Let's say that John is a freelance consultant. He is a US citizen, but does not live there (Physical Presence Test satisfied).
There is a possibly for him to be paid a significantly large sum of money contingent on a successful transaction on the side of the foreign client (who is not US based). Let's say the amount is $500,000.
Here's the issue: in 2014, expats earning above $99,100 suffer from federal income tax. His goal is to avoid it (as much as possible). Any strategies?
Here are a few more details on the situation:
- The 15.3% self employment tax we'll deem unavoidable. This will be payed (though getting around this would be nice).
- He does not mind the money in reasonable installments.
- He is not deemed a resident of any country (for tax purposes), so the US is his sole tax burden.
- The foreign client wants to minimize his tax burden as well (he/she makes money if the transaction is successful)
This is my simple (probably naive) idea:
- John sets up an offshore company in a zone without corporate tax, which bills the foreign client for $500,000.
- This company pays John $95,000 a year until exhaustion.
What are the problems with this? Anyway to get this to work while minimizing the tax burden as much as possible?
And of course, are there any other possibilities or ideas?
There is a possibly for him to be paid a significantly large sum of money contingent on a successful transaction on the side of the foreign client (who is not US based). Let's say the amount is $500,000.
Here's the issue: in 2014, expats earning above $99,100 suffer from federal income tax. His goal is to avoid it (as much as possible). Any strategies?
Here are a few more details on the situation:
- The 15.3% self employment tax we'll deem unavoidable. This will be payed (though getting around this would be nice).
- He does not mind the money in reasonable installments.
- He is not deemed a resident of any country (for tax purposes), so the US is his sole tax burden.
- The foreign client wants to minimize his tax burden as well (he/she makes money if the transaction is successful)
This is my simple (probably naive) idea:
- John sets up an offshore company in a zone without corporate tax, which bills the foreign client for $500,000.
- This company pays John $95,000 a year until exhaustion.
What are the problems with this? Anyway to get this to work while minimizing the tax burden as much as possible?
And of course, are there any other possibilities or ideas?
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