Posted: Thu Nov 11, 2004 8:48 am Post subject: Self Employed Versus Employed- On a Foreign Assignment
To Be or Not to Be Self- Employed Versus Employed
On a Foreign Assignment Outside the US
September 14, 2004
by: Marc J. Strohl, CPA
Protax Consulting Services Inc.
www.protaxconsulting.com
The goal of this article is to provide a comprehensive checklist of information for the US person to consider
prior to accepting an assignment outside the US. This article is not designed to teach you the technical
competence required to perform self compliance however, it will certainly arm you with what you need to
know to determine if your US tax preparer knows all that they should know to provide you with adequate
professional services.
To Be Employed Versus Self-Employed (SE):
Generally it is the author’s opinion that if you are employed and you go overseas you have a distinct
advantage over being self-employed (SE) overseas.
Simply put although your ‘foreign’ unreimbursed employee expenses will be excluded from Schedule A
without affecting your FEIE, all overseas SE persons Schedule C ‘foreign’ expenses and applicable
‘foreign’ self-employed adjustments on Form 1040 line(s) 23-32 will dollar for dollar reduce the amount of
the $80,000 FEIE available to you for use. This would also apply to any moving expenses whether
employed or self-employed, in that if claimed and to the extent that they are considered foreign they would
reduce the amount of the $80,000 FEIE available. Moves back to the US are NOT considered foreign.
Additionally, as SE all of your net SE income is subject to US FICA (Federal Insurance Contributions Act)
taxes- social security (6.2% on the first $87,900 of wages for 2004) and Medicare (1.45% on all wages)
taxes, however for SE persons they additionally end up paying for both the employee and employer
portions. This effectively combines to 15.3% (6.2% + 1.45% = 7.65% x 2) FICA taxes for all SE persons
reporting net income on a Schedule C, which is ALWAYS assessable if net income on Schedule C arises.
However persons employed abroad and NOT on US payroll, but instead locally hired are NOT subject to
US employee FICA taxes AT ALL. They would become subject to the social security tax regime of the
respective country in which they work, if any.
There is a way however, that SE persons can avoid US FICA SE taxes. Any “Foreign Controlled
Corporation” FCC (where foreign is non US) is deemed to have all of its income earned directly by the
controlling US person. So the ability for the deferral of income in a FCC is impossible. However, FCC’s
have one interesting feature, wherein if all of the net income of an FCC is waged out to the controlling
shareholder so as to avoid the above deemed income rule those wages would NOT be subject to the US
FICA SE taxes of 15.3%!! This is a frequent suggestion of the author’s, to US SE persons abroad, that is to
do business through an FCC to avoid US FICA SE taxes. However you must consider the implications of
the host country’s social security regime, which might make this suggestion more costly.
Other Interesting Facts:
• These exclusions are elected, strictly voluntary and not mandatory, so in cases where claiming the
election results in exclusion income they should not be elected. This would occur where Schedule
C expenses outstrip income and these expenses are added back actually creating income.
The situation is different for us Brits. In many ways we have it far easier than the 'Mericuns!
Generally it is best to get specialist advice. _________________ The Middle Eastern states aren't nations; they're quarrels with borders.- P. J. O'Rourke
"specialised advice from an expert in your own country".
I dont know about them, but generally, most advisors are experts on their own jurisdiction, and hardly any know, or can possibly know, all the tax rules for every nationality.
Even though I am an accountant, due to the nature of my work, I dont keep up with all the tax changes here (UK), and would not profess to be an expert in that matter. Far less so on anywhere else. _________________ The Middle Eastern states aren't nations; they're quarrels with borders.- P. J. O'Rourke
Just about as complex, but also some major differences. In addition, we now have some rulings from Europe that affect our tax treatment.
The biggest advantage for us is, basically, stay out of the UK for 12 months and you are outside the UK tax system, unlike Americans who are taxed on their income worldwide.
We can even visit the uK for up to 90 days each year. Of course, there are lots of rules and regulations, the breach of which can put one back into the tax system, but provided one keeps to the rules, it gives us a big benefit. _________________ The Middle Eastern states aren't nations; they're quarrels with borders.- P. J. O'Rourke
I do not know about the new laws or if they have even changed, But when I used to work Overseas from the USA we were tax exempt if we were gone more than 510 days and you could visit the USA for a short period each year, I don't remember the time limits as I never did it.
But I have been retired for 15 years so things change..
Posted: Sat May 21, 2005 10:15 am Post subject: photo design studio shanghai investors wanted
I have lived in China for a little over 2 1/2 years and am from America. My wife who is Chinese and I have a combined total of 28 years experience and 14 years each in our respective fields. She in Graphic / packaging design and printing , myself in commercial photography, 6 years in NYC.
We are looking for investors to open a high end New York City Style Photography Design Studio in Shanghai, China. This has good potential and offers a good return. If you are serious please PM me for details.
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot vote in polls in this forum
Album
FAQ
Quizzes
Search
Memberlist
Usergroups
Register
Profile
Log in to check your private messages
Log in
