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Protecting Income Earned Abroad from Taxes
01-17-2017, 12:39 PM
For the Americans here who earn their income abroad (through either legal or not-so-legal means), how do you protect it from the IRS?
Especially curious to know what you would do with any cash payments you receive, especially large amounts (like 10K+) that you can't spend right away?
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Protecting Income Earned Abroad from Taxes
01-17-2017, 01:42 PM
Maybe I am crazy but I long to pay American taxes instead of German ones. I am earning money in the US again starting this year and don't mind being taxes at the American rate instead of the European one.... Its pure robbery here and super painful.
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Protecting Income Earned Abroad from Taxes
01-17-2017, 02:21 PM
You can legally shield far more than $100,000 in income IF you setup a non-US corporation overseas, preferably in a country with zero corporate income tax. All earnings of your non-US business can't be taxed by the US until you bring that income back to the US.
Only the salary that non-US corporation pays you is taxable, over $100,000. So, pay yourself a salary of $100,000 and let the rest of the company's earnings be profit to the corporation. That cannot be taxed by the US.
And there is no reason to bring that profit back, ever. Just keep it overseas and you can spend it on 'business expenses' over there as much as you'd like. Since the definition of business expenses is very broad, this should include most travel, housing, computers, meals, etc.
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Protecting Income Earned Abroad from Taxes
01-18-2017, 03:47 AM
I think it needs to be pointed out that the foreign income tax exclusion only applies to American Citizens who have residency in another country and no longer hold residency in the United States.
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Protecting Income Earned Abroad from Taxes
01-18-2017, 05:20 AM
If you sell something online when you live in U.S (service or merchandise. Service might be a lot easier), is it possible to use credit card processing company in another country without getting trouble?
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Protecting Income Earned Abroad from Taxes
01-18-2017, 12:16 PM
The LLC likely elected to have c corp tax treatment, as a non-resident alien cannot legally be a shareholder in a LLC with s-corp status.
You could still get ~100k tax free from the foreign earned income exclusion amount. But indeeed the profits would be subject to double taxation over that amount. And if you have net income of over 1,000,0000 you're looking at a 35% corporate income tax rate.
With Trump coming in this could all change pretty fast and very favorably for the c corp. He's talking about drastically lowering the corporate income tax rate.
IMO the big benefit of LLCs is not the pass-through taxation with s-corps, but the protection of personal assets. What if you sell dick pills online and someone has a heart attack, dies and sues you. Say you have $2m in a brokerage account, well without a LLC limiting your liability you could been in for a lengthy battle.
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Protecting Income Earned Abroad from Taxes
01-18-2017, 12:55 PM
How do the big boys, like Google, protect it? As Trump says, they all keep the money outside the country. The money gets received by Google Ireland or whatever, which isn't American, so as long as they don't send it back to Google USA, they don't get taxed. Perhaps you could do something similar?
I suppose it depends on how much you're making and how much incorporation costs. But some guys just incorporate their own name. E.g. "Marc Faber Ltd.". Maybe you could have "GyopoPlayboy Korea Inc." as well as GyopoPlayboy the individual.
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Protecting Income Earned Abroad from Taxes
01-18-2017, 02:51 PM
To condense some of the advice above:
There are tricks to avoid it but the higher you stack the tricks the more you must pay for compliance and risk paying more to defend against compliance audits. Google can use these tricks because they have staff that paid to work 40 hours per week, entirely on tax compliance, 52 weeks per year likely with bonuses for amount of tax avoided.
One man is not a tax department, and an accountant or lawyer for which you are one of 90 clients is also not a tax department.
Always ask "how much will this cost me in compliance and fees" when considering how much you will save in taxes. Also, if you want to DIY, consider that foreign asset reporting and compliance penalties are outrageous if you do get pinched.
What do I mean by compliance? A US llc electing c corp status needs to file its secretary of state reports, pay its renewal fees, keep corporate records and financial records all before even filing separate tax returns for that corporation. Miss any one of those and you start to get letters and the focus of the 'eye of bureaucratic sauron' I also have a hunch from past experience that different agencies share delinquent compliance clients with other agencies. It seems like people that miss filings with one agency start getting phone calls and scrutiny from all of them.
It might cost less to just renounce your US citizenship.
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Protecting Income Earned Abroad from Taxes
01-18-2017, 02:59 PM
what Amazon and Google do is different from what most individuals do. First, they are conducting a business rather than being employed, and they do it via a foreign sub in a foreign country. For example, they might use a Luxembourg corporation in Luxembourg. They choose a country like Luxembourg because its low tax and/or the country offered them a company specific tax treaty. This is in contrast to the individual earning a salary in London, which is high tax and which the individual chose because of the high paying job. Second, they are generally keeping the money in Luxembourg. If they repatriate it to the U.S., they pay a huge tax. That is one reason why companies like Apple and Microsoft have huge piles of cash on their balance sheet which some securities analysts believe is not optimal.
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Protecting Income Earned Abroad from Taxes
01-18-2017, 06:04 PM
I am in the same boat. From what am am told, you should get a CPA. There are slot on the East coast who deal with contractors who make their money overseas. Even without living outside the US for more than the 330 days, you can "shield" your earnings.
It's it legal or correct? Idk. If you get audited, there is a possibility you can owe taxes. I may till the dice and go that route but 5 years later if the Fed's come knocking I may be screwed.
My best bet is to stay outside the states for the 330. Every year I would be close to the 330 due to me being a drilling reservist. I will be following this thread and update you guys if I decide to shield my income without doing the 330 days.
Last year I made 20k outside the US. I may see if my CPA recommends me to claim the inclusion. This year, I will make 95% of my income outside the US. My I come will be over 100k. The taxes are over 20k if I try to claim the foreign tax break. If I claim in and they decide to take it back I will owe them plus the penalty. I'm a small fry but I don't know if it's worth looking down that barrel.
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Protecting Income Earned Abroad from Taxes
01-18-2017, 08:46 PM
To fall under CFC and subpart F rules, US persons must control more than 50% of the voting stock or value and the individual must own more than 10% of the voting stock. Subpart F income only includes passive and investment income. Operating or business income is not taxed until it is repatriated.
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Protecting Income Earned Abroad from Taxes
01-19-2017, 02:51 AM
You guys working overseas should be filing FBAR and FATCA if you have foreign accounts. Don't fuck around with that. The IRS will take all your money if they find out.
The first $100k of earned income can be excluded from income tax, but not SE tax.