[Jack198]

(10-31-2014 12:18 PM)Enigma Wrote:  

My situation is I will be living abroad more than 330 days (at least) out of the year.

But, as a freelancer, a decent portion of my income comes from US-based clients.

As far as I can tell, I am NOT eligible for the foreign based exception on those earnings?

But the thing is, most clients are not reporting that income (I'm sure many are claiming the money paid as a business expense, but they haven't had me fill out a W9 and don't have my tax information). Neither is the third party they pay me through (freelancing sites).

Also, I pay the third party fees out of any money I make there. Technically, I pay the client's fees as well based on how I price my work. I believe it's about 8.5% for each side.

I'm guessing that would be deductible? Seems like paying 17% out of every dollar in business expenses would lead to a decent break.

Or would I simply report the income minus the fees?

Obviously I'm not going to file my taxes solely off the advice of people from an internet forum, I'm just trying to get a general idea of how hard I'm going to get fucked and I know I'm not the only person in this situation.

If anyone has any tips or workarounds on how I could reduce my tax burden in the future, that'd be awesome too. I actually don't think it's that hard for Americans to get a bank account in the Phils, though I may be completely wrong.

I worked for a US company while overseas for 330 days and was eligible for the exception. As to what your clients are or are not reporting, all of it counts as income to you as far as the IRS is concerned. Those fees you mention sound like business expenses and should probably be handled as such versus deducting their amount from your gross revenue per transaction.

But I am not a tax expert by a long shot so you should find an accountant experienced with overseas Americans such as yourself. In the process he might recommend setting up an LLC versus continuing the way you are. All good questions for the right expert. Things are going to get worse before they get better in terms of putting the screws to income wherever the IRS sees it. Good luck.

[Akula]

Just to recap re taxation for US citizens abroad.

It's now how much you have to pay and/or what the rules are but simply that the US government is INSANE because they tax their citizens abroad on foreign income (even in foreign currencies). NO OTHER INDUSTRIALIZED country does this and I think only one other does it at all.

Hence, the US is a complete outlier in trying to track down the income of it's citizens living abroad. That's why other countries have such a hard time dealing with the US's nutty, corrupt and irresponsible tax laws. Nuff said!!

So stop trying to rationalize it - it's crazy the US is crazy and it's unacceptable but what can we do???

[calwinston]

(10-31-2014 12:18 PM)Enigma Wrote:  

My situation is I will be living abroad more than 330 days (at least) out of the year.

But, as a freelancer, a decent portion of my income comes from US-based clients.

As far as I can tell, I am NOT eligible for the foreign based exception on those earnings?

But the thing is, most clients are not reporting that income (I'm sure many are claiming the money paid as a business expense, but they haven't had me fill out a W9 and don't have my tax information). Neither is the third party they pay me through (freelancing sites).

Also, I pay the third party fees out of any money I make there. Technically, I pay the client's fees as well based on how I price my work. I believe it's about 8.5% for each side.

I'm guessing that would be deductible? Seems like paying 17% out of every dollar in business expenses would lead to a decent break.

Or would I simply report the income minus the fees?

Obviously I'm not going to file my taxes solely off the advice of people from an internet forum, I'm just trying to get a general idea of how hard I'm going to get fucked and I know I'm not the only person in this situation.

If anyone has any tips or workarounds on how I could reduce my tax burden in the future, that'd be awesome too. I actually don't think it's that hard for Americans to get a bank account in the Phils, though I may be completely wrong.

BPI opens accounts for Americans. I inquired about an account here the other day in Panglao. I haven't checked the other banks yet.

[Global Entry]

MD, I sent you a line message, did u receive?

(10-29-2014 09:04 PM)MaleDefined Wrote:  

(10-29-2014 05:06 PM)Global Entry Wrote:  

Other than the basic overseas earnings exception, US citizens and residents have been taxable on their worldwide income for as long as the modern tax code has been in place. Sure, there are ways to defer and deferral is the primary method of tax planning for income tax (not for estate and gift), but ultimately, when funds are repatriated they are taxable. Money earned by an individual in a foreign bank account is immediately taxable. And earnings through foreign joint ventures and partnerships, yes, immediately taxable.

Please, let's discuss this at length. I can't get clear answers anywhere and I trust your words than I would a random internet source.

I am curious about, "when funds are repatriated they are taxable." Can you provide some clarification? Perhaps we can even discuss privately.

I am totally clueless in this realm. My earnings are taxed in Vietnam and the remainder is deposited into my US bank account via wire. I can prove physical presence, and therefore I won't have to pay federal income tax on my first $102,500. Is there anything else I need to know? From what you're saying here, it seems like there is more to this.

(10-31-2014 12:18 PM)Enigma Wrote:  

My situation is I will be living abroad more than 330 days (at least) out of the year.

But, as a freelancer, a decent portion of my income comes from US-based clients.

As far as I can tell, I am NOT eligible for the foreign based exception on those earnings?
***
If anyone has any tips or workarounds on how I could reduce my tax burden in the future, that'd be awesome too. I actually don't think it's that hard for Americans to get a bank account in the Phils, though I may be completely wrong.

Enigma, your income exemption is based on your location, in my understanding. It doesn't matter that the income comes from clients in the USA, so long as you're not physically providing services in the USA.

However, I'd strongly caution anyone giving or taking tax advice via message boards. No responsible tax advisor is going to provide tax advice based on the information thats available (or you would feel comfortable sharing) here.

Regarding Jack's suggestion of setting up an LLC, its the right answer but the wrong track. An LLC will, default be a flow-through entity, ignored for US tax purposes and reporting if you own it alone. If you've another shareholder, then its a partnership and it still will be attributed to you directly, in proportion to your ownership interest. But setting up a foreign entity treated as a corporation, MD, that is paid by your employer, and which pays you and deducts all of its expenses, may be a way to create some deferment. You'd need to decide where to form the entity (doesn't need to be Vietnam) and you'd need to follow corporate formalities for the entity, but that could be the best answer for you. Then all legitimate business expenses will be deductible and may help categorize some things as biz, and not personal. For example, the Company could hire you as its consultant in the biz you're in, and give you a salary X, plus two flights home each year, Y for personal and business reasons. Again, I'm not providing advice based on your circumstances, as I don't know them, but potentially undeductible travel to you could become ordinary and necessary business expense to your company as part of your contract with said company. And any amounts that the Company is paid, net of expenses, over what you're paid by your company, would be deferred potentially, unless caught up in one of the myriad exceptions in the Code.

[Enigma]

(10-31-2014 01:47 PM)Jack198 Wrote:  

I worked for a US company while overseas for 330 days and was eligible for the exception.

Nice. That's good info, thanks.

Quote:

As to what your clients are or are not reporting, all of it counts as income to you as far as the IRS is concerned. Those fees you mention sound like business expenses and should probably be handled as such versus deducting their amount from your gross revenue per transaction.

Yeah, I knew that. Just wasn't sure about the possibility of claiming all my income as "freelancing" and my location as overseas, instead of specifically saying it came from American clients.

But that was just a thought and it seems like it won't be necessary regardless.

Quote:

Enigma, your income exemption is based on your location, in my understanding. It doesn't matter that the income comes from clients in the USA, so long as you're not physically providing services in the USA.

However, I'd strongly caution anyone giving or taking tax advice via message boards. No responsible tax advisor is going to provide tax advice based on the information thats available (or you would feel comfortable sharing) here.

Definitely not. I just wanted to figure out if I theoretically qualified for the exception.

Quote:

Regarding Jack's suggestion of setting up an LLC, its the right answer but the wrong track. An LLC will, default be a flow-through entity, ignored for US tax purposes and reporting if you own it alone. If you've another shareholder, then its a partnership and it still will be attributed to you directly, in proportion to your ownership interest. But setting up a foreign entity treated as a corporation, MD, that is paid by your employer, and which pays you and deducts all of its expenses, may be a way to create some deferment. You'd need to decide where to form the entity (doesn't need to be Vietnam) and you'd need to follow corporate formalities for the entity, but that could be the best answer for you. Then all legitimate business expenses will be deductible and may help categorize some things as biz, and not personal. For example, the Company could hire you as its consultant in the biz you're in, and give you a salary X, plus two flights home each year, Y for personal and business reasons. Again, I'm not providing advice based on your circumstances, as I don't know them, but potentially undeductible travel to you could become ordinary and necessary business expense to your company as part of your contract with said company. And any amounts that the Company is paid, net of expenses, over what you're paid by your company, would be deferred potentially, unless caught up in one of the myriad exceptions in the Code.

Interesting. As of right now, the exception would have me well covered but that's something I'll have to look into in the future.

(10-31-2014 06:26 PM)calwinston Wrote:  

BPI opens accounts for Americans. I inquired about an account here the other day in Panglao. I haven't checked the other banks yet.

That's what I thought. One chick that works for me said it's a massive pain doing online transfers through any of the Phil banks though. It got to the point where I just go down to the bank once a month and physically deposit the cash through a teller when I need to pay her.

Definitely wouldn't hurt to have, regardless.

[Skip's Steps]

(10-29-2014 05:06 PM)Global Entry Wrote:  

Not exactly sure what you mean here, but I was a tax lawyer. For ten years. Big Four and white shoe firms.

Other than the basic overseas earnings exception, US citizens and residents have been taxable on their worldwide income for as long as the modern tax code has been in place. Sure, there are ways to defer and deferral is the primary method of tax planning for income tax (not for estate and gift), but ultimately, when funds are repatriated they are taxable. Money earned by an individual in a foreign bank account is immediately taxable. And earnings through foreign joint ventures and partnerships, yes, immediately taxable.

There's an enormous industry, of which I was a part, in creating deferral for companies with overseas operations, the new fashion of which is inversion transactions, though those aren't "new" in that they existed when I was practicing tax law before 2000, and the case law goes back much further. It wasn't a common transaction, nor is it common now, but its flashy, and gets a lot of press. And when big companies do it, its a revenue loss. Most companies don't fully invert, they don't have to - they just send their IP offshore to Ireland or elsewhere, or their "management" to a tax haven, and defer as long as possible. 15 years deferment basically, mathematically, lowers the cost of the tax in excess of 90 percent. At that point, they've already won. So again, the game is in deferral.

For foreign individuals, they can still lend money in the USA, for the most part, tax free, so long as the interest is portfolio interest, and not a loan to a company they own or control. The USA needs to Portfolio interest exemption, as no one would buy state bonds and other debt if it didn't exist, interest rates would shoot up, borrowing money would become more expensive for the federal government, and our government would shut down tomorrow.

Dividend repatriation from a corporation is subject to withholding taxes, reduced in some cases below the standard 30 percent via tax treaty. And business income from operating a business in the USA is taxable as it is to a US business, and is avoided by many foreign companies and individuals for reeasons referred to above- the USA asks for huge information disclosure and most wealthy foreigners don't want to open their books to the IRS.

Just one counterpoint - the USA is far from the highest tax rate country in the west for income. It may be better at collecting though, then some other western countries (looking at you, Italy, while nodding at England). But many other european residents, France, Sweden, England, bear highe effective tax rates than Americans.

I don't want to derail this thread and I certainly don't want to engage in tax policy debate, just clarifying a few things.

(10-29-2014 08:19 AM)MaleDefined Wrote:  

Let me give you a bit of why this worries me. I am not a tax lawyer, but I am knowledgable enough on the topic because it directly affects me.

FACTA isn't so damaging on the surface. Even among wealthy expats, it's unlikely that you'll hold such large amounts of money in singular individual bank accounts.

However, the idea of FACTA was designed in a very clever way. After the passing of FACTA, many countries will now not allow new bank accounts to be opened up by Americans. Countries simply don't want the American octopus arms inside of their own banking system snooping for American accounts. And how can you blame them?

I am working in a foreign country, except all of my pay now hits my American account. That's not worrying on the surface, as I'm not taxed on the first $102,500(I believe) I make annually in a foreign country, regardless of what account it hits. I can prove my income is earned internationally and it's not a tax issue.

What worries me is now it's very easy for the US to drop the other side of the shoe, and say that foreign income earned and deposited in American bank accounts will now be subject to income tax.

It used to be possible for an American abroad to play completely outside of the sphere. That is no more. FACTA now makes that impossible. Worrying for me to say the least.

Realistically, Uncle Sam is not expending resource going after small fish. If you have the kind of money that requires creative mitigation strategies, I suppose one can mitigate most of the risks.

Your point about the US tax rates not even being that high is spot on--the US is just better at scaring people into compliance.

[Scorpio Rising]

I have some questions. If I appear dense or if these issues has been addressed earlier I apologize. What is stopping foreign banks from refusing to cooperate in this international shakedown? Is this not an egregious assault on the internal affairs of both financial concerns and sovereign nations themselves? Are they afraid if they don't comply they won't be able to take part in other business ventures with American companies or even Uncle Sugar himself? This whole thing is beyond disgusting and scary as hell.

[Jack198]

It's been covered, but simply put, it is within their economic interest to cooperate, mostly (as you deduced).

Absent a desire to cooperate, the foreign banks just phase out the few American consumers they have in order to get greedy Uncle Sam and his IRS stooges off of their backs and get on with life.