BootsnAll Travel Community

quote:

Originally posted by Stoo:
I don't understand the difference you are implying.

I'm not applying it to your situation. You two are working for companies owned by third parties. It was more aimed at Travis, who I thought might be running his consultation business as an S Corp. So I was speaking rather of the problems established S corps can cause for sole proprietors who own them when they try and move their businesses abroad.

For instance, John Doe lives in Oakland and makes paper mache ducks for lonely housewives. One day, after a particularly angry phone call from a housewife who poked herself in the eye with said paper mache duck, John Doe goes to see his lawyer. The lawyer suggests to John that he limit his liability by incorporating his paper mache business. John then goes to an accountant who recommends an S Corp. Since John is just one guy and there's no property involved, the accountant says, it makes a lot more sense than creating a C Corp or LLC.

The accountant fills out all the necessary paperwork for John, names John as the registered agent for the S corp in the state of Cali, as well as the sole stockholder, and registers the corporation with both the state and the IRS. John gets an EIN number, goes and opens a bank account and merchant account in the S Corp's name, and goes back to making paper mache ducks as "Paperducklings, Inc." John has monthly corporate meetings with himself and pays himself a handsome salary. He is named "Employee of the Month" by his S Corp 18 months in a row.

Then, one day, John starts flipping through picture books of Crete. He thinks to himself, "You know, they have a postal service in Crete. Why the hell am I living here in Oakland when I can make the ducks in Crete and sell them over the internet to housewives in the U.S.? And look at this! Expatica.com says my first $80k in sales won't be taxable!"

The problem is, John must first dissolve his S Corp. If John continues to do business as Paperducklings, Inc (an S corp filed in the State of California), and goes to live in Crete, continuing to work as an employee of Paperducklings, Inc, then his first $80k will remain taxable. Why? Because his "tax home" will remain Oakland regardless of the fact that he lives on Crete.

In order to move his tax home to Crete, John must dissolve the the S Corp (or have his accountant do it for him), move to Crete, change the business address on his web site, alert his customers, and leave the Oakland-based Paperducklings, Inc behind. Once he's done that, and he's just John Doe working for John Doe again, without any corporate meetings or employee of the month stickers, the first $80k in profits made through the sale of his paper ducks will be non-taxable. Doesn't matter if the ducks are bought by housewives in Oakland or Knossos.

In other words, a lot of sole proprietors have themselves set up as LLCs or S Corps in the States. But they'll need to dump those businesses and become regular old self-employed bums again in order to met the IRS's "tax home" criteria for the foreign-earned income exemption.

Again, I just brought it up because I figured Travis might be currently running his business as an S Corp. Looks like that isn't the case, however, so his transition process should be pretty easy.

Right wing militias, paper mache' ducks, and beef! It's what's for dinner!

In fairness, Co-Op did know some of my specific crap/tawdy background, so he had some insight into how best to answer my naive, uninformed question. Even so! The conversation was hugely illuminating and I learned a lot, so thanks to you both as well Sophie and Stoo. (And yes, Stoo, I'll get a professional with experience to sort things out. )

Hopefully the dailogue/tangent I created here will help somebody else out!

quote:

Originally posted by CoOp:
Travis, your biggest problem in the beginning will be claiming foreign earned income. Your consultation will still be exclusively with U.S clients, so you'll either have to a.) get that B&B Flophouse up and running so that some of your income is foreign earned, or b.) find some Mexican clients. It isn't too hard, of course, as the IRS doesn't specify how much income must be foreign-earned. They only mandate that some be foreign-earned.

I doubt either of those will be difficult to establish.

Sorry for the thread hijack! Back to just old regular "How to become an expat" questions.

P.S. Wait! I was insulted earlier! For your information, Callilucy cheated others recently by posing as an adolescent so she could get transferred from the E.R. to a private room more quickly. Take that, bitch!

quote:

Originally posted by Not the first Travis:
P.S. Wait! I was insulted earlier! For your information, Callilucy cheated others recently by posing as an adolescent so she could get transferred from the E.R. to a private room more quickly. Take that, bitch!

I was bleeding profusely at the time and I gave my correct age when eventually asked. I just allowed others to go forward on an incorrect assumption. It's the karmic payout for having to endure 'pipsqueak' jokes for 25 years.

As for becoming an expat.... I was reading an article today about selling crafts over the internet and am now thinking I need to find my equivalent to paper mache ducks, follow all of your fabulous advice and live somewhere different (such a place will have to allow my cat and dog entry, or I could dress them up as my furry, ugly children and sneak them in).

My respect for Callilucy's secret agent BOOTCOM ninja skills never ceases to amaze me. I bet she talked them into shipping Whalewatcher a case of valium, too.

quote:

Originally posted by Not the first Travis:

In fairness, Co-Op did know some of my specific crap/tawdy background

This is true. I've been stalking Travis and his circle for quite some time and have thus been able to gather a larger amount of intel. Nothing too tawdry. They all have interesting gang names, but mostly they just hang out at Denny's a lot.

quote:

As for becoming an expat.... I was reading an article today about selling crafts over the internet and am now thinking I need to find my equivalent to paper mache ducks, follow all of your fabulous advice and live somewhere different

In all seriousness, this little aside into the Foreign Earned Income Exemption is probably one of the most frequent topics for most would-be U.S. expats. "But how do you make money?" is probably the question I get asked most often, and it is closely followed by "So do you still have to pay taxes?"

It's a good aside. The only problem is, as Stoo and Sophie point out, my advice only really pertains to the self-employed. If you're working for a U.S. or foreign company, your experience will differ vastly. If, however, you're into making paper mache ducks on a project-to-project basis...

quote:

Originally posted by Stoo:
My respect for Callilucy's secret agent BOOTCOM ninja skills never ceases to amaze me. I bet she talked them into shipping Whalewatcher a case of valium, too.

Actually Stoo, I'm currently dealing in vicodin. If you need a reference for how good the stuff is, ask crackerjillian.

I am currently open to any and all ideas for Callilucy's International Crafts Emporium. Please help a ninja out.

quote:

In order to move his tax home to Crete, John must dissolve the the S Corp (or have his accountant do it for him), move to Crete, change the business address on his web site, alert his customers, and leave the Oakland-based Paperducklings, Inc behind. Once he's done that, and he's just John Doe working for John Doe again, without any corporate meetings or employee of the month stickers, the first $80k in profits made through the sale of his paper ducks will be non-taxable. Doesn't matter if the ducks are bought by housewives in Oakland or Knossos.

This is my understanding as well.

quote:

The only problem is, as Stoo and Sophie point out, my advice only really pertains to the self-employed. If you're working for a U.S. or foreign company, your experience will differ vastly.

Also in agreement here as well. One may not qualify depending on how the arrangement works with your employer.

Take particular care with the 2555. If you spend any significant time back in the US it could have the potential to haunt you as well. Stoo has detailed it out pretty good here once or twice.

And, don't forget that just because you may get an exemption from US taxes, you could still be looking at foreign taxes which in many cases (freakin Australia) could be worse.

Oh, yeah. One more very important thing Travis. If you're selling paper ducks over the web nobody probably really cares if its a Mexican business. But, in my line of work, and possibly yours, there are clients who don't want to deal with the legal issues associated with dealing with a foreign business.

So, you may end up with two entities. A corporation in the States for some clients (and no tax breaks) and a Mexico based business for the others.

quote:

Originally posted by halfnine:
Oh, yeah. One more very important thing Travis. If you're selling paper ducks over the web ....

Thanks for chiming in, halfnine! I was hoping you'd show up.

(Just to clear up the rampant confusion about what I do and how it's de-railed this thread....)

I make paper ducks. In my mind.

I'm an "idea guy" in the advertising game. I send shitty-ass paper-duck ideas to clients wherever they happen to be. Those magnificent ducky creations get put up on conference room walls in lovely locales like NYC/SF/LA/CHICAGO and then get shot out of the sky by REALLY, REALLY, REALLY SMART people who want to see more ideas.

More ideas? You pay my day rate? You betcha!

It's a brilliant game if you can stomach it. Especially if you can do it without ever being in that room.

That's right. I do God's work.

quote:

Originally posted by Not the first Travis:
I'm an "idea guy" in the advertising game.

Halfnine brings up a good point, but in your situation I don't think anyone will mind that you're located in Mexico so long as you bring a U.S. telephone (and possibly fax) number along with you (cell phone, Vonage, Skype, or otherwise.) You'd know better than we would what your clients are willing to put up with. Worst case scenario, set yourself up a U.S.-based mail forwarding address before you leave.

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.