Do US citizens living abroad still qualify for Qualified Business Income (QBI) deduction?

The Foreign Earned Income Exclusion (FEIE) and Qualified Business Income (QBI) deduction interact in a specific way for US citizens abroad. For QBI purposes, what matters is whether your income is "effectively connected with a US trade or business." Since all your clients are US-based, you likely have US-source income that could qualify for QBI. However, there's a catch - any income you exclude using the FEIE cannot also be counted for QBI purposes. You can't double-dip on tax benefits. You might consider taking a hybrid approach. If your $142,000 income exceeds the FEIE limit (around $120,000 for 2025), you could apply the FEIE to the maximum amount and then potentially claim QBI on the remaining portion that couldn't be excluded. This strategy often works well for higher-earning expats. Also, check if you fall under the Specified Service Trade or Business (SSTB) rules for consulting, which might limit your QBI deduction based on your income level.

After spending hours researching this exact issue last year, I found a tool that saved me so much headache with my expat taxes. I'm a digital nomad consultant with US clients too, and figuring out how QBI interacted with my foreign income was driving me crazy until I tried https://taxr.ai to analyze my situation. Their system specifically asked about FEIE and QBI interaction and gave me a clear breakdown of which portions of my income qualified. They even explained exactly how the "effectively connected income" rules applied to my situation with US clients but foreign residence. The analysis showed me I could claim QBI on the portion above my FEIE limit, which saved me thousands. It might help you get clarity on your specific situation too since the rules around QBI for expats can be super nuanced depending on your exact business structure and client relationships.

Just wanted to update after trying taxr.ai that the previous commenter mentioned. I was bouncing between three countries last year with a mix of US and European clients, and I was completely confused about QBI eligibility for my consulting income. The system actually broke down my income by client source and explained that only my US-sourced income above the FEIE limit could qualify for QBI. It showed exactly how much I could claim as QBI (about $18K in my case) and explained the "effectively connected with US trade or business" requirement in terms I could understand. I ran the numbers through their calculator and confirmed with my own research that their analysis was spot on. Definitely cleared up my confusion about QBI as an expat!

If you're trying to get official confirmation about your QBI eligibility from the IRS, good luck with that. I spent WEEKS trying to get through to someone who actually understood expat tax situations. After 12+ calls and hours on hold, I finally discovered https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in just 20 minutes who confirmed that my US-source consulting income could qualify for QBI even though I was living in Spain, as long as I wasn't excluding that specific portion with the FEIE. The agent walked me through exactly how to document everything on my Schedule C and Form 8995 to avoid flags. Honestly, getting that direct confirmation from the IRS gave me the confidence to claim the deduction I was entitled to instead of just giving up on it because of the confusion.

I need to eat my words here. After posting my skeptical comment yesterday, I was so frustrated trying to get through to the IRS about my QBI question (6 attempts, each with 1+ hour holds that eventually disconnected), that I broke down and tried Claimyr. I was completely shocked when they called me back in about 15 minutes with an actual IRS agent on the line. The agent confirmed that as a US citizen working remotely from Mexico for US clients, I could claim QBI on income that wasn't excluded by the FEIE. She also explained exactly how to document everything on my forms to make sure it wouldn't trigger any review flags. For anyone dealing with these complex expat tax questions, being able to get direct IRS confirmation is incredibly valuable. Totally worth it just for the peace of mind.

One thing nobody has mentioned yet is the QBI limitations based on your total taxable income after standard/itemized deductions. Remember that QBI is limited to either 20% of your qualified business income OR 20% of your taxable income, whichever is LOWER. If you're using the FEIE to exclude a big chunk of your income, your taxable income might be very low, which could severely limit your QBI deduction regardless of whether your business qualifies. I learned this the hard way last year while living in Thailand and had to completely rethink my tax strategy.

Does anyone know if having a US LLC while living abroad affects this QBI situation? I've got a Wyoming LLC for my consulting business but I live in Germany. My tax person said something about US LLCs being "disregarded entities" for international tax purposes but I'm not sure how that impacts QBI eligibility.

Based on your situation, you should definitely be able to claim QBI on at least a portion of your income. Since all your clients are US-based companies and you're providing services to the US market, your consulting business likely qualifies as "effectively connected with a US trade or business" even though you're physically working from Portugal. The key issue you'll need to navigate is the interaction between FEIE and QBI that others have mentioned. You can't claim both benefits on the same income. Given your $142k earnings, you could potentially exclude up to about $120k with FEIE and then claim QBI on the remaining $22k portion. However, I'd strongly recommend getting professional confirmation before filing. Marketing consulting can sometimes fall under the Specified Service Trade or Business (SSTB) rules, which could limit your QBI deduction based on your income level. The SSTB limitation kicks in around $182k for single filers, so you're likely under that threshold, but it's worth verifying. Also consider whether taking FEIE on the full amount versus claiming QBI on more of your income might be more beneficial overall - sometimes the math works out better to exclude less with FEIE and claim more QBI, depending on your total tax situation.

As someone who's been navigating expat taxes for years while running a remote business, I want to emphasize something that might get overlooked in all the FEIE vs QBI discussion - don't forget about self-employment taxes! The FEIE doesn't reduce your self-employment tax liability at all. So even if you exclude $120k of your $142k with FEIE, you're still paying SE taxes on the full amount. This is where the QBI calculation can get interesting because QBI reduces your income tax burden, but your SE taxes remain the same regardless. Given that SE tax is 15.3% on your net earnings, that's over $20k you're paying regardless of which strategy you choose. When you factor this into your FEIE vs QBI analysis, sometimes it makes more sense to exclude less with FEIE and claim more QBI, especially if you can structure things to minimize the SE tax hit through reasonable salary elections or other strategies. Also, since you mentioned all your clients are US-based, make sure you're not missing any potential business deductions that could reduce your overall taxable income before you even get to the FEIE/QBI calculation. Home office expenses, professional development, travel costs for client meetings, etc. can all add up and might change the optimal strategy.

I went through this exact same situation last year as a US citizen running a consulting business from Berlin with all US-based clients. The confusion around QBI eligibility for expats is totally understandable because the rules aren't clearly explained anywhere. Here's what I learned after consulting with an international tax specialist: Your consulting income from US clients likely does qualify as "effectively connected with a US trade or business" even though you're physically in Portugal. The key factor is that your economic activity is directed toward the US market, not where you physically perform the work. However, the interaction with FEIE is crucial. You absolutely cannot claim both FEIE and QBI on the same income - it's one or the other. With your $142k income, you could exclude up to about $120k with FEIE and potentially claim QBI on the remaining $22k. But here's something many people miss: marketing consulting often falls under Specified Service Trade or Business (SSTB) rules. The good news is that at your income level ($142k), you're well below the $182,950 threshold where SSTB limitations kick in for single filers, so you should be fine. My recommendation would be to run the numbers both ways - maximum FEIE vs. partial FEIE with more QBI - because sometimes the QBI route can actually save more in total taxes depending on your bracket. Also make sure you're maximizing business deductions first, as those reduce your income before you even get to the FEIE/QBI decision. Document everything showing your US business connections (client contracts, US payment sources, etc.) to support the "effectively connected" determination if questioned.

This is exactly the kind of complex expat tax situation that trips up so many of us! I've been running a remote marketing consultancy from various countries for the past 4 years, and the QBI/FEIE interaction was one of the most confusing aspects to figure out. From my experience and research, you should definitely qualify for QBI on at least a portion of your income. The "effectively connected with US trade or business" test looks at the economic substance of your activities, not your physical location. Since all your clients are US-based companies and you're providing services directly into the US market, that creates the necessary connection. The tricky part is optimizing between FEIE and QBI. At $142k, you're in an interesting position where you might actually benefit from excluding less than the maximum $120k with FEIE and claiming QBI on a larger portion. Here's why: if you're in the 24% tax bracket, the QBI deduction (20% of qualified income) can provide significant savings, especially when you consider that FEIE doesn't reduce your self-employment taxes anyway. I'd recommend modeling a few scenarios: 1. Full FEIE ($120k) + QBI on remaining $22k 2. Partial FEIE ($80-100k) + QBI on remaining $42-62k 3. Minimal FEIE + maximum QBI (if the math works) Don't forget that marketing consulting likely falls under SSTB rules, but you're well below the $182k threshold where limitations kick in. Also, make sure you're maximizing business deductions first - home office, international business phone/internet, professional development, etc. all reduce your income before you even get to the FEIE/QBI decision. The key is running the actual numbers with your specific situation, including state tax considerations if you maintain US tax residency anywhere.

I'm in almost the exact same situation - US citizen living abroad (in my case, Costa Rica) running a consulting business with exclusively US clients. After going through this maze last year, I can confirm that you should be able to claim QBI on at least part of your income. The key insight that my tax advisor helped me understand is that the "effectively connected" test isn't about where you physically sit when doing the work - it's about the economic reality of serving the US market. Since your clients are US companies and you're providing services into the US economy, that creates the necessary business connection. However, I learned the hard way that you really need to run the math on different FEIE/QBI combinations. In my case, with $135k in consulting income, I found that excluding only $95k with FEIE and claiming QBI on the remaining $40k actually saved me more in total taxes than maxing out the FEIE at $120k. The QBI deduction on the larger amount more than offset the additional income tax I paid on the non-excluded portion. One practical tip: make sure you're tracking all your business expenses properly because they reduce your income before you even get to the FEIE/QBI decision. I was able to deduct coworking space fees, VPN subscriptions for accessing US client systems, international wire transfer fees, and even a portion of my rent for my home office here in Costa Rica. Also, since marketing consulting can fall under SSTB rules, keep good documentation showing that your work is primarily advisory/strategic rather than hands-on creative execution, just in case it ever comes up in a review.

The consensus here is spot on - you should definitely qualify for QBI as a US citizen with US-based clients, even while living in Portugal. The "effectively connected with US trade or business" test focuses on economic substance, not physical location. However, I want to add one critical consideration that could significantly impact your decision: Portugal's tax treaty with the US and how it affects your overall tax strategy. Portugal has been attracting many digital nomads with programs like D7 visa and NHR (Non-Habitual Resident) status, which can provide substantial Portuguese tax benefits for foreign-sourced income. If you qualify for NHR status in Portugal, you might pay 0% Portuguese tax on your US consulting income for up to 10 years. In this scenario, you'd want to carefully model whether claiming the full amount as US income (and maximizing QBI) versus excluding it with FEIE makes more sense, especially since FEIE could potentially create issues with maintaining your Portuguese tax benefits. The math gets complex because you need to consider US federal taxes, potential US state taxes (if you maintain residency), Portuguese taxes, and how the treaty prevents double taxation. Given your $142k income level, the optimal strategy might be different than for someone in a country without favorable tax treatment for foreign income. I'd strongly recommend consulting with a tax professional who understands both US expat taxation AND Portuguese tax law, particularly around NHR status if you're eligible. The interaction between these systems could dramatically change which approach saves you the most money overall.