quote:

Worst case scenario, set yourself up a U.S.-based mail forwarding address before you leave.

The only problem I can see with the forwarding address is how your clients report your income to the IRS. For instance, if you get a 1099 and the client uses a US address for you on the form, it may raise some red flags with the IRS as to where your company is truly based.

One other thing that's worth mentioning is state taxes. I don't know what the deal is up north, but in California if you decide to return after a couple of years abroad, they just assume you always meant to return, and therefore owe taxes for the years you were gone.

quote:

Originally posted by halfnine:
The only problem I can see with the forwarding address is how your clients report your income to the IRS.

I have one in the U.S.. It's co-registered under the name of friends so that they can go in and sign for something if necessary. I just list it as a business expense when I fill out my SE P&L every year. The IRS seems to understand the difference between a mailing address and a business address. As long as I can prove that my business isn't located inside th Mailbox, Etc then it doesn't impact my foreign tax home status.

In the end, however, I think it's important that one let clients know where you're located. Pretending to be located in the U.S. is all well and good until you start getting woken up with calls from U.S. clients at 2AM.

This probably won't apply to Travis's situation, as they probably already know what a scoundrel he is and have accepted him anyway. Still, it probably is relevant for quite a few sole proprietors who plan on running their business abroad. What kind of problems have you run into Halfnine? They find out that you're abroad and are a little worried about your reliability/sue-ability/whathaveyou?

This is precisely the thing I'm trying to figure out. How to receive payment. In the past, clients just cut a check and mailed it to me at home. I'm *hoping* that I can simply have them sent to the house of a friend here in Washington, provide her with deposit slips and envelopes addressed to my bank, and she can mail them in. And there's the rub. Client's will also be sending 1099's to that address. So even though I'll be doing all the work from Mexico, it will "look" like I still live in the U.S. (For obvious reasons, having clients mail checks to Mexico is not an option. )

On the State tax issue, yep. I was going to have them sent to my brother in CA, but screw that as then state taxes come into play. No state income tax here in WA.

I'm writing out my (long) list of questions to chat with the accountant this afternoon.

EDIT/ADDITION:

quote:

The IRS seems to understand the difference between a mailing address and a business address. As long as I can prove that my business isn't located inside th Mailbox, Etc then it doesn't impact my foreign tax home status.

THAT'S good news!

quote:

Originally posted by Not the first Travis:
I'm *hoping* that I can simply have them sent to the house of a friend here in Washington, provide her with deposit slips and envelopes addressed to my bank, and she can mail them in.

Using a friend's house just makes things difficult. She can be misconstrued as an unregistered agent of your business, and her home can easily be misinterpreted as a U.S. business office. Then you have to prove she's simply serving as a mail forwarder, etc. (No one in the IRS, much less the state of Washington, will probably ever call you on it, but why put yourself or her in that position.)

There are a number of solutions, but the easiest one would be a straight-forward mail forwarding service. Most will be happy to forward your checks along to your bank. There are also many far more labyrinthine solutions, but as you aren't running from the law, an ex wife, or the mafia, they aren't really necessary.

What about PayPal?

quote:

There are a number of solutions, but the easiest one would be a straight-forward mail forwarding service. Most will be happy to forward your checks along to your bank.

That's beautiful and hadn't occured to me. I didn't want to inconvenience the friend anyway, and this scenario never entered my mind. I didn't realize those mailbox places provided that kind of forwarding service.

Static, Paypal is great, and I intend to use it for other purposes, but it wouldn't work for my clients. It's incumbent upon me to make it easy for them, and thus not ask them to do anything they don't normally do. Otherwise, I become an even less attractive option as far as getting work.

quote:

Originally posted by Not the first Travis:
I didn't realize those mailbox places provided that kind of forwarding service.

Mailbox, Etc and the like probably won't forward checks long to your bank, but you never know. I'd recommend instead using a more flexible service. I have a couple of friends who use this service without complaint. A little more pricey, but not so bad.

A Mail Box, Etc account with a friend or family member willing to pick up or deposit checks would be ideal.

State taxes: You are considered 'domiciled' in the last state you held residency in, and are supposed to follow the rules of that state. One does not need to have an address there.

(But, it seems to me, that establishing state residency for tax purposes is fairly easy if you have a proper mailing address.)

quote:

Originally posted by Stoo:
State taxes: You are considered 'domiciled' in the last state you held residency in, and are supposed to follow the rules of that state. One does not need to have an address there.

Yes, and that's relevant if you're working abroad for a foreign or U.S. company (a move that, due to its often transitory nature, the U.S. government considers temporary), but how does that pertain to the situation we're talking about?

Having physically moved himself and his business and established a tax home in a foreign country, meeting the requirements for the foreign earned income exemption, Travis will not be in the same boat.

How does it not? If travis, or anyone, establishes residency outside of the US then they are domiciled in the state the left. Federal FEIE does not let one get out of that. I'm not even sure if all states recognize FEIE for tax calculation purposes. (Will have to check the Jane Bruno book.) Some states, I believe, don't even care to hear from domiciled expats.

quote:

Originally posted by Stoo:
How does it not? If travis, or anyone, establishes residency outside of the US then they are domiciled in the state the left...

...as far as that state is concerned. Of course, that state has no idea where you've moved (perhaps another state), and isn't in a position to demand that you pay state taxes. If you still have property there, of course, you'll need to pay taxes on it, but I don't see how it's relevant to the "Do I have to pay taxes on the first $80k I make overseas" question. Even if you lived in a state with income taxes, as far as the state is concerned, you made $0 income within its borders.

I guess I don't know what potential problem you're trying to get at. Have you ever gotten a letter from the state you last lived in asking for taxes? (It's entirely possible that you know something that I don't, and that there's a tax man waiting around the corner ready to pounce on me should I ever rear my ugly head in his territory.)

No problem, more of a point. States are in a position to demand that you follow their tax code, as a domiciled former resident.

It may not seem fair or practical, but that is the way it is.

This ties into how expat voting works, too, I believe.

Gimme a bit and I'll dig up the references.

EDIT: from Bruno's book The Expat's Guide to U.S. Taxes, each state has wildly different rules. From "you're gone, we don't care" to "we have our tax hooks in you, we'll pursue you anywhere in the world.

The book says the cool states are FL, WA, NV, SD, TX, WY because they have no income tax, so this is not an issue. States that loose interest in you because you have left are CA, CO, DE, ID, IL, MI, NJ, NY(with catches), OR, PE, and WV.

States that do not recognize FEIE for people living there, but working abroad: AL, MA, MS

It's 847am and I am readying about US state taxes. It is not working. All this looks more complex that I realized and I am getting confused.

quote:

Originally posted by Stoo:

Gimme a bit and I'll dig up the references.

I'd be interested to hear more. The last state I resided in before heading abroad didn't have a state income tax, so I'd still be in the clear, but I'd be interested to hear how much of a claim a state could really have over income generated by a former resident who no longer considers himself a voter/resident/business owner in that state and who now lives, as far as the federal government is concerned, in a foreign tax home.

I suppose the simplest solution would be to "move to" (get a mailing address, driver's license, and register to vote in) a state without state income taxes shortly before moving abroad.

I own property in a couple states that do have state income tax, but they can only squeeze out the income that those properties generate. Nothing else. Or so sayeth the tax attorney for the last few years.

Edit: Just so you know, Travis, none of this should be a problem for you either, as you currently reside in Washington, another state without an income tax I believe. (As I'm sure you know.)

Still, it's interesting to hear, as residents from may other states may run into the problems Stoo mentions. This is turning into a very informative thread. Now if only there was an expat forum. (Hint, hint.)

A quote from the book: "The first time you move overseas, you are almost certainly moving from some state in the US that considers you a resident to your overseas location. If the state assesses income tax, you were probably filing each year you lived there. Thus, the question arises to whether you must continue to pay income tax to that state. There are probably as many answers to that question as their are Americans moving overseas."

no shit!

It's a nice day and I need to pack for a trip to Germany. No new tax thoughts!

quote:

Originally posted by Stoo:
There are probably as many answers to that question as their are Americans moving overseas."[/i] no shit!

Again, Travis and I both lived in states without income taxes, so we're fine. Sounds like the rest of you are screwed, however. (Of course, I'm sure you're all smart enough to evade state tax authorities.)

Again, this is why we need an Expat forum. Threads like these deserve their own home on BnA.