Post: #1

Americans are exempted from most of their US income taxes if they spend at least 330 days of the tax year abroad.

I think the point of the rule is that if you live and work abroad and you are already paying taxes in that country, your US taxes on income up with 91k are exempt.

What's not clear to me is that what happens when you're self-employed and travelling from country to country, and staying out of the US for 330+ days. I assume these people don't any local income tax, but they still get the US tax exception. I think the IRS calls these people "itinerant". For example, you make a living selling books on how to pickup girls abroad, and are constantly moving from one country to the next.

Note that if you are self-employed aboard, you still have to pay US Self-Employment Tax fully (15%) -- there is no exclusion on that part. But you still get a massive tax-cut because you dont pay the normal part of your federal income tax (on the first 91k of income).

Anyone making use of the Foreign Income Exemption here?

More info here:
http://www.irs.gov/businesses/small/inte...50,00.html

This is the form I used (which was inside my computer tax program)
http://www.irs.gov/pub/irs-pdf/f2555.pdf

(08-26-2011 10:29 PM)thegmanifesto Wrote:  "Americans are exempted from most income taxes if they spend 11 months of the year abroad."

Can you bust a thread on this?

Post: #2

You'll be asked the physical presence test when doing taxes. I don't know anyone that has ever been asked to prove it with the IRS. Used to the tax break was a little sweeter. For example, if the break was $80K, and you made $100K, the last $20K was counted as all you made. That kept the $20K in a low tax bracket, and you got most of it back. Now your total amount is counted, leaving the $20K in the higher tax bracket. No biggie, because the tax break is up to $91K, and rising.

I've made the presence test some years, not for others. Also, the 330 days is prorated. If you leave the country in June, just file an extension until the following June, then do both tax years. It all works out.

I ALWAYS pay a reputable accountant to handle my biz. Don't want any stess from the man. Audits are a bitch.

Post: #3

(08-27-2011 09:42 AM)Aliblahba Wrote:  You'll be asked the physical presence test when doing taxes. I don't know anyone that has ever been asked to prove it with the IRS. Used to the tax break was a little sweeter. For example, if the break was $80K, and you made $100K, the last $20K was counted as all you made. That kept the $20K in a low tax bracket, and you got most of it back. Now your total amount is counted, leaving the $20K in the higher tax bracket. No biggie, because the tax break is up to $91K, and rising.

I've made the presence test some years, not for others. Also, the 330 days is prorated. If you leave the country in June, just file an extension until the following June, then do both tax years. It all works out.

I ALWAYS pay a reputable accountant to handle my biz. Don't want any stess from the man. Audits are a bitch.

Maybe I misread your post Ali but the 20k would be taxed at the higher tax bracket.

So you made 20k over the threshold. They still calculate what taxes bracket you would be in (the 100k tax bracket) and tax that 20k according to that tax bracket.

Post: #4

I plan on using this for my 2011 taxes. Would love to hear from other guys who are also using this.

Post: #5

(08-27-2011 01:01 PM)worldwidetraveler Wrote:  Maybe I misread your post Ali but the 20k would be taxed at the higher tax bracket.

So you made 20k over the threshold. They still calculate what taxes bracket you would be in (the 100k tax bracket) and tax that 20k according to that tax bracket.

Your are correct. Used to the $20K was taxed in the $20K bracket. Now you are in the $100K bracket. I referred to it as double-dipping. The gov't was sort of giving two breaks at once. Sorry for the confusion.

@Roosh- My advice is to get an accountant in the D.C. area that specializes in overseas tax issues, and all the loopholes. There's a lot of defense contractors in that area that need the same service. Shouldn't be hard to find.

Post: #6

When I did this last year, I did it without the help of an accountant, not that I'm recommending that. Anyway, these computerized tax forms let you fill out this form manually which is what I did. When I submitted my return electronically, it was rejected by the IRS. I got a cryptic message back from the IRS which vaguely explained my error. I made a correction and resubmitted electronically, and then it was accepted. If I remember correctly, the mistake I made was that I put down "India" in section 18, but since India was my "tax home", the IRS did not want me to list India in section 18.

Post: #7

That's bullshit that you'd have to pay the full 15% FICA tax still. I would just start a no tax foreign corporation and be paid by that corporation. You wouldn't be 'self employed' and any money over that tax deduction in the corporate bank account. Since your not in the USA, they can't say it's a US resident controlled corporation. I'm not an accountant, etc

Post: #8

(08-27-2011 02:52 PM)Roosh Wrote:  I plan on using this for my 2011 taxes. Would love to hear from other guys who are also using this.

Roosh, like Ali said, it is better to get an accountant. You should be able to write off most of your living expenses since you are in Poland researching a book.

Post: #9

(08-29-2011 11:19 PM)ersatz Wrote:  That's bullshit that you'd have to pay the full 15% FICA tax still. I would just start a no tax foreign corporation and be paid by that corporation. You wouldn't be 'self employed' and any money over that tax deduction in the corporate bank account. Since your not in the USA, they can't say it's a US resident controlled corporation. I'm not an accountant, etc

That won't work. You pay taxes, as an American citizen, no matter where you live or whom pays you.

Post: #10

I'm not an accountant, etc. When I was working as a contractor for a successful computer marketing company, I mentioned to the owner that
I might incorporate.

He discouraged me, saying " Corporations get audited more than anybody."

Don't know if it's true, it's just when I file as an individual, there seems to be less that's ambiguous-- I made X, I spend Y in the pursuit of my little venture, and the only real thing that can be contested was whether(a) it was a real profit-oriented business and (b) whether a particular expense was legitimate in the pursuit of that profit and correctly categorized.

Post: #11

I started using an accountant last year. We discussed the exclusion for2011. It's a little complicated with me since I'm earning money from the US, but I think I will still qualify.

Post: #12

(08-30-2011 10:28 AM)Roosh Wrote:  I started using an accountant last year. We discussed the exclusion for2011. It's a little complicated with me since I'm earning money from the US, but I think I will still qualify.

Pure Speculation and bizarre ideas:

Maybe it would help your case if you get the rooshvforum onto servers that are in a foreign country.

Print the books outside USA, but that would cost a lot if you sell mostly in USA and have to ship into the USA.

Keep track of IP numbers and hits -- which are outside USA.

Then only reveal the information such as above when it supports your case.

Start support services company in Polish [other] cities ( rooming houses, etc.)

Post: #13

(08-30-2011 10:28 AM)Roosh Wrote:  I started using an accountant last year. We discussed the exclusion for2011. It's a little complicated with me since I'm earning money from the US, but I think I will still qualify.

How do you qualify your earnings? According to my accountant you cannot exclude the amount of money your business earned in the US serving the US customers, but you can exclude the amount your business earned serving foreign customers. See IRS Publication 54.

Post: #14

(08-30-2011 06:15 PM)oldnemesis Wrote:  

(08-30-2011 10:28 AM)Roosh Wrote:  I started using an accountant last year. We discussed the exclusion for2011. It's a little complicated with me since I'm earning money from the US, but I think I will still qualify.

How do you qualify your earnings? According to my accountant you cannot exclude the amount of money your business earned in the US serving the US customers, but you can exclude the amount your business earned serving foreign customers. See IRS Publication 54.

We are talking about person income, not what your business is making.

Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements.

*

Your tax home is in a foreign country.
*

You meet either the bona fide residence test or the physical presence test.

Post: #15

(08-30-2011 06:37 PM)worldwidetraveler Wrote:  We are talking about person income, not what your business is making.

What if you have Sole Proprietorship registered in the USA but it makes its money from your services you provide overseas?

(08-30-2011 06:15 PM)oldnemesis Wrote:  How do you qualify your earnings? According to my accountant you cannot exclude the amount of money your business earned in the US serving the US customers, but you can exclude the amount your business earned serving foreign customers. See IRS Publication 54.

Seems right. On Form 2555, Section 18, you put down trips you made to the USA along with the amount of money you made in the USA on that trip.

Post: #16

(08-30-2011 07:22 PM)The Duke Wrote:  What if you have Sole Proprietorship registered in the USA but it makes its money from your services you provide overseas?

Duke, you really should talk to an accountant that specializes in international business.

We are still talking about personal income. So whatever you make in your Sole Proprietorship would end up as personal income.

I am sure they want to know what money was earned while you were physically in the US. I haven't seen anything that stated we had to differentiate between income made from US sales compared to foreign sales.

I think the biggest problem is proving your tax home when you are not really paying taxes in that country.

I still need to sit down with a specialist myself to figure that out. I didn't need to use this exclusion while working in Australia since I paid Ozzie taxes or I didn't qualify because I was in the states for more than 30 days.

You should also talk with an accountant about incorporating or creating an llc. You may be missing out on tax deductions and you could possible be saving money from cutting your social security deductions down by the way you get money out of your company.

Post: #17

(08-30-2011 06:37 PM)worldwidetraveler Wrote:  We are talking about person income, not what your business is making.

Did you actually read the Publication 54?
It makes it very clear that only earned income could be excluded.
For example, your gambling winnings, alimony and pension are definitely personal income, but it CANNOT be excluded.
Your professional fees may be business income which CAN be excluded.
Business income is stated as "variable", meaning it may or may not be excluded depending on circumstances.

Post: #18

(08-31-2011 06:55 PM)oldnemesis Wrote:  Did you actually read the Publication 54?
It makes it very clear that only earned income could be excluded.
For example, your gambling winnings, alimony and pension are definitely personal income, but it CANNOT be excluded.
Your professional fees may be business income which CAN be excluded.
Business income is stated as "variable", meaning it may or may not be excluded depending on circumstances.

What do you think getting a salary from your business is? You have to pay yourself a salary otherwise you will get into other problems.

Post: #19

(08-30-2011 10:28 AM)Roosh Wrote:  I started using an accountant last year. We discussed the exclusion for2011. It's a little complicated with me since I'm earning money from the US, but I think I will still qualify.

The ultimate in black humor hilarity might ensue if you're claiming travel to Poland etc. as research for your business of selling books ( which according to any fair standard it should be from my limited knowledge) and you are God forbid audited and get a - yes = massive Ameriwhale IRS agent as the audit agent. Oh how awful.

I am on a lower level, but with TurboTax for $40 extra you can prepay a representation service so that if you are audited you do not have to personally go to audit hearings and so forth, they will do all the visits etc ( which could save you money on travel I guess) .

How GOOD this budget "representation" would be is highly questionable of course.

But not facing the Ameriwhale IRS agent when you've written "43 Things I Hate About American Wimmen" ?

Priceless.

Post: #20

(08-31-2011 08:29 PM)worldwidetraveler Wrote:  What do you think getting a salary from your business is? You have to pay yourself a salary otherwise you will get into other problems.

I don't know anyone who's getting salary from their business. Makes very little sense unless you're C corp. Could you explain please?

Post: #21

(09-01-2011 06:46 PM)oldnemesis Wrote:  I don't know anyone who's getting salary from their business. Makes very little sense unless you're C corp. Could you explain please?

I hope they never get audited if they are doing any work for the business and not paying themselves a salary. The IRS wants their withholding taxes!

http://www.irs.gov/businesses/small/arti...,00.html#7

Reasonable compensation

Because an officer of a corporation is generally an employee with wages subject to withholding, corporate officers may question what is considered reasonable compensation for the efforts they contribute to conducting their trade or business. Wages paid to you as an officer of a corporation should generally be commensurate with your duties. Refer to "Employee's Pay, Tests for Deducting Pay" in Publication 535, Business Expenses for more information. Public libraries may have reference sources that provide averages of compensation paid for various types of services. The Internal Revenue Service may determine that adjustments must be made to the income and expenses of tax returns for both the corporation and an individual shareholder if the officer is substantially underpaid for services provided.

Post: #22

(09-01-2011 08:34 PM)worldwidetraveler Wrote:  I hope they never get audited if they are doing any work for the business and not paying themselves a salary. The IRS wants their withholding taxes!

As I said above, this is only relevant to C corp. Maybe S-corp too, but I never heard it. LLC and partnerships are tax pass-through entities, and I never heard of IRS requiring the LLC or partnership/sole proprietor to pay salary to yourself. The link you provided clearly states about corporation, and very few small businesses form C corp as it is too expensive to maintain and only makes sense when you have significant income which you'd like to keep in the company.

Post: #23

(09-02-2011 04:15 PM)oldnemesis Wrote:  As I said above, this is only relevant to C corp. Maybe S-corp too, but I never heard it. LLC and partnerships are tax pass-through entities, and I never heard of IRS requiring the LLC or partnership/sole proprietor to pay salary to yourself. The link you provided clearly states about corporation, and very few small businesses form C corp as it is too expensive to maintain and only makes sense when you have significant income which you'd like to keep in the company.

I guess firstly, what is significant income? C Corps are not too expensive to maintain. Maybe you are talking about California fees which isn't the same as the rest of the US.

I don't know where you got that. You have more stuff to comply with an you should be doing similar stuff with your llc to make it look legit.

Second, distributions from a SCorp or LLC are not taxed the same as income. Social Security and Medicare are only paid on SALARIES. Thus, you are not paying those if you don't take a salary.

That is why the IRS wants you to take a salary that is common within your industry.

http://www.ehow.com/how_7225324_disbursements-llc.html

I never said anything about partnerships or sole proprietorship. I would imagine they are all salary and thus all taxes are taken out.

I am always willing to learn something new if you want to start posting your own links.

Post: #24

I actually used this when I taught English in S. Korea. I was in Korea for all of 2006.

All the money I made there was exempt from US taxation.

Post: #25

(09-02-2011 06:22 PM)cool Wrote:  I actually used this when I taught English in S. Korea. I was in Korea for all of 2006.

All the money I made there was exempt from US taxation.

Did you have an accountant help you, or did you brave form 2555 yourself?

Did you pay any income taxes in Korea?