New to the Forum and have tax questions. (US Citizen)

[Dionysos]

Three years ago, the company I worked for sent me to Buenos Aires. During that time, I met a woman and fell in love. I visited here a few more times and then when the company I worked for went out of business, I decided to move here in December of 2009. I have been travelling in and out since and I have been on a tourist visa since. Next month, my girlfriend and I plan on getting married, so there will not be future Visa issues.

So, now there is a background of information, now let me explain my predicament. I am know employed again working for a company based out of Montreal, Canada as an independent contractor. I have only a US bank account. I obviously want to pay the least amount of taxes possibly and trying to figure out what is needed to do this, and I do understand that as a US Citizen I have to file every year. I understand that the foreign tax exclusion is around $90,000. As an independent contractor, If I get paid from Canada, I have to pay a 25% tax to Canada unless I set up a company. Then I do not have to pay the 25%. But then, I would have to setup a company here in Argentina and I understand paying taxes on companies here is very high.

The other option, is to be paid from the US Division of the company I work for. Even if I get paid to a US Bank Account, but live here in Argentina, will i still fall under the Foreign Tax Exclusion? If I do it this way, then I have to pay a 15% self employed tax in the US. I also know that I cannot get a bank account here in Argentina until I get a DNI which will happen after I get married.

I am sure many of you have had issues like myself and would like to hear what you have to say from your experiences. Also, if anyone cannot answer, does anyone have a good recommendation for a Tax Attorney?

 

[lovelife]

As a US citizen you are taxed on your worldwide income. Even if you get paid to a US Bank Account you can still claim the foreign earned income exclusion. However, the FEIE (Form 2555) does not reduce the 15% self employment tax that you will pay on your net business income reported on Sch C.

However, The FEIE can be used to reduce or eliminate U.S. Federal income tax on wages paid by either a U.S. corporation or a foreign corporation. It does not matter if you are the owner of the corporation. The FEIE still applies as long as you are an employee of that company. Note, The exclusion is reduced in proportion to your Schedule C business expenses.

If as a self-employed person you operated through a properly domiciled and registered offshore corporation, then you could eliminate just about all of the tax on net active business profits under 91,500. To do this, form an offshore corporation in a zero tax jurisdiction, open a foreign bank account, and resister that company with the IRS.

Then, draw a salary of up to $91,500 from that foreign corporation. As long as you qualify for the FEIE and the company’s income is derived from active, not passive business, there will be no federal income tax on this income. (The properly registered and domiciled foreign corporation is not responsible for Medicare, Social Security, or FICA taxes)

If this is done you are not considered self-employed; you are an employee of your offshore corporation, and not subject to self employment tax and the expenses of the offshore corporation do not reduce your exclusion. You might be able to retain some or all of the offshore corporation’s earnings in excess of the exclusion if you plan carefully.

 

[gouchobob]

As a US citizen you are taxed on your worldwide income. Even if you get paid to a US Bank Account you can still claim the foreign earned income exclusion. However, the FEIE (Form 2555) does not reduce the 15% self employment tax that you will pay on your net business income reported on Sch C.

However, The FEIE can be used to reduce or eliminate U.S. Federal income tax on wages paid by either a U.S. corporation or a foreign corporation. It does not matter if you are the owner of the corporation. The FEIE still applies as long as you are an employee of that company. Note, The exclusion is reduced in proportion to your Schedule C business expenses.

If as a self-employed person you operated through a properly domiciled and registered offshore corporation, then you could eliminate just about all of the tax on net active business profits under 91,500. To do this, form an offshore corporation in a zero tax jurisdiction, open a foreign bank account, and resister that company with the IRS.

Then, draw a salary of up to $91,500 from that foreign corporation. As long as you qualify for the FEIE and the company’s income is derived from active, not passive business, there will be no federal income tax on this income. (The properly registered and domiciled foreign corporation is not responsible for Medicare, Social Security, or FICA taxes)

If this is done you are not considered self-employed; you are an employee of your offshore corporation, and not subject to self employment tax and the expenses of the offshore corporation do not reduce your exclusion. You might be able to retain some or all of the offshore corporation’s earnings in excess of the exclusion if you plan carefully.

From what you describe this would work but not eliminate the SE tax. He may want to look into forming a Sub-chapter S Corp in the states then pay himself from that Corp as an employee. Amounts above his salary that the corp brings in could be distributed to him as dividends free from the SE tax. He would still be liable for income taxes but unless he is making a lot they probably wouldn't amount to much and he would still have to pay social security taxes on his salary.. There are rules to this including his salary must be reasonable given his duties. Of course he should be paying Argentine income taxes which are higher than U.S. rates.

 

[igor]

If as a self-employed person you operated through a properly domiciled and registered offshore corporation, then you could eliminate just about all of the tax on net active business profits under 91,500. To do this, form an offshore corporation in a zero tax jurisdiction, open a foreign bank account, and resister that company with the IRS.

If you own a foreign corporation, you need to report it to the IRS (form 5471) and implications of this are not trivial. If you don't own it, there is a pretty good chance that nominee directors will end up with your money.

Besides, Canadian company may refuse to work with an offshore contractor.