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Protecting Income Earned Abroad from Taxes
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GyopoPlayboy Offline
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Post: #1
Protecting Income Earned Abroad from Taxes
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?
01-17-2017 12:39 PM
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Hypno Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-17-2017 12:39 PM)GyopoPlayboy Wrote:  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?

The U.S. taxes its citizens' worldwide income, but the first $100K is exempt from U.S. (but not local) tax.

https://www.irs.gov/individuals/internat...-exclusion

Beyond that, you can deduct the foreign tax you pay which effectively means you are stuck paying the higher rate - U.S. or country where income is earned - but not (on a net basis) both. "on a net basis" means you may come out of pocket to pay both but then are entitled to a refund.
01-17-2017 01:16 PM
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kirdiesel Offline
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RE: Protecting Income Earned Abroad from Taxes
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.

Resident Germany Expert. See my Datasheet:
https://www.rooshvforum.com/thread-59335.html

Mini Datasheets: Antwerp / Rotterdam / Lille
01-17-2017 01:42 PM
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ascotpudding Offline
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RE: Protecting Income Earned Abroad from Taxes
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.
01-17-2017 02:21 PM
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HectorLavoe Offline
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RE: Protecting Income Earned Abroad from Taxes
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.
01-18-2017 03:47 AM
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Sebastian Offline
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RE: Protecting Income Earned Abroad from Taxes
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?
01-18-2017 05:20 AM
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skptc Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-18-2017 05:20 AM)Sebastian Wrote:  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?

Not really. Still illegal not to report income and the penalties are quite severe.

I know a few US non-residents with a similar setup to this:

US LLC S-Corp election (Non-CA, usually Wyoming, Nevada, Delaware etc.) owned by an offshore corporation (Belize, Seychelles, BVI) which is owned by the US person. Business is conducted through the US LLC and the offshore corporation acts as a holding company. Banking can be all done in the US and the US LLC pays the maximum salary to the owner as allowed by the FEIE. The remaining income is retained in the offshore entity (in a US or foreign bank).

This setup costs approximately ~$8,000-12,000 to setup and $4,000 a year to have a lawyer manage it and submit the required annual/quarterly documents.

With this setup the person must have established a domicile overseas and remain outside the US for 330 days of the year to get the tax benefits
(This post was last modified: 01-18-2017 06:22 AM by skptc.)
01-18-2017 06:18 AM
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swiss rabbit Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-17-2017 02:21 PM)ascotpudding Wrote:  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.

I think it's more difficult than we think for a U.S person to own a foreign corporation due to "CFC" rules

A U.S. person owning a foreign corporation is taxed on that foreign corporation as if it's a pass-through entity (very bad)

(01-18-2017 06:18 AM)skptc Wrote:  I know a few US non-residents with a similar setup to this:

US LLC S-Corp election (Non-CA, usually Wyoming, Nevada, Delaware etc.) owned by an offshore corporation (Belize, Seychelles, BVI) which is owned by the US person. Business is conducted through the US LLC and the offshore corporation acts as a holding company. Banking can be all done in the US and the US LLC pays the maximum salary to the owner as allowed by the FEIE. The remaining income is retained in the offshore entity (in a US or foreign bank).

Are you sure? An LLC cannot elect S-Corp status when it is owned by a foreign shareholder (The shareholder in this instance would be the offshore corporation)
01-18-2017 11:26 AM
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Armogan Offline
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RE: Protecting Income Earned Abroad from Taxes
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.
01-18-2017 12:16 PM
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Hypno Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-18-2017 12:16 PM)Armogan Wrote:  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.

I have heard 15% being thrown around, i.e. reducing the corporate income tax rate from 35% to 15%. While that sounds incredibly optimistic, I think it actually might get done for 3 reasons. First, the corporate income tax by definition is double taxation - profits are taxed once at the corporation level and then a second time when distributed as dividends; so cutting one of those taxes in half is hardly revolutionary. Second, the tax code is typically amended every 30 years or so. I'm talking about wholesale overhauls, not the changes to a handful of sections that happens every year. The last overhaul was in 1986, and before that it was in 1954, so about every 32 years. So we are right on time. Lastly, a tax code overhaul is an opportunity to do a lot of political stuff. You can "drain the swamp" so to speak by eliminating a lot of provisions that benefit special interests. An example might be oil and gas industry or the special rules for taxing carried interests that hedge funds like. In 1986, what they did was eliminate a lot of deductions and special rules in exchange for lower rates and what was supposed to be a simpler tax code. Even if ultimately none of these special rules changes, there is a lot of political mileage (e.g. donations) to be obtained from putting those things in play.
01-18-2017 12:32 PM
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Phoenix Offline
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RE: Protecting Income Earned Abroad from Taxes
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.
01-18-2017 12:55 PM
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GyopoPlayboy Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-18-2017 12:55 PM)Phoenix Wrote:  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.

yea i think this may be the way to go.

when you're earning cash under the table abroad and not reporting it in your taxes, the danger is in what could happen if you're suddenly throwing around cash everywhere back in the US.

it would raise some flags if a supposed teacher on a 30K/year salary in China comes home and puts down 180k on a Lambo.

so the smart move is to set up a private enterprise, like an llc, which purchases the Lambo. the cash coming into that business account can be marked as whatever you want..."consulting fees" maybe?
01-18-2017 01:52 PM
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Dr. Howard Offline
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RE: Protecting Income Earned Abroad from Taxes
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.

Why do the heathen rage and the people imagine a vain thing? Psalm 2:1 KJV
(This post was last modified: 01-18-2017 02:56 PM by Dr. Howard.)
01-18-2017 02:51 PM
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Hypno Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-18-2017 03:47 AM)HectorLavoe Wrote:  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.

this is an important requirement. in fact, there are rules about how many days you can spend in the U.S. It may be covered in IRS Publication 54, available here: https://www.irs.gov/pub/irs-pdf/p54.pdf
01-18-2017 02:56 PM
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Hypno Offline
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RE: Protecting Income Earned Abroad from Taxes
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.
01-18-2017 02:59 PM
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Belize King Offline
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RE: Protecting Income Earned Abroad from Taxes
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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01-18-2017 06:04 PM
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dallasguy Offline
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Post: #17
RE: Protecting Income Earned Abroad from Taxes
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.
01-18-2017 08:46 PM
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skptc Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-18-2017 11:26 AM)swiss rabbit Wrote:  
(01-17-2017 02:21 PM)ascotpudding Wrote:  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.

I think it's more difficult than we think for a U.S person to own a foreign corporation due to "CFC" rules

A U.S. person owning a foreign corporation is taxed on that foreign corporation as if it's a pass-through entity (very bad)

(01-18-2017 06:18 AM)skptc Wrote:  I know a few US non-residents with a similar setup to this:

US LLC S-Corp election (Non-CA, usually Wyoming, Nevada, Delaware etc.) owned by an offshore corporation (Belize, Seychelles, BVI) which is owned by the US person. Business is conducted through the US LLC and the offshore corporation acts as a holding company. Banking can be all done in the US and the US LLC pays the maximum salary to the owner as allowed by the FEIE. The remaining income is retained in the offshore entity (in a US or foreign bank).

Are you sure? An LLC cannot elect S-Corp status when it is owned by a foreign shareholder (The shareholder in this instance would be the offshore corporation)

Yep my mistake.

Taxed as a pass-through entity.
01-18-2017 10:18 PM
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GyopoPlayboy Offline
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RE: Protecting Income Earned Abroad from Taxes
(01-18-2017 06:04 PM)Belize King Wrote:  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.

yea i'm in the same boat. i'll be making 100% of my income outside the US and a big chunk comes from a client who was willing to pay in cash. i can exclude this specific portion from my taxes and nobody anywhere would be any wiser.

the issue occurs when these cash payments build up and you come back into the US and suddenly something like 50 or 100k magically appears in your account that can't be explained. doesn't IRS flag down transfers of anything over 10k as worth looking into (which is why some of the dumber criminals send multiple payments of 9,999 and get caught this way?)
01-19-2017 12:50 AM
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dallasguy Offline
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RE: Protecting Income Earned Abroad from Taxes
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.
01-19-2017 02:51 AM
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