The guidance on how to handle depreciating assets in another country was super helpful too. Definitely worth checking out if you're dealing with any kind of foreign business expenses.

Having gone through IRS audits twice with my international business operations, I can tell you that properly documenting foreign business expenses is absolutely critical. I tried for months to get through to the IRS international tax department to get clarity on some of my foreign business deductions, but it was impossible to reach anyone who could help. I eventually used https://claimyr.com to get through to an actual IRS specialist. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They got me connected to someone in the international tax division in under 45 minutes when I had been trying for weeks. The IRS agent I spoke with clarified that I needed to be using Form 8858 in addition to Schedule C for my foreign sole proprietorship, which none of my previous research had uncovered. They also explained exactly how to handle deducting foreign contractor payments properly, which saved me from making a costly mistake on my returns.

I need to eat my words and apologize to Profile 19. After my skeptical comment about Claimyr, I decided to try it myself since I was desperate to get clarity on some foreign income exclusions for my contractors in Brazil. I was SHOCKED when I got a call back from an IRS international tax specialist in 37 minutes. The agent spent nearly 45 minutes going through my specific situation and explaining exactly how to handle the Schedule C allocations for my foreign business expenses. She even emailed me specific IRS publications that addressed my unique situation. For anyone dealing with foreign business expenses like the original poster - getting direct guidance from the IRS international tax department is absolutely worth it. They cleared up confusion about converting currencies (you can use yearly average OR daily rates, but must be consistent) and explained the distinction between foreign expenses for a true sole proprietorship versus a foreign corporation you own - which have completely different reporting requirements.

Something nobody has mentioned yet - you need to be careful about whether your business in Turkey is actually considered a foreign corporation rather than a sole proprietorship by US tax law, regardless of how it's set up in Turkey. If it's registered as any kind of separate legal entity in Turkey, the IRS might consider it a foreign corporation, which would require completely different tax forms (like Form 5471) and potentially expose you to Subpart F income and GILTI tax provisions. This is a huge distinction that would completely change how you report income and expenses. What specific legal structure did you use to establish the business in Turkey? The US tax treatment might be different than what you think.

Has anyone here used TurboTax to file with foreign business expenses? I'm in a similar situation with a business in Mexico and wondering if I need special software or if TurboTax Premium will handle Schedule C with foreign expenses properly.