Foreign income and how to best limit my liability

[Maxim_311]

I may be going abroad for work and wanted to get some advice about how best to handle the earnings.

I was told by my friend working at the company in question that last year on a $120K in income he only paid $6k total in taxes.

One way he was able to do this was because of the foreign earned income exclusion
Which pretty much allows you to not pay any taxes on money up to 100k

Problem is this wont work for me because one of the requirements for that is that you have lived in the foreign country for one full calendar tax year. I will only be going for 4-5 months so I wont be able to take advantage of that =(

He also advised me to form a business/llc and get a business account in the US to have the company pay me to. The reason and benefits of this part elude me. I would still be the sole-proprietor of said business and have to pay normal income tax on it correct?

So knowing my situation what advice would you give me? Thanks very much for any help.

[Mjenn]

As far as I understand it, this is very dependent upon the country you are going to be living in. You are right in that you do not qualify for the Foreign Income Exclusion for such a short stay, but if you are going to be starting up a company and putting income into it and living in another country, I am pretty sure you are going to need to follow the other country's tax code.

Also with the FIE you do not pay AMERICAN taxes on that income, but you have to establish that you are paying taxes in your country of residency, so it is a way to avoid paying double tax.

I've lived abroad in several different countries, and it takes awhile to sort them all out in terms of tax law. Speak to someone at your company's legal department, but be sure to ask someone who knows tax law in the country you are moving to. I have gotten in correct advice from some very educated people because they just did not know the particular ex-pat laws.

A lot of what you legally can do is going to depend on the type of Visa you have and where you are going. Most countries will not allow you to get a 'work' visa and come over for work, but then allow you to not have an income. But many countries also have a tax loophole for short stays (since you will not be using many services) and may have a lower tax rate for a short temporary stay or way to get around it all together.

[Maxim_311]

As far as I understand it, this is very dependent upon the country you are going to be living in. You are right in that you do not qualify for the Foreign Income Exclusion for such a short stay, but if you are going to be starting up a company and putting income into it and living in another country, I am pretty sure you are going to need to follow the other country's tax code.

Also with the FIE you do not pay AMERICAN taxes on that income, but you have to establish that you are paying taxes in your country of residency, so it is a way to avoid paying double tax.

I've lived abroad in several different countries, and it takes awhile to sort them all out in terms of tax law. Speak to someone at your company's legal department, but be sure to ask someone who knows tax law in the country you are moving to. I have gotten in correct advice from some very educated people because they just did not know the particular ex-pat laws.

A lot of what you legally can do is going to depend on the type of Visa you have and where you are going. Most countries will not allow you to get a 'work' visa and come over for work, but then allow you to not have an income. But many countries also have a tax loophole for short stays (since you will not be using many services) and may have a lower tax rate for a short temporary stay or way to get around it all together.

My concern isn't about the country I'm going to. The company will be covering my tax liability there for me as part of my compensation. I'll be working in China.
My questions are regarding how to best lower my tax liability in America. Is there anything I can do?

The company is offering me flexibility in how I get paid. Directly to a US account or to a Chinese account.