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TOTALLY tax-free up to $85,700/yr.?

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tom.nadeau
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TOTALLY tax-free up to $85,700/yr.?

Postby tom.nadeau » Mon, 15 Jan 2007 9:19 am

I'm a US citizen hoping to set up a business which I can run from a laptop from anywhere in the world. I want to do this because I love
travel and living in different countries. I would also like to minimize my taxes at least until I have some measure of financial security.

I understand the gist of the Foreign Earned Income Exclusion, which would allow me to earn up to $85,700 in 2007 free of US federal income tax. Additionally, I know that if I was a resident of a state with no state income tax before leaving the US, I would also be free of state income tax obligations.

Next, my thinking is that if I form a corporation in a tax haven country, have my employer(s) and/or client(s) pay that company, and then pay myself as an employee of that (non-US) company, I can also legally avoid paying FICA & Medicare or Self-Employment Tax.

Finally, by taking care not to become "resident for tax purposes" in any other country (by never staying in any country long enough in any given year), I hope to also be free of any tax liability to any foreign country.

Essentially, I envision dividing my time every year between 2 or more countries - some countries allow you to stay up to 183 days/year without becoming resident for tax purposes, others allow only 90 days/year, or some other number. In this way I hope to be able to pay myself up to $85,700 this year totally free of income tax.

Questions:

1) Is the above scenario possible to do 100% LEGALLY? I don't even want to be in a "gray area" - I really value my sleep. If not, why not? If so, how should I arrange my affairs in order to be 100% in compliance with all applicable laws?

2) How much money should I expect to pay every year to retain the services of a US tax attorney, maintain full compliance with the IRS, and maintain my corporation in the proper manner? If the answer is 'it depends', please outline what it depends on and provide a ballpark figure for each scenario.

3) How should I go about finding a top-notch tax attorney who has a lot of experience in the area of US expat taxation and can keep me out of trouble with the IRS? How can I be sure I'm getting someone good and honest?

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Postby Strong Eagle » Mon, 15 Jan 2007 9:50 pm

First, you don't need a tax haven to avoid SS and Medicare. If you are paid in foreign currency by a foreign entity you are not subject to these taxes.

The big flaw in your plan is the residency bit. Most countries that I know of will tax you a lot more if you don't make 183 days. Almost always better to make 183 days and pay resident tax. Otherwise you get hit with much higher non resident rates.

Having said that, I do know of a couple of folks who have successfully avoided all tax. Legal? Who knows. I doubt it. Most every country has a reciprocal tax agreeement (US excluded - Indonesia also I think)... so authorities will frown upon zero tax paid.

tom.nadeau
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Postby tom.nadeau » Fri, 23 Feb 2007 9:29 am

Thanks for the reply.

Isn't there a way to run my business so as not to incur tax in the countries I enter on tourist visas?

For instance, if I'm a translator, and while visiting Singapore, use my laptop to translate a document from Japanese to English for an American company, which pays my Bermuda company bank account for my services - do I incur tax liability in Singapore?

Example #2: suppose that while visiting Singapore I purchase an item (or many items) and sell then sell them over eBay (or over my own web site) to customers in Europe - who again pay my Bermuda corporation - do I have to pay any tax in Singapore?

In either of these cases, have I violated my Singapore tourist visa?

Anyone else please feel free to join in, or comment on my original post.

Thanks!

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Postby Strong Eagle » Fri, 23 Feb 2007 11:23 am

tom.nadeau wrote:Thanks for the reply.

Isn't there a way to run my business so as not to incur tax in the countries I enter on tourist visas?

For instance, if I'm a translator, and while visiting Singapore, use my laptop to translate a document from Japanese to English for an American company, which pays my Bermuda company bank account for my services - do I incur tax liability in Singapore?

Example #2: suppose that while visiting Singapore I purchase an item (or many items) and sell then sell them over eBay (or over my own web site) to customers in Europe - who again pay my Bermuda corporation - do I have to pay any tax in Singapore?

In either of these cases, have I violated my Singapore tourist visa?

Anyone else please feel free to join in, or comment on my original post.

Thanks!


In both cases you have violated your tourist visa. Working is simply not allowed.

From a practical perspective this would be hard to detect if you never engage in any financial services (like a bank account) in Singapore. But, you are limited in stay with a tourist visa and you have fewer options for opening a bank account, and virtually no options for renting, other than a Serviced Apartment.


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