You hear all the time how the Googles and Apples of the world keep billions offshore tax free. Maybe it makes you wonder why you must pay 50% in State and Federal taxes on business income like a schmuck. Here’s how to play in the big leagues with the offshore company tax hack.
This post originally appeared in LowTax.net
Unfortunately, we small business owners don’t have the political clout to pass laws specifically designed for us. We don’t get to form offshore shell companies (those with no employees or substance) as Apple does, nor do we get to use inversions whereby the principals live in the United States and the taxable income is deferred offshore.
In fact, if the average guy gets confused, and tries to use the same tax tools as the multinationals, he or she is likely to wind up in jail. The IRS is hot and heavy after individuals with unreported offshore accounts. So, be careful with this information and keep your structures in compliance.
Now here’s the offshore company hack.
If and only if you qualify for the Foreign Earned Income Exclusion, you can operate a business through an offshore company and pay nothing to the IRS.
While the U.S. taxes its citizens on their worldwide income, the FEIE allows you to earn up to $100,800 in salary from your business tax fee. If your net profits exceed the FEIE, you can usually hold the excess in the corporation tax deferred. If both a husband and wife work in the offshore company, they can earn $201,600 per year tax free.
With the offshore company tax hack, you aren’t required to pay income tax on your salary, self-employment tax, Social Security, Medicare, Obamacare taxes, or any other kind of levy. This strategy allows us Americans to live abroad and keep 100% of our income.
For more information, here are the benefits of an offshore company. It is important to note that I am talking about reducing your taxes not your filing obligations. You still must file all manner of forms with the IRS each year or risk losing the FEIE and related benefits.
As stated above, the key is to qualify for the FEIE. You will need to live abroad and become a resident of another country in order to maximize these tax breaks. If you don’t want to become a resident of a foreign country, you’ll need to be out of the U.S. for 330 out of 365 days.
If living and working abroad is an option, please check out my site at www.premieroffshore.com for more information. I’ll be happy to structure your offshore company and ensure you are in compliance with the U.S. tax laws.