I’m a U.S. accountant who works with Americans who live abroad, ask me anything!

Question

Hi everyone,
If you have a U.S. tax question or would like some U.S. tax insight on your business/structure, ask away!
I have been preparing tax returns for US citizens abroad since 2012. I can answer any question in US tax with an international flavor. I operate 1040abroad.com and I have maintained a blog at taxsamurai.com
I look forward to answering all your questions. And if you are in Ho Chi Minh City in December, let’s meet !!!

olwagner · Accepted Answer

@travelguyny:
Yes, you would create the foreign company and the foreign company would then pay you the net income in the form of wages , so as to avoid Subpart F issues (undistributed earnings in a foreign corporation, for now let’s just say that you want to avoid that).
The wages you would receive can then be excluded under the FEIE. Also, such a setup would allow you to avoid Social Security taxes (as I discussed in Do US citizens living outside the US have to pay into the US Social Security System? & Should a digital nomad, or other self-employed US citizen working abroad, pay social security taxes? - but watch out for lack of SS benefits comes retirement time.

working_9to5 · Answer

Hi Wagner,
I’m not sure if the AMA is still open. But I’ve got a question as a non US resident, which is in line with Ana0’s question.
Right now merchant accounts are quite difficult for me (Stripe, Braintree, Paypal, etc…). They either just won’t work with me or have very strict and disadvantaged rules for me.
I was recommended to open a US corporation to accept these. Now I’ve done some research and it seems a LLC is a good option since it is a tax pass through entity and as long as I don’t do business in the US I won’t have to pay tax in the US (not sure if that is correct).
But what if I do want to sell to US customers as well (I definitely don’t want to exclude them if they land on our store)? Would it also be possible to open a c-corp and use it purely as a payment gateway. So it receives the payments, but my other company invoices it for these payments every month, so effectively it will always be break even?

lucha54 · Answer

Hi @opwagner! You’re awesome.
I get the thing about pro-rating the tax with FEIE, but I usually just file around March for the period Jan 1 - Dec 31 of the previous year, so thinking about prorating it really confuses me.
2 questions:

Can I still do FEIE by calendar year, not by 365 day period?  For example: I was in the states last Dec 18-Jan 10, now I’ll go Nov 17-Dec 3. So for 2015, it doesn’t go above 35 days in the USA, but for a 365-day period it would. Can I keep doing FEIE by calendar year then, as I have been?

Contradicting my last question, I actually f—'ed up this year about spending 330 days in other countries, because of that stupid rule about days spent flying over international waters!  (in April/June and again twice this month, October). So how could I do the prorating thing? I can’t seem to wrap my head around it. I might just say forget it this year so I can make a Roth IRA contribution. I haven’t made so much money that it’s a huge dent, and I already paid 15% quarterly in estimated taxes, so it won’t sting so bad.  What do you think?

olwagner · Answer

@miles The bona fide residence test is more subjective than the physical presence test and yes, the IRS can deny it.
At a minimum in order to qualify under the bona fide residence test, you must be liable to pay taxes in that country (even if it doesn’t currently imposes it), and never identify yourself as a non-resident to the authorities of that country. Then, a permanent resident status (or some other long-term immigration status) is also a must. But then, there’s all the other things, like did you actually spend time in that country (with 4 months, I feel that you would be pushing it too much, anything over 6 months would be more reasonable). And all the other things: can you vote there, do you have a driving license there, do you speak the language […]
Here are links to questionnaires the IRS has used in the past in the case of audits: IRS Audit Questionnaire 1 IRS Audit Questionnaire 2
No prorating under the bona fide residence test - you have to meet the test for an “uninterrupted period that includes an entire tax year”, hence you can not use it if you were not a bona fide resident for the full year (Jan 1 - Dec 31).
You can just use an Excel file to track your days. Copies of boarding passes and passport stamps in/out of the US would be the proof you want - legible scans are acceptable.
If you’re running a business, the proof of your expenses will probably include transactions showing that you were physically present in a foreign country, you can add those to the mix in the case of an audit.
Thanks

olwagner · Answer

@mule5: My clients based in Europe don’t move that much and contribute into the social security system of their country. As such, they use the totalization agreement to avoid paying self-employment tax.
I am actually in a similar situation (albeit that I am currently in Thailand, and as such not covered by a totalization agreement). I came to the conclusion that if I was to sign out of the US system for 5-10 years, I would not get much benefits and the remaining contributions would be essentially lost. To make matters worse, provided legislation remains unchanged, I would be entitled to 50% of my future ex-wife’s benefits. And my compliance cost would be less (I would do my 5471 myself). If you don’t pay tax, you don’t need a 401k/IRA since you wouldn’t have to deduct it against.
I wrote a general post on self-employment tax (but you seem to have it covered): http://www.taxsamurai.com/index.php/2015/09/03/do-us-citizens-living-outside-the-us-have-to-pay-ss-tax/
This one covers this situation http://www.taxsamurai.com/index.php/2015/09/04/should-a-digital-nomad-or-other-self-employed-us-citizen-working-abroad-pay-social-security-taxes/
Also, I apologize, it seems that you did more computations, looking into the Social Security side of it. I wouldn’t get too much into it since there is so much time to go - legislation will get passed (probably reducing Social Security benefits), financial situation will change (interest rates on which annuities are based…)

mule5 · Answer

While the self employed can still use the FEIE they still have the SE tax to deal with right?
I haven’t seen a way to eliminate that without setting up a legal business entity and advising my clients to now pay my foreign entity. But there are trade offs to running a foreign business entity like filling and reporting costs opposed to the US qualified joint partnership that we currently use, as my spouse and I are able to maximize individual 401k plans plus the traditional IRA contributions to reduce our taxable income to only owing the SE tax, which can’t be reduced.
The SE tax is calculated on the total income before the FEIE correct?
I could be wrong, but if we are operating a foreign legal entity I don’t think we can contribute as much to retirement accounts to reduce tax burden, right?  But there might be other ways to get that money tax free, like through the FEIE and taking it as salary.  I guess that all depends on the the jurisdiction of the foreign entity, if it’s in a no tax country for foreign income, and the earnings are passed through on the salary if under the FEIE limit right?
I feel like I come across as whining when I try to understand how to reduce my tax rate from around 12% of gross, since many have a greater tax burden.
We are in a no income tax state, so we only have US Federal income to deal with. For us, it’s still a larger number than we’d like to pay, that we’d like to ultimately reduce or redirect without having to drop US citizenship and still have social security earnings reported and submitted (secondary goal).  It’s the only system we qualify for and we do not have earnings or a pension in another system or country.
Without specific values I know it’s hard to understand, but our federal income tax (currently only SE tax) burden is our largest expense, annually.  Out of these four expenses making a 100% pie chart, our family health care is 25%, housing 35% (mortgage 22% + property tax 12%), federal income tax is 40%.  We have other expenses, but those are our most expensive and the others will not change dramatically if we relocate to Europe.
So here is the scenario and a long way to get to a question I guess.
Conditions

(Same housing costs) If we (US/EU dual citizens) were renting/living in Europe, our desired location our housing costs would be about the same, as we were successful with that budget for a 5 month trial in 2014 when the EUR to USD was much more expensive.
(Recovery of 40% - SE Tax) If we are not considered a tax resident in any country (not staying put for more than 90 days in most instances).
(Recovery of 40% - SE Tax) If we setup a legal business entity in a low reporting, low/no tax haven.
(Recovery of 40% - SE Tax) If we are claiming the FEIE from income from our foreign entity that has no tax burden.
(Recovery of 12% - Property Tax) If we sold our property here, we save the property tax too.
(Recovery of 25% - healthcare insurance) If we are covered on our EU healthcare we’d recover that expense as well.

Although the down side:
D1.  No taxable income reported for the social security pension
D2. My clients would have to start paying a foreign entity.  Not sure how to mitigate that.
Q1>> We’d essentially have the savings from the federal income/SE Tax and no tax burden?
Q2>>  Is that a legal and viable tax strategy?
If that is legal and viable, I guess it would make sense to see what those savings would total and start crunching numbers.  Here is my quick math.
How much would you have to save yourself if you decided to abandon the SS system, and to match the projected social security pension of ~$2200/mo (at full retirement age 67 for me) with a pension/annuity, if earnings continue this way for the next 25+ years since all of our credits have long been earned?
It seems that an annuity earning 2% annually and paid out over 30 years (at age 67 for SS full retirement age for full payout amount - 97) at a monthly rate of ~$2200, you’d need to fund it with $600,000.  Of course you don’t need to use the annuity vehicle and have this invested in a diversified brokerage account of laddered CDs for deflation protection/minimal growth % where you could limit/throttle the withdrawls if you are self controlled and able.
In this scenario, it would take less than 12 years at current earnings without any interest to save from just these recovery items (SE tax, property tax, healthcare expenses), 24 years if setting this up for my spouse as well.  I am 25+ years away from being retirement age qualified, my wife 35+ years away.  So it seems like it might make sense.  Comments?  What am I missing in this quick run down?
I think there is a risk and FUD that our SS earnings would dip and our projected SS payouts would drop and it is not guaranteed by the government to be there, etc…
What happens to your SS if you stop contributing 25+ years before being able to pull benefits?
Does it just get forfeited or do you still get something, just minimal?
Are there US citizens doing something like this in Europe?
Instead of paying into the US SS system, but setting up their own system,  to complement the standard 401k/IRA retirement savings plans?
You did say to ask you anything.   TIA
EDIT:  Sorry - my calculations of SS payouts were wrong.  I wrote ~$1300/mo but the SSA.gov site shows me ~$2200/mo at age 67.
I changed annuity value required from 350,000 to 600,000 and ROI from 8 years to 12 years for me, and 24 years for me and my spouse to save the value required for that annuity versus paying into the SS system.
Other logic errors or shortsightedness?

digimon · Answer

This is also about the FEIE. How and how strictly does the IRS enforce the 330 days in another country rule? What’s your experience with clients being audited for claiming the FEIE?

travelingtoad · Answer

Hey @opwagner thanks for doing this. My question is regarding The Physical Presence Test to determine whether I qualify for the FEIE.
I left the US on July 3, 2015. I flew back on December 1, landing on December 2. I then left again on December 31 and will not be back until September or December.
So, from July 3 to July 3 I will have been outside of the US for 335 days. However, I just read from this page the following:

Days spent travelling between countries do not count.

What does this mean? On June 1 I just flew from Cambodia to Thailand. Does this mean I can’t count this day as being outside the US? If I can’t then I may have fucked myself…

olwagner · Answer

Hi travelguyny,
The FEIE can be applied to both self-employment income and wages. if you happen to work thru a foreign corporation (your own corporation), I would advise you to pay yourself a salary.
Please specify what you mean by “business”: self-employed? A US corporation? or a foreign corporation?
Best,
The Tax Samurai

travelingtoad · Answer

Form 4868. I was under the impression that I needed to file for this to extend my due date of paying taxes. But on the form itself it reads:

You do not need to file Form 4868 if you make a payment using our electronic payment options. Your extension will be automatically processed when you pay part or all of your estimated income tax electronically.

I file electronically. Don’t we all? So keep this in mind all.

worldtravel · Answer

Thanks, I have a question… how does the Foreign Income Exclusion work when you have your offshore business… if FIE for people working in a job overseas… or is the first 98k plus or so exempt from your businesses taxes?
Thanks.

olwagner · Answer

Hi digimon,
I can not advise you on illegal strategies nor can I comment on the “audit lottery”. What I will tell you is that to qualify for the physical presence test, you need to spend 330 days in a foreign country during a 12 month period. This 12 month period can be any 12 month period, starting any day. Also, you can have overlapping periods from one tax return to the one used the following year.
I would invite you to give me your exact days in and out of the US in 2014 & 2015 either here or by email to owagner@taxsamurai.com and I’ll let you know if you qualify for FEIE under the physical presence test.
Of course, if you are a permanent resident in a country and would be liable for income tax there, you can use the bona fide residence test even if you spent more than 35 days in the US.

mule5 · Answer

[quote=“opwagner, post:18, topic:4917”]
… My clients based in Europe … contribute into the social security system of their country. As such, they use the totalization agreement to avoid paying self-employment tax. [/quote]
Yes, but I am sure the local in country tax rate must be higher than the SE 12.4% tax collected, which provides the tax credit to offset anything owed after claiming the FEIE.

opwagner:

I came to the conclusion that if I was to sign out of the US system for 5-10 years, I would not get much benefits and the remaining contributions would be essentially lost. …  If you don’t pay tax, you don’t need a 401k/IRA since you wouldn’t have to deduct it against.

Yes - I think so too.  We contribute and pay the tax since we don’t have another system in place, even though the SS system is fluid and can change.  I believe my statement indicates that at current funding/standing, they project only being able to pay 77% of projected earnings.  If we are not liable for taxes in Europe, we’d probably still report income in the same manner for the us, to keep paying into SS so we don’t forfeit the previous payments into the system.

opwagner:

I wrote a general post on self-employment tax (but you seem to have it covered): http://www.taxsamurai.com/index.php/2015/09/03/do-us-citizens-living-outside-the-us-have-to-pay-ss-tax/
This one covers this situation http://www.taxsamurai.com/index.php/2015/09/04/should-a-digital-nomad-or-other-self-employed-us-citizen-working-abroad-pay-social-security-taxes/

Thanks - I will check those out as well.  Thanks for providing great insight into this topic.

worldtravel · Answer

I mean by a corporation you setup somewhere else… Hong Kong, Singapore, Caribbean islands… and it is registered in your name… I haven’t tried to do anything with it… hell with FACTA i’m having a hard time opening a bank account anywhere outside the U.S.

olwagner · Answer

Yes, legible photos taken with your smart phone would work. If you can, an actual scan with a flat scanner would beat that, however.
You really only need to substantiate the position you took in your tax return. In theory, you can skip the whole thing and have your 8 closest friends testify as to where you were ; won’t fly with the IRS, but might well fly with the tax court. That’s the Cohan rule.
Bottom line: you need to substantiate your position, and legible smart phone photos will do.

mule5 · Answer

How does US taxes work if you are considered an itinerant, not having residency in any one place?  Does it fall back to residency in the US since I will not be a resident in another country?
Itinerant Scenario:

Residing outside the US for the full 365 days in 2017 to qualify for the physical presence test, January 1st 2017, December 31st 2017.
US based LLC, treated as a S-Corp for tax purposes, of which I am an employee+partner starting Jan 1 2017, receiving a salary from this LLC, under $100k/year.  Federal Withholding + SS tax taken from my paycheck as if I still lived in NH.  (Should I claim EXEMPT on my W4 and not have any Federal tax withheld during payroll? - because although I would request the refund on tax paid, how does the LLC receive the refund on their end of the tax withheld?)
Previous state was a no income tax state, NH.  Still maintaining a property in NH.
TBD - Living in countries under the threshold to be considered a tax resident.
Living in Spain for less than 183 days in 2017, not filing for residency.
Living in Italy for less than 183 days in 2017, not filing for residency.
Living in Portugal for less than 183 days in 2017, not filing for residency.
Living in France for less than 183 days in 2017, not filing for residency.

Are there legal issues with this scenario?  Have you worked with clients who are itinerants?  Any other itinerants out there?

chuckandersonus · Answer

Hi, @opwagner thanks for the AMA!
I am a solo-preneur with a Minnesota based S-Corp.  I don’t have a spouse, dependents, or employees.  I have been travelling outside the US since Jan 1, 2015 and will qualify for the FEIE based on the physical presence test.
I am wondering about state taxes for 2015.  Basically, do I pay them?  I won’t have a physical residence in the state apart from ~20 days this year, but my S-Corp has been registered in MN since 2010.  I also own a condo (with mortgage) that is being rented out and is not homesteaded.
If I am required to file/pay taxes, would you recommend setting up an entity (LLC, S-Corp, etc.) in an income tax-free state?  Any states in particular ideal for digital nomads?  I am 100% location independent at this point and will probably be nomadic without a permanent home-base for the foreseeable future (1 to 5 years) so it would be good to avoid the $1,000s of state taxes since I’m not getting much for them being out the country!  Thanks in advance.

olwagner · Answer

@Chuck_Anderson : While it is best to be a resident of a no income tax state (and I would recommend Florida), states have exclusions so that you would not have to pay taxes there. In the case of MN, it is basing that on the Foreign Earned Income Exclusion.

Taxpayers who earn income in a foreign country may qualify for
the federal foreign earned income exclusion. If taxpayers qualify
for the exclusion and do not include the foreign earned income on
their federal return, this income will not be taxed by Minnesota.
Minnesota residents who earn income in a foreign country may
treat that income as nonresident income as long as they meet
both of the following conditions:

Their tax home is in a foreign country and they were
either:
a bona fide resident of a foreign country for an
entire tax year. or
were physically present in a foreign country for at
least 330 full days during any 12-month period.
If they owned homesteaded property in Minnesota, they
notified the county to revoke homestead status within
three months of moving out of the country and the property
remained nonhomesteaded during their absence.

Taxpayers who qualify for the federal foreign income exclusion:
Must use the nonresidency rules to determine whether
income received must be assigned to Minnesota. For
example, interest received while the taxpayer was
overseas is not taxed by Minnesota because the person is
considered a nonresident.
Are only required to file a Minnesota return if they have
Minnesota sources of income that exceed the
part-year/nonresident filing requirement level for the tax
year.

rickydazla · Answer

Hey @opwagner — I am a US Resident Alien, living in CA (renting) for three years, married to a US Citizen from MI where we rented prior to that. If we were to travel we would obviously be better off ‘residing’ in MI, where my in-laws live, or even in NV where we have friends and possibility of at least a mailing address… Since we do not own a house and won’t actually be living in any of those states. We would probably pack up from CA with little intention of returning. Do you have any suggestions for making the transition and subsequently filing with the IRS? We would be leaving pretty much in the middle of the tax year.

olwagner · Answer

@digimon:
If you can’t convince the IRS that you were in a foreign country for the 330 days, you would lose the audit.
On the audits I’ve been, we had a nice stack of documentation to substantiate the time spent in a foreign country, and the agent was convinced without going thru all of it.
But you want to document your time in a foreign country and you want your trips to match the information the IRS already has (hint: the airlines share this info to Homeland Security, Homeland Security can then share it with the IRS).
That’s an audit you don’t want to lose, the income would become taxable at regular rates, so we’re talking about at least $20k

olwagner · Answer

mule5:

Yes, but I am sure the local in country tax rate must be higher than the SE 12.4% tax collected, which provides the tax credit to offset anything owed after claiming the FEIE.

@mule5: I am not referring to a Foreign Tax Credit (FTC) applied against income tax. Rather, I am referring to an exemption provided by the Social Security totalization agreements. I provided the links to these agreements in my post at http://www.taxsamurai.com/index.php/2015/09/03/do-us-citizens-living-outside-the-us-have-to-pay-ss-tax/ - but referring to your question, you only need to contribute to the local SS system, the respective rates are irrelevant.
Yes, some guesswork involved, and if I know I would never go back to the US, it would make sense to just stop paying SS contributions (thru one of the legal ways to achieve that), but I doubt that I can ensure myself decent benefits if I have a 10 year gap in contributions. But if working in the US, there wouldn’t be any legal way to avoid SS contributions (short of something really crazy like surrendering US citizenship and then coming back either as a diplomat of another country or J-1 status).

olwagner · Answer

Hi @mule5
US citizens are taxed on their worldwide income, but can exclude some income using FEIE, as previously discussed.
You can book a session with me for $100/hour at https://calendly.com/opwagner/60min
My upcoming book also covers many of theses questions https://www.amazon.com/dp/B01N6PAE5Y
All the best

olwagner · Answer

@mule5 Yes, that would work. I discussed it at http://www.taxsamurai.com/index.php/2015/09/03/do-us-citizens-living-outside-the-us-have-to-pay-ss-tax/ , with specific references to the Internal revenue Code to show why it legitimately work.
If you don’t want the client to be billed by a foreign corporation, you can setup a US entity to act as a payment processor. That said, if you have a foreign corporation with a US address (Private Mailbox - PMB for short, quite a few will scan your mail…), my guess is that your clients wouldn’t mind.

wanderingdev · Answer

so photos would work? no way am I carrying around all that paper. I’d run out of space in my bag.

olwagner · Answer

Hi @rickydazla,
While it would be best to move to a no income tax state (cut your ties with CA, then get a mailing address, register to vote, get a driving license in that state), you can still avoid taxation in CA if you meet their safe-harbor rule (see page 3 in Publication 1031) to be “considered a nonresident” even if you are a resident).
That’s nice but that only affects state taxation, it won’t affect the filing with the IRS (except that if you put a CA address on the 1040, the FTB could use that as an indication that you’re a resident).
When it comes to the IRS, and assuming that you won’t pay enough taxes to a foreign country to make the Foreign Tax Credit worthwhile, you will make sure that you qualify for the Foreign Earned Income Exclusion (FEIE) to exclude earned income (wages and similar) from taxation - basic rule is that you have to be in a foreign country for 330 days out of a 12 month period. If you leave mid-year, you won’t have met that requirement comes June 15 (you get an automatic 2 month extension for being outside the US on April 15), you would therefore have to request an extension in order to file your 1040 and qualify for the FEIE.
It’s any 12 month period - July 12 N thru July 11 N+1 would be one such 12 month period.

idrisraja · Answer

It’s my understanding that Obamacare requires US citizens to have “minimum essential coverage”, and if you don’t you are charged penalties. What is the situation for those of us that are outside of the US for a large amount of time? I get travel insurance through World Nomads, but I don’t think that counts as minimum essential coverage. Would I still have to pay a penalty on my income taxes if I don’t have minimum essential coverage and I’m out of the country for a large portion of the year? I’ve never found a satisfactory answer for this in my searchings. I hope you can help!

olwagner · Answer

@idris The IRS issued regulation REG-148500-12 to clarify that those who qualify for the Foreign Earned Income Exclusion are deemed to have health insurance. If read literally, one could check the box certifying that they have minimal coverage on the form 1040. When the IRS prepared the forms, it seems that they expect those who qualify for the Foreign Earned Income Exclusion to use form 8965 to claim an exception - code “C”.
I wrote a blog post (a little geeky) at http://www.taxsamurai.com/index.php/2014/11/13/application-of-the-mandatory-health-insurance-requirement-the-individual-shared-responsibility-provision-in-the-affordable-care-act-obamacare-for-us-citizens-living-abroad/
Bottom line: By qualifying for the Foreign Earned Income Exclusion, you would meet the “minimum essential coverage” even if you don’t actually have health insurance.

digimon · Answer

Thanks opwagner! I’m just wondering because I might be cutting it close to the requirement. How common are audits on this? I’m guessing like other audits they’re more likely to target those with higher incomes?

olwagner · Answer

@mule5 That would be a little too creative for the IRS. In the case of an audit, this IRS would probably invoke the “Assignment of income doctrine” in order to deny any benefit you would have under that structure.
Yes, you could either have an LLC being owned by the foreign corporation (but you would have to prepare form 5472 if the LLC was “engaged in a trade or business in the United States”) or have the LLC being the payment processor of the foreign corporation (with the LLC remitting 95% of the receipts to the foreign corp, and 5% being the payment processing fee).

gigigriffis · Answer

Are you still answering questions?
Because early in the thread you said “it would make sense to just stop paying SS contributions (thru one of the legal ways to achieve that)” <-- I am sooooo not interested in ever being in the US again. Can you elaborate on what legal ways there are to opt out of SS? I know moving to a country with a pay-where-you-live agreement is one option. But are there others?

jp · Answer

Hi Opwagner - I’m about to receive a severance package from a company in the UK which under the UK tax code will be tax free.  Any thoughts on if It will need to be taxed in the states as well?  Lets assume I go over my Foreign Earned income credit for the year.
Many Thanks!

olwagner · Answer

@wanderingdev  Yes, passport stamps to start, copies of plane tickets (or better boarding passes) would come next, then any receipt that required you being present (credit card receipts). I would keep passport stamps and photos/scans of boarding passes specifically for that purpose. Then, in case of an audit, you might find that some of the docs for your business expenses also serve that purpose, so you can supplement with that.

mule5 · Answer

Thanks for the reply.
Thought this wouldn’t fly, but totally legit if the client pays the foreign entity directly and I am employed by the foreign entity?

wanderingdev · Answer

What kind of documentation? I would assume that my passport, with it’s exit and entry stamps would work, but also bank statements with charges in other countries, airline/hotel/airbnb reservations, etc.? It’s something I’ve not really seen addressed too much.

ellen1 · Answer

Hey there @opwagner, thanks for all this work! I read through the post and did not seem to be able to find the answer to my question so I thought I would toss it out there.
I am currently an Illinois resident and want to switch to Texas before leaving US. I will have no home base as soon as my house sale goes through and it seems unclear on how I establish residency without proof of physical address in the state.
I checked other areas of the forum and it seems as though there is a “crackdown” of sorts with respect to Fed tax returns and establishing state residency if you don’t have a physical address.
And feedback is appreciated.

lightmotif · Answer

I phoned the Obamacare folks about this months ago. Took many go-rounds to get an answer. Bottom line, you are completely exempt from buying Obamacare insurance if you also quality for the FEIE – so that’s the cleanest solution. But – you also have a reduced penalty, supposedly, if you can prove you were out of the country a certain amount of time – however, I have no idea how this would work in reality, as you are doing your taxes. In other words, where in your tax forms you figure in your days away to come up with the reduced penalty.

anadesigner · Answer

Hi mule5, this is a info that I found:
“As a non-US resident, your Delaware LLC will only be taxed in the US on income from US sources, meaning that income from other countries will not be taxed by the US. If you choose to form an LLC, any profits US-sourced income will be taxed by 30%. This 30% goes to the IRS. At the end of the year, you will file your US taxes on Form 1040-NR with the actual amount due. If the amount due is less than the 30% initially taxed, the IRS will issue a refund in the amount overpaid. To make sure the LLC is sending the proper amount to the IRS, the LLC must designate a tax withholding agent to calculate the proper amount that must be sent to the IRS before any of the money is released. Because of these difficulties, many non-US residents choose to form corporations, unless they are forming the LLC to do business strictly outside of the US, in which case, the LLC would not owe any US taxes.”
Source:

A Registered Agent, Inc

Non-resident Delaware LLC and Corporation for Foreigners

Non U.S. resident Delaware LLC. Delaware corporations for foreigners and non U.S. residents.

In my case, I would do business strictly outside of the US

robetus · Answer

Thanks for helping out the community! I have a question. I am a US citizen, living in Europe since Sept. 1 2015. I have an LLC registered in Oregon that I will elect to be taxed as an S-corp for 2015. My income is from 100% online sales. I was a resident of California until Sept. 1st 2015. Do I need to get a payroll tax number for a state to pay taxes for 2015? If so, for what state, and a brief explanation of why I need it would be great. Thanks again!

chrispreynolds · Answer

Hey opwagner, I left the us on Feb 11th and will be returning for 5 weeks on the 12th of Dec.  I am then leaving again on the 16th of January.  Can I use the FIEA for 2015, or 2016? And if not 2015, how long will I need to stay out of the US to use it in 2016?  Thanks

travelingtoad · Answer

@opwagner The CPA at Greenback said this, “I would file the 4868 just to be safe. Just my cautious nature when dealing with the IRS.”
Would you recommend this too? It says right on the form that if paying electronically of which I’ll be doing that one needs not file this form. So why would I take the time to fill out a form? I dunno…

miles · Answer

Thank you for sharing your expertise @opwagner this is a HUGE help!
I have a couple other questions about residency… In a country that does not tax on worldwide income.  They offer a residency visa based on real estate ownership that I’m considering.
Essentially, the residency visa is good for 2 years upon receipt… Then it can be renewed for another 2 years.
At year 3, I would be able to apply for permanent residency.
If I live in this country for most of the year (8 months/yr, more than the minimum) during the temporary visa years, can I still claim the FEIE based on bonafide residency?
I wouldn’t spend 4 months in the US, probably other countries, but maybe a total of 60 days in the US visiting friends/family, mostly traveling around.
…Or would I have to wait to get the ‘permanent residency’ visa to be a bonafide resident?
Also,  If this residency visa is granted mid-year, lets say April or June… Would I have to wait until the following tax year to take advantage of the ‘bonafide resident’ option?
Lastly… It seems smartest to qualify on both tests, to be sure… Can you file based on the bonafide resident test and then have the 330 out data, just in case?  Or just file based on the 330 days out, every year to be safe?
Phew… That was a lot of questions… But I really do appreciate your insights!  This is a confusing area that offers a lot of potential benefit for those who ‘get it right’ and getting it wrong would be annoying at best.
Thanks!

olwagner · Answer

@suuzin In order to have a home office, “you must regularly use part of your home exclusively for conducting business”. You can be itinerant,  but that definition must still fit - and it is hard for those of us who live out of a suitcase with no permanent dwelling.
That said, that co-working space membership is deductible…
Cell phone usage for business calls is deductible.
If you have only one phone line, it is considered a personal expense and not deductible. Additional phone lines used for business are deductible.
Travel expenses to a conference? That’s where you get hit as an itinerant… you would deduct the travel expense from your tax home to the conference,  except your tax home is wherever you are, hence, no such deductible expense. That said, the cost of the conference is still deductible…

derekmurphy · Answer

opwagner:

LLC in order to avoid paying self-employment tax, only the foreign corporation would be necessary
I’ll PM the contact of somebody who does this sort of things with Belize corporations.

I’d love to hear more about this… I assumed I’d need to pay a self-employment tax of about 15%. If I register a foreign corporation I don’t need to? What taxes would I be liable for then?

olwagner · Answer

@robetus Sorry, bad news: you will not elect to be taxed as an S-corp for 2015. Hopefully, you’re just starting and it will not make too much of a difference (compliance cost would be higher for an S-corp but you would save on social security if your net income was large enough that it would not be totally be paid out in the form of wages to you).
To make the election to be taxed as an S-corp, you would file form 2553 at the latest two months and 15 days after the beginning of the tax year the election is to take effect. As such, you could elect S-corp status for 2016 but it is too late to make an election for 2015.
You would not have to get a payroll tax number for California, but you would be subject to the $800 tax for having an LLC in California (now that you’re no longer a California resident, up to you to make a business decision to be compliant or not).
Whether you need to register in another state depends on where you will work in 2016. Why you would need it is because you would be subject to payroll taxes of that state.

olwagner · Answer

@chrispreynolds Under that scenario, you would be spending 329 days in the 12 month period from February 12, 2015 thru February 11, 2016. Since days in the US are in such a cluster, using a different 12 mon period wouldn’t help. The only way to qualify for the Foreign Earned Income Exclusion (FEIE) under the physical presence test would be to spend at least one less day in the US (part of a day in the US disqualifies that day).
Now, if you were to have some sort of permanent resident status in a foreign country (Spain?) and pay taxes there, both the bona fide residence test of the FEIE and the Foreign Tax Credit (FTC) would become available.
Thanks

olwagner · Answer

Also, in this case, the year would be pro-rated, we have 42 days until February 12 and 323 within the excluded period. Hence, the maximum amount which could be excluded would be $89,201 ( 100,800 / 365 X 323 )

worldtravel · Answer

my accountant says that the IRS is going to keep adding regulations over the next 2,4 years and beyond… I’m thinking it could be so extremely difficult to live abroad or outright illegal at some point as freedoms get reduced in the name of “national security”… the decline of America is going to happen from over regulation and it already has happened…if there is nothing I can do about it I wonder if there is a legal way to profit off that happening. Also a slow shift between capitalist society to a socialist one…

lightmotif · Answer

OK, that’s what I was told, but it took them quite a while to give me that answer. Honestly, I still think they are ironing out a lot with Obamacare.

travelingtoad · Answer

@opwagner I just emailed you regarding an issue about transferring a website from someone else’s name to my name.  It’s a big thing that really concerns me as I may end up technically “underreporting” if I don’t take the correct actions.

olwagner · Answer

You do not need an LLC in order to avoid paying self-employment tax, only the foreign corporation would be necessary
I’ll PM the contact of somebody who does this sort of things with Belize corporations.

joshua · Answer

Hey! Great to see someone addressing this here.
I’m a US citizen living in Spain with legal residence. I’ve been paying my taxes in Spain for 2-3 years, but have an LLC setup in Wyoming for receiving and making US payments with clients/vendors.
Basically I receive payments there, and transfer myself money in Spain. Then I pay taxes on what was transferred.
I recently got asked at my Spanish bank abount FATCA data, so thought I should ask some questions.
I’ve been using greenbacktaxservices.com, and so far have not had to pay anything in the US. However, I’m wondering if this arrangement is legit.
Also, my income is under 90k so I’ve just applied for FEIE and sent proof of my social security payments here to avoid self-employment tax.
Should I be worried about anything happening from the US side?
Thanks!

olwagner · Answer

@atoadsworld That’s right, although a lot of people don’t send money since they wouldn’t have tax owing.

olwagner · Answer

@ellen1 It’s not the Feds (IRS) that would “crackdown” but the State authorities, and yes, if you put an address in a state with an income tax on your 1040, you can expect the authorities of that state to contact you.
Also, yes, having an address in a state is essential to establishing residency (along with voting there and getting a driving license).
That said, there are services to get such and address. The Escapees do it in Texas with precisely that in mind: https://www.escapees.com/support/mail-service
Best

miles · Answer

A couple of questions about this income exclusion…  I have a US based company that pays me a salary under $100k each/year.
If I get residency in a country where they don’t tax on worldwide income, but I don’t live there all year, I simply stay the minimum requirements to keep that residency visa (4 months) and then travel, but pop in and out of the US for a couple months per year, am I at risk of getting denied the exclusion?
Stated another way… Is the residency visa ‘enough’ to get the exclusion or is there someone at the IRS that decides whether I’m actually a resident and who has the power to ‘deny’ me this exclusion.
Sounds like the 330 day rule has a pro-rated option if I go over on my days in the US.  Does the bonafide residency go pro rated if the answer to my first question is yes?
Lastly, how do you recommend I track my days in and out of the states for the 330 day test?  What ‘proof’ do I need to keep and what is the easiest way to know where I’m at with my day count since the ‘year’ periods can overlap?

lightmotif · Answer

Thanks - this gets confusing, but it’s my understanding that you’re either qualified or not qualified for FEIE – you have to spend those 330 within 365 days outside the U.S. (BUT, those 330 don’t all have to be within a given tax year. For me, it will be easier to figure out because my 330 starts around January 1.)
But what I’m saying is, I think,  even if you don’t get to 330 days within any 365 days, tax year or not, it’s my understanding that you still qualify for a reduced penalty of not having Obamacare, even if you don’t and won’t quality for the FEIE. In other words, the U.S. gov’t still won’t penalize you a whole year’s worth if you only spent 2 months in the U.S. within 365 days. Does that make sense, and do I understand the laws correctly?

mule5 · Answer

Thanks for the response.  I will check out the amazon book link and possibly book a session.

mule5 · Answer

If I wanted to keep my clients paying me directly and not a foreign company:

could I invoice clients and deposit invoices per usual?
expense or hire my own foreign company to the work?
draw a salary from the foreign company after my net self employment income is zero?

Does that make any sense and is it legal?
Would this be the example:
There is a $1000 job that I am doing for a client.
I bill clients via invoices - paid to me per usual - deposited per usual = $1000  (Client sees no change) [income +$1000]
I employ my foreign business to do the work and pay them $1000 [ expense -$1000]
I file my self employment income as $1000 - $1000 = 0
I draw a salary from foreign entity $1000 or less expenses/fees/reporting/operating costs.

olwagner · Answer

The severance pay would be taxable. Not sure what your UK tax rates would look like  but if you have Foreign Tax Credits (FTC) in the general category,  they could offset that. Either taxes paid this year on general category income (your wages) or carryover from prior years. If enough foreign tax paid, you might want to amend those prior years to get the FTC carryover.
That would only apply if your avg UK tax rate was greater than your avg US tax rate.

olwagner · Answer

You would just report all your wages either on line 7 - or if self-employment on schedule C, this would include the full year. Then on line 21 you would deduct your foreign earned income using the Foreign Earned Income Exclusion, the leftover would be your US wages
Yes, your tax home is wherever you are. It is in a foreign country. You win without trying Deamer v. Commissioner, 752 F.2d 337 (2012)

Yes, your tax home is wherever you are. It is in a foreign country. You win without trying Deamer v. Commissioner, 752 F.2d 337 (2012)

olwagner · Answer

@travelguyny It is becoming more and more difficult for US citizens to open bank accounts in foreign countries (in this post-FATCA world). Thinking about opportunities that 1) would be legal and 2) wouldn’t involve you becoming an accountant/lawyer yourself, that would be the one: have the right contacts in the right banks and make it happen (offer that service to the world).

olwagner · Answer

@suuzin That would be form 8965. You would claim an exception - code “C”. The thing is that the exemption is computed on a monthly basis, such that if you are only eligible for the FEIE for part of the year, you would have a reduced penalty (i.e. only for the months for which you didn’t qualify for the FEIE).

ellen1 · Answer

Just to clarify… yes one can send in their returns from wherever, or digitally. It is the listing of the home address that is the problem.
By the way, to clarify (since I am forever starting conversations midway thru and it can be confusing) for anyone jumping into this mid-way through…
This conversation is in reference to the following:
Section 326 of the USA PATRIOT ACT requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account or changes an existing account. This federal requirement applies to all new customers and current customers. This information is used to assist the United States government in the fight against the funding of terrorism and money-laundering activities."
What this means to you: when you open an account or change an existing account, you are required to provide a physical address as well as a mailing address.
Why people are starting to discover that CRMA services such as TravelingMailbox are no longer working? I have copied below some copy buried in here: http://www.ffiec.gov/bsa_aml_infobase/pages_manual/olm_011.htm
You will note that while this went into effect in 2003, bank compliance is just now starting to roll in, which you will see bubbling up in google searches on the topic.
[CMRA TEXT REFERENCED ABOVE]
Under the Business Security Act (BSA), as amended by the Patriot Act, every financial institution must implement a written Customer Identification Program (CIP) to prevent financing of terrorist operations and money laundering.
The CIP Rules establish the minimum identification information a financial institution must collect before opening a new account. Four data items are required for all new accounts:
Name
Date of birth (for an individual)
Address
Identification number
The CIP Rule requires a physical address because “…law enforcement agencies should be able to contact an individual customer at a physical location, rather than solely through a mailing address.”
Can be either a home or business address. The only exception is for Army Post Office boxes (APO) or Fleet Post Office (FPO).
A Commercial Mail Receiving Agency (CMRA) address is not allowed as the only address for new accounts opened after October 1, 2003.

olwagner · Answer

@suuzin If this is true, I am not aware of such a provision.

ellen1 · Answer

That’s great to hear! I understand this is a new law rolling in with more enforcement as of Jan 1, 2016. Some folks are already experiencing it and it is my guess that it will continue to crop up with more regularity.
As of today, you can not use a PO Box or Certified Mail Service for submitting tax returns. I am certain people will for their 2015 returns as it seems many are not yet up-to-speed on this new wrinkle, but my accountant is one of those who is aggressive about keeping up on regs and is going slightly batty with me needing a physical address.

olwagner · Answer

@arpowers Just email me owagner@1040abroad.com and let’s do lunch

lightmotif · Answer

Thanks for that info!

opwagner:

In order to have a home office, “you must regularly use part of your home exclusively for conducting business”. You can be itinerant,  but that definition must still fit - and it is hard for those of us who live out of a suitcase with no permanent dwelling.

Hmm… but I don’t really live out of a suitcase, I’ve lived out of a dwelling with a roof that I’ve always paid for. And under that roof, and always have a dedicated workspace, even if it it’s just a dining room table. Couldn’t I suggest that 1/8 or 1/10 of my itinerant home was my office this year?

olwagner · Answer

Hi @teosocrates (I know who you are  )
Yes, if you are employed by a US corporation or work in the US regardless of employer, you (and your employer for half) would be liable for social security.
If you are self-employed, regardless of place of work, you would be liable for self-employment tax (which is the same amount).
If you are employed by a foreign corporation, even one you own AND you work outside the US you wouldn’t be liable for social security or self-employment tax.
For that, you wouldn’t just need to register a foreign corporation, you would truly need to conduct business thru it and treat yourself as an employee.
That means that the foreign corporation would bill your clients, sales would be deposited in a bank account belonging to that corporation. You would then pay yourself a fixed or predictable salary at fixed interval (no buying groceries with the corporate debit card).
If that is the case, you would only be liable for income tax (which could mean zero if you use the Foreign Earned Income Exclusion).
Given the complexity and the cost of running a foreign corporation, I would only recommend this setup to someone making more than $50,000 per year.

olwagner · Answer

Yes, you won’t. And you won’t have to pay tax to Tadjikistan either. My question is why are you using this structure in the first place?

olwagner · Answer

Well, it takes less time to file the 4868 (once you have the software and know how to do it) than answer this question 
If you make a 1040-ES payment in error (thinking it was the 4868 payment), you wouldn’t have an extension, so better safe than sorry.
A lot of people still mail checks with their 4868 btw…

jmrtravel · Answer

@opwagner,
Thanks for the awesome thread.   Sorry if I’m posting this a bit late.
Is there anyway you could give a quick rundown of how a US citizen can reduce the most income taxes?  i.e. setup a foreign corp, qualify for FEIE, don’t live in the same country more than 6 months, etc.
Do you know of any legit programs where a US citizen can reduce income taxes?  For example, I am aware of Puerto Rico’s Act 20/22 program.  I am also aware of the USVI’s economic development program.   Just curious if you knew of any others that an American might look into.
Thank you for your time!
-John

lightmotif · Answer

Right, thanks, I know it has to be used exclusively for business. Do you think I would need something extra than I normally would (if I were not a nomad), like photos of all the home office spaces I’ve used this year?

ellen1 · Answer

Thanks for responding but it is my understanding that this information is no longer current. As of January 1, the enforcement of banks to freeze current and not give new accounts to people who do not have a physical address—which means no longer can people use PO box or Certified Commercial Mail Services.  So escapees, which has been dealing well with this for years, will no longer work.
My concern is that if I use a physical address, say a friends house, and I am not actually living there, this will soon be sunsetted as well.

olwagner · Answer

@miles Yes, the name is less important, you just need to show that you are a resident of the country. The temporary visa you describe would achieve that. If you have that visa, spend 8 months in the country, own real estate, have some identification documents issued by that country, you’re in good shape to claim the FEIE under the bona fide residence test.
Yes, you can qualify for FEIE under both the physical presence test and the bona fide resident test. You would file your return using one or the other, if the IRS audits you and disagrees, they would disallow the FEIE and you would just submit another form 2555 using the other test and they’ll be like “ok, you win” and would let you use the FEIE using that other test.

arpowers · Answer

i need a new accountant, will be in chiang mai… lets talk.

taylorcoil · Answer

Hi @opwagner!
Thank you so much for this AMA - it’s unbelievably helpful. I hope you don’t mind a couple of questions from a latecomer.
I’m new to nomadism, and will qualify for the physical presence test for tax year 2016. I started traveling full-time on Feb 2, 2016 and will still be out of the country on Feb 2, 2017 (with a very short trip to the USA in between).
Two questions:

How do I report on the tax I owe from Jan 1, 2016 to Feb 2, 2016, if my 365-day period begins on Feb 2?

This is a question on a tax home. Do I qualify as an itinerant if I have not paid taxes in another country, am traveling on tourist visas (~ a month in each country), and choose to travel for leisure rather than travel as a work assignment? Is it still “wherever I work” if where I work is another country by choice, not by mandate?

The “tax home” is most confusing to me. I definitely qualify based on the physical presence test, but I’ll also definitely not pay taxes to another country. I’m not sure if the latter disqualifies me.
Thank you!

wanderingdev · Answer

From my understanding, it’s time flying from the US to other countries and time over international waters.  So, for your december flight, if you departed a foreign country on the 1st, that would count as a day in the US.  If when you left on the 31st, if you landed somewhere January 1, that would count as a day in the US.
However, once you’re out of the US, the flights don’t count against you unless you spend a full 24 hours without being in one country or another.  But, a cruise in international waters could.
When dealing with stuff like this, better to get it from the horse’s mouth, not someone’s interpretation of it:  https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test
“Change Of Location
You can move about from one place to another in a foreign country or to another foreign country without losing full days. But if any part of your travel is not within a foreign country or countries and takes 24 hours or more, you will lose full days.”

lightmotif · Answer

Hi @opwagner - if you are still reading… thanks so much for all the helpful info you’ve posted here. I’m wondering about Schedule C and 8829 deductions for traveling nomads, such as home office and utilities (like cell phone usage). Can we still deduct part of our housing expenses paid if we are “itinerant” (no tax home, traveling frequently from place to place) to claim a home office? I definitely worked at “home” this year. And what about cell phone usage? I do keep a U.S. line so that U.S. clients can call me on a number local to them anywhere in the world. Travel expenses to a conference? Thanks!

olwagner · Answer

@suuzin “regularly” means that it was not used for business once, but it was used for business on a regular basis. “exclusively” means that it was not used for anything else.
“even if it it’s just a dining room table”: Do you sometimes eat (either by yourself or with others with whom you don’t have a meaningful business discussion) at that dining room table? If yes, then it was not used exclusively for conducting business. Period. (it’s not predominantly, it’s not most of the time, it’s “exclusively” - for the sake of completeness, there is an exception for daycare facilities). Sorry.

lightmotif · Answer

And @opwagner if you really think it would be a major red flag for audit, do let us know, but I have had dedicated workspaces at my temporary homes all year and it feels reasonable to me to figure something out there for a deduction. Thanks again!

olwagner · Answer

@suuzin If you think that your position is more likely than not to be sustained in an audit, go for it. Taking the simplified method and deducting $5 per square feet would be reasonable - again, as long as you have a good story to explain that that space was used regularly and exclusively for conducting business.

lightmotif · Answer

Thank you, @opwagner ! But argh, now I’m reading about the Foreign Housing Exclusion (I had read about it before but forgotten about it. This is the first year I’ll be tackling self-employed taxes as a nomad.) Maybe it would be better to take that? Or maybe there is something I’m not understanding about it – can we really deduct our foreign housing costs?

olwagner · Answer

@ellen1 I do not myself have a physical address in the US but I have plenty of US bank accounts (Chase, Wells Fargo, UFB Direct…) and even more US credit cards (the regulars, pretty much all of them).
American Express did deny me the opening of credit cards based on not having a physical address.
I have not experience any adverse action on any of my existing accounts.

olwagner · Answer

It is recommended to keep proof that you sent the returns, Certified mail is one way to do it.
As for the address on the returns, the IRS stance has not changed for some time.
From the instructions from 1998 https://www.irs.gov/pub/irs-prior/i1040--1998.pdf , page 18:
“P.O. Box
Enter your box number instead of your street address only if your post office does not deliver mail to your home.”
But for those of us who are homeless, well…

nambrot · Answer

Im curious, are you of your clients abroad self-employed or paid as a contractor?
I’m thinking about building a service that helps companies actually employe remote international employees, by abstracting away local entities that actually do local payroll and compliance. However, I can’t yet tell if that is an actual issue for many companies or not.

olwagner · Answer

@joshua I can not comment on the Spanish side of it. As far as US taxes are concerned, you would be taxed on the net income of the LLC whether distributed or not.
As far as Social Security is concerned, you shouldn’t have any problem. But if you really want proof that you paid to Spain and therefore do not need to pay to the US, you could request a Certificate of coverage, see https://www.ssa.gov/international/Agreement_Pamphlets/spain.html#certificate2
Best,
Olivier

robetus · Answer

Thanks for the info @opwagner. You can elect late for a S-corp and this is a common thing so I will apply when I file my taxes. My LLC is not registered in California but in Oregon so I won’t have to pay the $800. I think because I’m currently not a resident of any state I won’t have to pay payroll taxes in any state.

olwagner · Answer

I would need to know why you want an LLC in order to answer your question.
Whatever is occuring on your personal bank account is in your own name, not in the name of the LLC - without more context, I can not say what the downside is.

anadesigner · Answer

Hi opwagner,
I am searching for a solution for incorporate my small freelancer business and thinking organize a US LLC for sell my services will be good because as long I understood, as a single person and not trading with US I would not be subject to US tax on business income.
As a digital nomad this seems interesting but I am still trying to understand more…

olwagner · Answer

@suuzin Yes, the Foreign Housing Exclusion works even for personal housing - only useful if you make more than the Foreign Earned Income Exclusion ($100,800), also the first $41 or so per day don’t count.

dirtandrust · Answer

Hi, I’d love to talk to you as my wife and I, we are business partners too, need a new US-based accountant! We are dual citizens in the US and NZ. Contact me through here or our website dirtandrust.com.

ellen1 · Answer

Thanks for this. I am making a run to Texas to try and set up residency there.  I have TravelingMailbox but they have “changed their talking points” on being a representation of a physical address.
Earlier this year they were incredulous that Amex was not letting me change my physical address to them… now they are stating officially they are not to be used as a replacement for physical address.
So, I am going to see if I can find a physical location for said physical address. I worry about renting a super cheap room/apartment with no insurance… maybe I am overcomplicating but the thought of being overseas with frozen bank accounts is kinda unsettling.
Will report back!

travelingtoad · Answer

Ah ok this helps a lot and explains exactly what I was thinking. The article I found had zero elaboration but it scared me just slightly and I had to make sure that I was OK. And so I am. My longest flight is 15 hours.
Even if December 1 and January 2 (the date I landed in Thailand) is counted against me, that’s still only 33 days. So that is the absolute most. I guess I cut it kind of close.

littleshiva · Answer

What do you charge for a private (via e-mail) consultation? Just posted that question in the wrong place by accident, re-posting here.

anadesigner · Answer

also this, saying same thing:
U.S. Business 100% Owned by Non-U.S. Person(s)
Q. I am a single owner of a U.S. LLC, non-U.S. person living abroad. My company provides remote services. Do I need to file tax return and pay income tax?
A single member LLC that elected to be a disregarded entity (a default election) would only pay tax based on the tax status of the owner. Since the owner is not physically present in the US and is providing services remotely there would be no income effectively connected to the US. That means the LLC would owe no US tax, except for the annual registration fee in the state of LLC registration, and there would be no US federal tax obligation (in other words there is no requirement to file income tax either).

Source:
https://www.myusacorporation.com/articles/taxation-of-foreign-entrepreneurs#bm30

anadesigner · Answer

I am not using this structure, just wondering about use it, because I have to have a business in some place, no? Then I am researching what would be the most interesting and this seems to be… But not sure, I am a newbie in all of that and just trying to understand a bit more.

anadesigner · Answer

Hi opwagner,
I have a doubt that maybe you can help. I am a freelancer graphic designer working remotely and at the moment living in Europe. I am not US resident and I am thinking about creating an LLC  company to sell my services through.
I know that I could set up the company without going to the US but for having a US business bank account I would need go there phisicaly.
My doubt is: I have to have this US bank account from start? Or I could (in the beginning) use a personal EU bank account? This would be a real problem?

mule5 · Answer

Yes - sorry for my confusion, I am a dual citizen American, so I am taxed on my worldwide income regardless.  I only have the FEIE to use to offset that income.

anadesigner · Answer

I think I was a bit confuse, sorry. My doubt was not about if I need the LLC, but if I could don’t have the US Bank account from start and still work with the LLC (sending invoices but receiving payments through personal EU accounts), this would be something legal? OR if my company is in US I do need receive customers payments by US bank account?

mule5 · Answer

If the US based LLC is sending invoices and generating income, wouldn’t that US based LLC also be liable for business income tax as well?  Even if the clients are paying your EU bank account, they would still want a W9 form from you, where they would claim to have paid that entity for service as their expense.  So you’d not only have that income tax liability for the LLC (if there is profit after expenses/payroll), but also in your home EU country as a freelancer, right?
I have an US based LLC with my partner (taxed as an S corp), and I owe tax on any income earned not offset with expenses (payroll and otherwise).  There are reporting requirements and other obligations too.  Any payroll paid out is taxed as well, unless you have deductions to offset.

olwagner · Answer

Yes, but usually, people do that in order to have access to the US banking system. If you will bank under your own name, you don’t need an LLC (this answer doesn’t take into account taxation in your home country)

Nomad List

I’m a U.S. accountant who works with Americans who live abroad, ask me anything!

also this, saying same thing:

Suggested topics

What features would you like to see on Nomad List?

What are the best places right now in the Caribbean/LatAM? (Also cheapest flights/accommodation?)

List of Visa/Residency Information in Table/Spreadsheet format?

Most Walkable Neighborhood / City In The World ?

Any nomads in Arizona, US?

International number & internet?

Are there any tax issues I have to be aware of?

Chiang Mai accommodation

Is anyone travelling right now?

Can Americans with EU Passports Travel to EU during COVID-19?

When will the Coronavirus travel restrictions from U.S. to Colombia be lifted?

Anyone know an accountant for Canadian nomads/expats?

Recommendations for UK/Scotland accountants that understand remote businesses?

Anyone tried Stripe Atlas to set up a U.S.-based company?

How are Americans managing residency requirements?

Have you ever been called to U.S. jury duty while traveling?

Where do I pay tax as a U.S. citizen with Spanish residency making money from my book royalties?

Can you recommend a digital nomad accountant?

Do you know a digital nomad accountant?