Tax Exempt Status


F

fieldjobs

I'm an American citizen and in the first quarter of 2003 I
decided to retire early (age 54)and moved to Thailand from
California. In 2004 a former business contact asked if I
was interested in short term contract work at various places
around the world. Without giving any thought to the tax
consequence I jumped at the opportunity. Having worked
overseas in the past as an employee of a company I was exempt
from federal tax if I stayed out of the US for a certain
period of time and the money was earned overseas. Looking at
the federal Pubs it looks like that might not be the case when
self employed and operating under one's own name, as I am now.

I know I must pay the self employment tax (both sides of SS
and Medicare) but am I exempt from federal income tax on money
earned from these contracts?

Would there be any advantage for me to form S-Corp? Don't
plan on earning more than $50k a year. I also have established
an office other than at home because of cheap cost to rent.
 
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F

Frank S. Duke, Jr.

I'm an American citizen
Key point because your worldwide income is taxable by the US,
no matter where you work.
... Having worked
overseas in the past as an employee of a company I was exempt
from federal tax if I stayed out of the US for a certain
period of time and the money was earned overseas.
Not true. You most likely paid tax overseas which exceeded your
US tax obligation and got a foreign tax credit for your US tax.
You were still obligated to file a return, calculate the tax and
declare the income.

I know I must pay the self employment tax (both sides of SS
and Medicare) but am I exempt from federal income tax on money
earned from these contracts?
NO! You probably owe tax to both the country where you work and
to the US. What you pay to the foreign country will most likely
be a credit for your US tax. Not all countries taxes are counted
in this calculation.

You need to talk to a professional tax advisor that specializes
in foreign earned income.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA
 
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L

LoTax

...Having worked
overseas in the past as an employee of a company I was exempt
from federal tax if I stayed out of the US for a certain
period of time and the money was earned overseas.
The same exclusion [*not* an exemption] of your foreign earned
income is available to you as a self-employed person that was
available to you as an employee. The rules are a little more
complicated but if you use Form 2555 and its instructions you
should be able to see how it works for self-employed folks.
And yes, the SE tax will *still* be owed since the exclusion
doesn't apply there.
 
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L

Lanny K Williams CPA

I'm an American citizen and in the first quarter of 2003 I
decided to retire early (age 54)and moved to Thailand from
California. In 2004 a former business contact asked if I
was interested in short term contract work at various places
around the world. Without giving any thought to the tax
consequence I jumped at the opportunity. Having worked
overseas in the past as an employee of a company I was exempt
from federal tax if I stayed out of the US for a certain
period of time and the money was earned overseas. Looking at
the federal Pubs it looks like that might not be the case when
self employed and operating under one's own name, as I am now.

I know I must pay the self employment tax (both sides of SS
and Medicare) but am I exempt from federal income tax on money
earned from these contracts?

Would there be any advantage for me to form S-Corp? Don't
plan on earning more than $50k a year. I also have established
an office other than at home because of cheap cost to rent.
You are not "exempt" from income tax but you may be eligible to
"exclude" up to $80,000 a year from taxable income. As you say,
you are subject to the social security self employment tax if
you operate as a sole proprietor.

Establishing a U.S. corporation, whether making the S election or not,
is not a good idea for an expat. You might, however, look into starting
a Thai company.

Take a look at my web site (www.expatriatetax.net) for some insight into
expat taxes. The rules may seem simple but can be quite complex in
application. For example, you believe you are "exempt" is you stay out
of the U.S. for a certain time. That may or may not be true, depending
of the specific situation. The time limits do not apply if you can
qualify as a bona fide resident (and it sounds like you could.)

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Bangkok, Thailand
Income Tax Services for Expatriate Americans
 
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A

A.G. Kalman

I'm an American citizen and in the first quarter of 2003 I
decided to retire early (age 54)and moved to Thailand from
California. In 2004 a former business contact asked if I
was interested in short term contract work at various places
around the world. Without giving any thought to the tax
consequence I jumped at the opportunity. Having worked
overseas in the past as an employee of a company I was exempt
from federal tax if I stayed out of the US for a certain
period of time and the money was earned overseas. Looking at
the federal Pubs it looks like that might not be the case when
self employed and operating under one's own name, as I am now.

I know I must pay the self employment tax (both sides of SS
and Medicare) but am I exempt from federal income tax on money
earned from these contracts?

Would there be any advantage for me to form S-Corp? Don't
plan on earning more than $50k a year. I also have established
an office other than at home because of cheap cost to rent.
Assuming that capital investment is not an important part of your
business, then your net profit from self-employment is earned
income for purposes of the foreign earned income exclusion test.
See IRS Pub 54 page 16 for more information on what is earned
income for purposes of the exclusion test.
 
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