GCC: Ever since I became an accidental business owner when this blog started making a little dough, I have had a small problem… Self-Employment taxes. Extra money and an interesting tax dilemma are fun problems to have, I agree, but those confounded SE taxes were totally ruining my Never Pay Taxes Again street cred. And that, I simply could not abide.
So I began exploring my options, writing as I went. For example, last year I shared Never Pay Taxes Again by Moving Abroad, which explains how digital nomads (working for themselves or a US employer) can reduce or eliminate their US federal income tax burden simply by traveling the globe. Amazing! But it still didn’t address my SE tax challenge.
Shortly thereafter, I had my first phone call to discuss creating a Belize Corporation with Stewart Patton, a US tax attorney, expat entrepreneur, and founder of U.S Tax Services.
“You’ve done your research”, he said.
“I think you’ve just solved my most annoying problem”, I replied.
We liked each other immediately.
See, even though the US tax code has something for everybody, it offers just a little bit more to business owners. Of course, with better tax benefits come more complicated rules. So I’ve asked Stewart to share a guest post about how expat entrepreneurs (like you? like me?) can truly Never Pay Taxes Again. This time, with your own Overseas Corp.
Tax-Savvy Expat Entrepreneur
Thanks Jeremy for inviting me to do a guest post, I really appreciate it.
Your previous post did an excellent job explaining the foreign earned income exclusion—that’s the rule that allows an expat to make about $100,000 per year without paying US tax.
That post has just about everything that an employee needs to know. As discussed in that post, if you have a job making less than about $100,000 per year, you really can travel the world and pay no US federal income tax.
But, if you own and operate a business (either in your own name or through an LLC), several special rules apply to make your tax picture much more complicated:
- You’re “self-employed” for US tax purposes, so you’re subject to the “self-employment tax,” which is about 15% up to $118,000 and about 3% over that amount. The foreign earned income exclusion works only for income tax purposes–it doesn’t help at all with the self-employment tax.
- If you net more than about $100,000 per year, then you’ll just have to pay US tax on the overage (assuming you don’t have high enough housing expenses to use the foreign housing deduction). Once the foreign earned income exclusion runs out, there’s nothing standing between you and a US tax bill.
- Then, even if you net less than about $100,000, two special rules limit the effectiveness of the foreign earned income exclusion for business owners. If your gross is over $100,000, the “scaleback rule” limits your use of the foreign earned income exclusion to account for the fact that business deductions also reduce your gross income. Then, if your business is one where capital is a material income-producing factor (such as an Amazon FBA business), you can only treat 30% of your net income as “foreign earned income” (you just have to pay US tax on the rest).
The above rules can get a little complicated in their details, but here’s the bottom line: a self-employed entrepreneur is simply going to pay US tax.
So that’s the bad news. Here’s the good news: you can avoid being a self-employed entrepreneur by instead owning and operating your business through a non-US corporation.
When you operate through a non-US corporation:
- You’re not self-employed, you’re an employee of a non-US corporation. So, you don’t pay self-employment tax, and the non-US corporation isn’t required to collect US employment taxes.
- If you net more than about $100,000 per year, you can leave that amount in the corporation, and you only pay US tax when you decide to cause the corporation to pay that amount to you. This allows you to invest those amounts on a tax-deferred basis. Your non-US corporation basically has the tax profile of a traditional IRA that you can pump way more than just $5,500 per year into.
- The two special rules discussed above (the scaleback rule and 30% rule) simply don’t apply.
So, as expat operating a business through a non-US corporation can pull about $100,000 out of the corporation as a salary and pay absolutely no US tax. No income tax, no self-employment tax, no tax at all.
Now, obviously, there are some ins and outs here. Nothing this good is without its complications. For example:
- This structure only works for a business, not a profession. A profession is where you sell your own time and attention; a business is where you sell something else, like another person’s time and attention or a product, whether digital or physical.
- This only works for businesses that aren’t operated by employees or independent contractors who are in the United States (but it’s okay to have a third party, like Amazon, providing services to your business).
- For that reason, this only works if you live outside the US more-or-less full time (i.e., you qualify for the foreign earned income exclusion). If you live in the US, there’s just no way to use a non-US corporation to pay less tax.
- If you’ve already started your business, putting it into a non-US corporation structure can be a taxable event. Then, if you move back to the US, you’ll have to take the business out of the non-US corporation, and that can be a taxable event as well.
For example, let’s say Jeremy forms a Belize company to hold GoCurryCracker—let’s call the company “GCC Inc.” Now, instead of operating the business in his own name, he operates it through his non-US corporation.
Jeremy hits all three of the requirements to use this structure:
- Since the business makes money from ads and affiliate commissions (instead of from Jeremy selling his own services), it’s a business and not a profession;
- Jeremy lives full-time outside the US; and
- The business doesn’t use the services of any employees or independent contractors who live in the US.
Now, salary paid to Jeremy by GCC Inc. isn’t subject to any US tax at all up to about $100,000 per year—no US federal income tax or self-employment tax. And Belize doesn’t impose any tax on the company’s earnings either.
Also, note that Jeremy can still bank in the US. Having a US bank account simply requires forming a limited liability company in which the Belize company is the sole member.
More generally, the business can be operated in a way such that no one knows that Jeremy owns it through a non-US corporation. Everything can simply be done through the US limited liability company.
As you can see, operating through a non-US corporation structure has absolutely fantastic US tax benefits. So how do you set one up exactly?
Normally, hiring a US tax attorney to help you with this process would cost thousands of dollars. The reason I know that is that I’m a US tax attorney who charges people thousands of dollars to help with this process. :)
But, I wanted to be able to help more people than I have time to help on a one-on-one basis. So, I created the Tax-Savvy Expat Entrepreneur online course. The course shows you exactly how to set this structure up yourself and goes into way more detail on everything discussed above.
Beyond just talking about how this all works, the course:
- contains links to the exact resources you need to put your structure together,
- provides the actual legal documents you’ll need to complete and submit along the way, and
- includes a one-hour call to make sure you understand everything and don’t have any problems setting it all up.
Tax-Savvy Expat Entrepreneur is a complete package that allows you to put together the best legal structure for your business all on your own.
Thanks!
Learn more about Tax-Savvy Expat Entrepreneur* links to the Tax-Savvy Expat Entrepreneur package are affiliate links.
GCC: In 2015, I paid $5,146 in SE taxes due to blog income. GCC Inc, a Belize IBC, would immediately save us $4k+/year. As income grows, we could pay no tax on $200k in earnings with his/her FEIE exclusions, and defer taxes on infinite earnings rather than just 50k or so from solo 401ks. Whether or not we intend to ever return to the US is a discussion we are having with some earnest, but I imagine next years’ tax return will look very different.
Interesting article.. What’s the definition of living full-time outside the US? Is there a “number of days you’re outside US” rule?
Yes. You can read more about it here.
> Whether or not we intend to ever return to the US is a discussion we are having with some earnest
Curious about this. What are the factors that would bring you back to the US?
Unknown.
Won’t you be taxed in Belize? While you are tax free in US I presume where you keep your corp running they will want a cut of the profits?
No. Belize doesn’t impose tax on a Belize international business company.
Then, there are ways to avoid paying tax anywhere else outside the US. More detail here: http://ustax.bz/meow-says-the-dog-a-u-s-tax-guys-take-on-non-u-s-income-taxes/
That is exactly what I will be looking for in a few years. That is a great post for bookmarking.
I was also wondering, have you considered if it would also make sense to set up/move that business to a jurisdiction where you could potentially gather residency as well? Based on my foggy memory, there are some EU countries that would offer this for starting a business.
Key to tax minimization is not being in a country that will ultimately tax the salary. I’m not aware of any EU countries that meet that criteria. But maybe.
Very interesting GCC. Doing this seems like it would save you plenty on taxes, but the rest of us who live in the U.S. still have to pay SE taxes.
Bummer!
He didn’t explain why those living in the US couldn’t do this in much detail. Call me blonde but I’m curious/need to know!?! Ha!
Also worth mentioning (to clear my burning curiosity ha), I love receiving the newsletter, not complaining, but from a business standpoint…why aren’t they truncated? Would it not drive more traffic to the blog to do so? Many regards…love it all!
Hi Crystal. Here’s an article that gets into more detail on that issue: http://ustax.bz/reduce-tax-moving-business-offshore/
What if one currently has personal investments such as a 401(k) in the U.S.? Can those assets be transferred to a non-US (Belize) corporation?
Hi Forrest. This structure is just about operating a business when you live outside the US. There are other things to think about if you want to move your retirement assets or other investments outside the US.
Hm. This is good to know–I’ve been wanting to decrease our tax liability since we’ve both had income increases, so there are plenty of things to consider.
Hi Stewart,
Thanks for sharing. Some follow up questions!
* How much does it cost for someone to set up a non-US corporation? Range would be great and how quickly can one do it.
* Can you live in the US and own a non-US corporation? I guess you would still have to pay taxes since you lived in the US, but the idea would be to set up a non-US corporation and pay my family and friends who do not live in the US and save them taxes and be a nice, magnanimous guy.
* After the $100K is income tax free and self-employment tax free, what happens to the other $400,000 in profits after tax? They just sit as retained earnings on the balance sheet? Can one strategy be to WIND DOWN the company in 4 years making $400,000 after $100,000 salary? This way, you can drawn down the $100,000 a year tax free for 4 years and then start a NEW company and repeat this process indefinitely? Could be a good idea if the cost to set up the non-US corp is easy.
Did you read about Peter Fenton setting up a Hungarian subsidiary that just invoiced its Gawker US subsidiary? I went to Budapest last year to see if the city was livable and wrote about my experience in a post linked to my name in this comment. I’d love to hear your thoughts.
Thanks!
Sam
Hey Financial Samurai,
Answers in order:
1. The costs of course depend on how you do it. Here’s a case study of how you can turn $2,000 per year in costs into $25,000 per year in tax savings: http://ustax.bz/case-study-turning-2000-into-25000-or-more-every-single-year/
2. This stuff works ONLY if you live outside the US. This post is just for expats.
3. The net profit above your salary is subject to US tax down the road when it comes out of the non-US corporation as a dividend.
I continue to applaud GCC on his openness around his tax efforts. Everyone should read this and be aware how very complex our system is. We can only imagine how complex the tax situation is for a large multinational corporations or President Trump. As for me, 80% of my income is dividends and I’m too lazy to actually work for any of my income. Go GCC, congratulations. I’m home free and travel Europe for 7 months at a time. http://www.haroldhallphotography.com
Thanks Harold.
How do you manage around the Schengen Visa for 7 months in Europe?
While cool in concept given recent discussions on changing tax laws in this particular area to get more corporate income repatriated, I wonder if the setup costs make it not worth it.
I think that is unlikely. Not unless you think the US will eliminate the FEIE and start requiring non-US corporations to pay US employment taxes on US citizen employees. There are savings of $30k on SE taxes on first $200k of income for a married couple right here, plus another $50k in income taxes.
The discussions about Apple/Google/Microsoft/etc.. and repatriating “overseas earnings” might be a long term impact if you expect to be earning $200k+/year.
I currently have an LLC with 1 spouse owning 100%. To qualify for the $200k married couple number, would the spouse have to own 50% of the LLC?
I believe so. Each person needs to qualify individually, which implies that each person must have earned income. But I don’t know for sure.
Back when the Panama Papers scandal erupted I read that it affected mostly European and Southa American investors because in the US most people/compaies just use a Delaware corporation. Wouldn’t a DE corp have worked? Or are DE corps more about secrecy than sheltering taxes?
Interesting post… complexity is going up… I wish I had these kinds of problems… and I look forward to having them. haha.
Regards
No a Delaware corp wouldn’t work here. There are US tax benefits to operating your business through a non-US corporation when you’re an expat.
thanks
Interesting and thanks for sharing.
Is Belize the Delaware of the World? I’m curious as to what other tax strategies Americans can do in the US to reduce their taxes.
Hey Smart Provisions,
If you own your own business, and you live in the US, the best tax strategy is to leave the US for a few years. :)
You can travel the world, pay very little US tax, then sell your business and move back to the US. The pile of cash you’ll have at the end of this will be so much higher than if you’d stayed in the US the whole time.
Care to elaborate on this scenario or point to a related article?
You won’t pay tax while traveling so you’ll have more $ when you return to the US
The “Self-employment Tax” is actually a Social Security contribution and a Medicare premium payment. How does not making such payments affect future entitlements?
Hey Bullockornis,
That’s a very important point that I always raise with my younger clients.
You have to pay into Social Security for 10 years to be eligible to receive anything. Then, the amount you receive depends on the amount you pay in.
Then, of course, whether there will be such a thing as Social Security when you turn 65 is anyone’s guess.
So, you’re right, it’s definitely not as simple as “paying less self-employment tax is an unqualified good thing.”
Social security will be there. Medicare in its current form will NOT be there. So maybe geographic medical arbitrage will be needed. Social security is one of the big hedges against the inflation risk of retirement. I would think it is unwise to just ignore social security as “who knows if it will be there”. But you correctly pointed out that this is an important consideration. Indeed it is.
When we were in Europe, I found a 20 Euro note lying on the ground. I gave it to a homeless guy.
I basically think of Social Security in the same way.
It impacts Social Security payments, but the ROI on incremental SS payments is terrible.
So Social Security is similar to an annuity. Suitable for those who value predictability above yield rate. Currently the Australian equivalent of USA Social Security is the Age Pension – which is actually over 65s welfare limited by income and assets means tests at the time of receipt not by contributions before retirement.
Yes, exactly. It wouldn’t surprise me if US trends towards similar means testing. Also likely to be at least a 25% reduction in expected benefits.
I agree that social security is essentially an annuity with poor returns, but at least backed by a very solid “insurance company”. From what I understand, social security is in pretty good shape, only requiring minor adjustments to remain solvent. There very well may be means testing in the future, but then again that enforces its function as a hedge against disaster. Come to think of it, increasing or removing the income ceiling for FICA taxation is more likely to happen. Senior citizens are notoriously sensitive to benefits reduction, and they vote in large numbers.
All I intended to say was that it would be ill advised to tell someone to go ahead and retire in less than 10 years, thereby completely foregoing social security. Working longer to get more social security once you have established the 10 years is a totally different matter. At that point, your life of freedom becomes worth a lot more that the small increase in social security benefits.
Social Security is one of the better longevity insurances available. It has the best return on investment when contributing just up to the first bend point and if your social security taxes are as close to retirement as possible. So, for instance, going to the USA and working from say around 47 to 62 would be a great way to tap into this benefit. Above and beyond that I will agree with Jeremy in that “the ROI on incremental SS payments is terrible”
Congrats to you guys for figuring this out! I know the exact place I’m going to go for anti-tax paying guidance when my bog hits the big time :)
Very interesting post. Unfortunately, I live in the US and don’t have plans to become an expat :( Thanks for sharing though!
From the sounds of it, you’re basically setting up a shell company in another country, right? Could one pull this off if they’ve already incorporated their blog or other business in the US?
Well, the term “shell company” doesn’t mean anything really. You’re simply operating your business through a non-US corporation. That’s it really. And yes, if you have an LLC in the US, that LLC can simply be below the non-US coproration.
Jeremy, you keep thinking out of the box. Thanks for being out of the box. Overseas corps involve some serious legal and tax advice, as you pointed out. I have owned an overseas corp. Simple, it is not. Cheap it is not. But really good to know and consider.
Maybe you could do another guest post about asset protection?
What is the asset protection situation you are thinking of?
Asset protection is a complex topic. The most aggressive form involves placing your money in asset protection havens such as the Cook Islands. You have to move your money to a place that doesn’t recognize US court orders, and where pressure by the US government is unlikely to be successful. The money is managed by a trustee who is specifically instructed not to send money when you are under duress, such as by US court order to satisfy a judgment against you. Someone wishing to sue you will know they have to do that in the actual off-shore jurisdiction, away from the US legal lottery system. Plus, lawyers and witnesses have to be flown to the Cook Islands. Not going to happen.
There are many aspects to this strategy and it requires heavy duty specialized legal advice. It also must be executed prior to any sign of legal trouble. This strategy is most useful for high net worth individuals, who have a high risk of litigation and a difficult time buying insurance against it. And you must be comfortable with a trustee in a foreign country having access to your assets. It is definitely not for everyone (I have not done anything of the sort).
Is the FEIE only applicable to earned income? What if someone has investment income only (dividends / cap gains etc.). Is that excluded to a limit for a US citizen who lives abroad?
It’s earned income only. Foreign Earned Income Exclusion. Investment income is taxed the same
Interesting article – thanks. Based on this quote:
“This structure only works for a business, not a profession. A profession is where you sell your own time and attention; a business is where you sell something else, like another person’s time and attention or a product, whether digital or physical.”
….Consulting would not be a relevant strategy. Is there a smart way to structure a consulting business for an individual, independent consultant that operates exclusively internationally?
Unfortunately, with those facts there’s just no way to make it any better than just using the foreign earned income exclusion. You get the first $100k free of US federal income tax, but you have to pay self-employment tax on everything and US federal income tax on the amount above $100k.
I’m not sure about your “profession” caveat. I moved to Israel last year. Every accountant I’ve heard from here advised to create an Israeli company to avoid paying Social Security for people working as independent contractors – mostly doing IT work. I know plenty of people who’ve done just that.
Hi Stewart, Interesting article indeeed! What if you had the exact same consulting business conditions as mentioned by RH but you sell time of others (non-US consultants) as well as your own time for clients internationally? Would your proposed business structure then be workable?
If you are selling the time of others and none of your own, then you have a business that could benefit from an overseas corp.
Ok, so if I am selling my own time as well, then would setting up an llc with S-corp election be best?
There are too many factors to say 100% yes/no.
errr, mmm okay,but surely there is a way to give a generic breakdown of the main decision factors? The main decision factor that I know about is that one should normally wait until the expected profit of the LLC is high enough (beyond the “reasonable salary”) to justify the S-corp election. Otherwise, there is no tax advantage, and a just a lot of paperwork and extra cost.
What might be the other general “hot button” questions for determining S-corp election, or not, for a US expat in Europe? I am just looking for a high-levle outline of issues or perhaps links to other information sources that help to fill the picture a bit more before I decide to take the course offered by the experts at http://www.UStax.bz (which I must say, looks like quite a credible resource, and I thank GCC for finding them). Many thanks!
Hi Frank
I think these are 2 mutually exclusive things. If you are selling your time, an overseas corp isn’t a good option and you definitely should not take this course. (There is a course for freelancers/professionals also, but I didn’t do any research there.)
Deciding whether or not to have an LLC taxed as S-corp is a big topic. Income is one part. Do you plan on having your children as employees? Do you use the home office deduction? There are many factors and if I were making that decision I would do a lot of research for my specific situation. I haven’t done that, so wouldn’t be able to go through all of the nuances especially just in a blog comment.
All of that said, I’ve had good conversations with Steve at Evergreen Small Business. He has a lot of articles about LLC/S-corp implementation and pros/cons. I just grabbed one that came up via google search, but you can dig deeper:
http://evergreensmallbusiness.com/should-you-use-an-s-corporation-for-a-sideline-or-part-time-business/
Sorry, I don’t know if that is helpful or answers your questions.
Frank, I think Jeremy answers your questions in the most accurate way that’s possible in terms of general advice. But also you want to keep in mind the requirements for disclosing foreign business interests.
Here’s another relevant blog post: http://evergreensmallbusiness.com/reporting-a-foreign-business-investment/
Would it be possible to use this strategy for rental properties? i.e. live outside of the U.S. and set up a foreign LLC and pay myself a salary for property management? Any issues with transferring the assets (real properties) to the LLC?
I believe that all rental property income is taxed wherever the properties are located (e.g. in the US) so an overseas corp wouldn’t help.
I’m a big fan of tax savings, but I’m not prepared to leave the US full time yet, so this isn’t going to be much help for us. Darn.
I am curious to see if someone on this blog actually follows the advice and set up a foreign corporation and then set up an US bank account which is held by this foreign corp.
Both are difficult thing to do. I have heard from various sources that many of these “professional services” that help set up foreign companies don’t want to take Americans as clients because they don’t want to deal with potential problems with IRS. The success of opening the foreign corp (and or open a bank account in this foreign company) is not guaranteed by any of these services. Meaning that you could spend the thousands of dollars and get nothing out of it.
Second, you can almost never open foreign company an us bank account without a serious of proofs (proof of business, annual income, etc). I wonder if GCC has done this or is planning to do this because I would be quite curious to read that post.
Thanks for taking a contrary view.
A favor: this isn’t a conspiracy site. Please site sources and provide data.
Also, please read the part in the article about banking in the US.
How do you open a bank account and where overseas with a US Citizenship please?
I don’t know. I’ve not done this in the post-FATCA world.
With an overseas corp, the only bank account outside the US would be in the name of the company.
there is nothing I need to add based on your response. You haven’t done enough research in this area and are replying on information from a single “professional” who is selling a lecture not even a guaranteed service.
I am anxiously waiting for you to share the updates and prove me wrong. :)
I’d like to continue this conversation for the benefit of all. Please don’t take a short reply on my phone as a dismissal.
Saying “I have data from several sources” on the Internet doesn’t help anybody. I’m just looking for these sources.
Let’s prove or disprove the value with communication and openness. I’ve spoken with 7 lawyers and collectively had 14 hours of phone calls over the past year. Please let’s not jump to conclusions.
The reason the course is mentioned is because it offers a solution to DIY to those interested and for people who would not want to pay $5k for a lawyer to do it all.
If you have more research, please share it. It isn’t a competition. We are all in this together.
Something I don’t see mentioned here is the subject of Controlled Foreign Corporations (CFCs). Reporting requirements begin with 10% ownership in a foreign corporation (for Americans), but at 50% ownership, the income of the foreign corporation can be considered by the IRS as flowed through to the US shareholder as taxable personal income, regardless of whether the corporation distributed those profits or not.
This is an important consideration if you ultimately retain earnings. If those retained earnings earn passive income, then they are taxed even if not distributed.
This applies to overseas corps with at least a 50% ownership by a US citizen. I have a potential opportunity in that Winnie is not a US citizen and would be happy to own 51% of GCC Inc. But you could also own assets that don’t have income, such as stock in Berkshire Hathaway. I think. I haven’t dug deep into this as blog earnings are well below 2 x FEIE.
Warning: derailment of thread! If Winnie has a green card only, doesn’t she have to return to the US every 364 days to avoid losing her green card (assuming she has one)? Between that and the physical absence test to avoid domestic taxes and ACA requirements, you may need a personal secretary to keep your calendar straight. Seriously, how do you juggle these things?
She no longer has a green card. I believe the rules are need to be in the US 6 months out of every 12, which we found to be too restrictive.
Since we haven’t claimed the FEIE these past 4 years we haven’t had to worry about time in the US to a great degree. The ACA rules are a little more flexible.
Only income that is “Subpart F income” flows through the company and hits the shareholder’s return. Subpart F income is mainly passive income from investments. Active business income of the sort earned by my clients (and any other normal human reading this blog) is not Subpart F income.
Sounds complicated, but the saving might be worth it. We’ll consider it when we move oversea in 12 years or so. :)
So why report anything at all? If you don’t live in the US, then you don’t really need to bring money to the US. There are various other ways too like gifting and bringing cash. For college or other living expense, I’m sure you can send the money directly to the school. Sounds like you don’t have to worry about legal implications if you just keep the money outside of the US.
No, you absolutely have to worry about legal implications. Including prison.
Can having an extra-national company be a better option than renouncing USA citizenship? http://www.smh.com.au/national/us-citizens-renouncing-because-of-tax-laws-affecting-australian-superannuation-20160910-grdb0a.html
I hadn’t thought of it in this way before. I think there are pros/cons of each, and they don’t necessarily overlap.
An overseas corp wouldn’t help somebody working for an Australian company or self-employed in a profession, for example.
Great guest post Stewart! I’ve been thinking about expatriating for a while, will definitely take a close look at your page and podcast.
Question: How does day trading stocks and things like bitcoin and gold fall under the foreign income exclusion if done outside of the US? Can you structure this under a non US corporation as well?
Awesome. Thanks for sharing your knowledge on this fascinating topic! I’m not ready to go this route myself, but recently I’ve been thinking of some different options for trimming some taxes. This might definitely be something to consider in the future though…
>As income grows, we could pay no tax on $200k in earnings with his/her FEIE exclusions, and defer taxes on infinite earnings rather than just 50k or so from solo 401ks
So the deferment of taxes over 200K ends when one decides to pull out of the foreign corp and move back to the US? While the initial 200K in earnings will always be tax free? Wow.
I’m planning to spend exactly 1 year abroad.
Pretty cool, eh?
For the $100k exclusion per person there is no need for an overseas corp, that is just the FEIE. (still have to pay SE taxes though.)
So to avoid the SE tax, I need to create the Belize corp to be come an employee of the non-US company.
When I return to the US after 1 YR, the US LLC no longer would operate under Belize.
Cost to setup Belize corp: $2000
SE tax savings: $30000
Cost to unwind Belize corp: $X.00 <–?
Sounds like a no-brainer, as long as the cost to unwind an LLC from Belize is minimal.
I would discuss this with Stewart or lawyer of your choice.
I think of the Belize corp a bit like a marriage. It’s a longer term commitment.
Transferring assets into / out of the overseas corp is a taxable event. Depending on how many assets the company owns, this could be significant or not.
I am wondering if the using a Belize corporation would help me to avoid US income tax. I abandoned my permanent residence back in 2014. However I receive all of my income from the US so my CPA has told me that I still have to pay income tax as a non-resident but I do not have to pay SE tax from now on.
I sell both digital products and also my services. I would like to know if forming a Belize corporation and having all income go to that Belize corporation would allow me to legally avoid US income tax.
I think I disagree with your CPA. You are responsible for both US income taxes and SE taxes.
An overseas corp would help with the latter (on the product sales), and the FEIE with the former. This assumes you aren’t physically present in the US.
Thank you fir the fantastic article. I’ve been reading about ways to try and get some tax relief and thought an overseas Corp might be helpful. I believe it’s a no go for me after reading your article because I don’t meet two of the requirements but I wanted to ask to see if there is something I am missing that I should look into.
My wife and I have an LLC business here in the US. We travel a little bit a year but by no means live over seas. We might rack up 30-45 days in the Caribbean max a year. We have independent contractors that are in the US also that work for us.
When we pay ourselves we pay so much in taxes that we hate to write a check to ourselves but of course we need to pay bills, etc.
Are there any tax savings that a foreign Corp setup would give us?
Right now I think our best option is for me to work a full time job outside of our company to get an income to live off of and health insurance and try not to spend the LLC business income because of the taxes.
Thanks for your help
Steve
A foreign corp won’t help you.
An LLC is a pass through entity. It doesn’t matter if you “pay yourself”, all of that income is taxable.
Thanks. Any other tax saving articles that might get us some savings we might be missing? Correct,with the LLC all our income is taxed if we pay ourselves or not. So we work out of our home instead of renting a space to cover some of our mortgage that the business uses, we have business expenses like computers and cell phones etc covered by the business and that reduces the income on some things we might have to pay for anyway. We also try and max our self employment retirement accounts. All that reduces our LLC income and taxes. But was hopeful there was a way to reduce taxes on the income piece vs me taking a full time job to live off of that part of the income. Have an awesome Friday!
Can you explain how taking a full time job will result in lower taxes?
If the business is used to pay rent to reduce mortgage, cell phone bills, a new pc as needed, returement accounts etc. then that would reduce taxable income on the business side where I would be paying my own social security and self employment taxes. If I take a full time job and live off the full time job salary then I am living off the income that tiny employer is covering part of my taxes. Correct?
It’s all your money. If an employer pays something for you, they just put that much less in your paycheck.
You might already be doing some borderline stuff. If I were your CPA and you phrased things this way in an audit I would definitely cringe.
To answer the root question: no, I can’t recommend anything else to read that might help.
(1) Do any one of these 3 tax-savvy courses apply to Canadians, and hint at approximately how much a Canadian can expect to pay in percentage terms?
(2) How much does each course cost?
(3) Do these courses teach one how a Canadian in any given province, is able to exactly follow through each step of the way? Thanks
This only applies to Americans. The US taxes its citizens even if they live outside the US. Canada doesn’t.
My mistake Go Curry, I did not elaborate enough. I live in Montreal Canada, from which I plan to do business specifically in the U.S., not in Canada.
I should have mentioned that in my opening question.
Reliable sources tell me that by incorporating with a non-U.S. corporation, and an underlying LLC, I am able to save money even if I am a Canadian.
Sorry, I’m not knowledgable about how things work for Canada residents.