Tax FAQ

emzed said:

Thanks for your help. Would you give me some more inputs, so that I go check these things on my own and do some research?
What would be the easiest, most affordable and overall most recommended way to start- consider my situation:
-$20/30k every year in earnings
-living in Europe
-operating only online and generating income from affiliate marketing (with US companies)

And what would be the costs to start it, maintain it and things that I have to pay?

thanks for your help.

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There are a few things involved in setting up a business in the US.

First, you will have register the corporation with a state. The fees the state charges varies depending on which state you choose. My office primarily uses Florida because that's where we are located and it is an income-tax free state. The fees there are $150/year just for registration, which is on the high end of things.

Second, you will need to have a registered agent mailing address in that state. The state you incorporate in has to have a place to send mail (and serve papers if you ever get sued). Most businesses that create corporations for you will charge $100-$300 a year for this service.

Third, you will have to get an employer identification number from the IRS. This is free.

If you search online, you can find businesses that will do steps 1-3 for you. It's usually a few hundred bucks.

Fourth, you will need to set up a bank account in your business name. This is usually free, but may have monthly fees depending on which bank you choose and the amount of cash in the account.

Fifth, you will have to file annual tax returns with the federal and state governments. Technically, this is free if you download the forms and do it yourself. But refer to my first post here to see what I think about that . To have a professional do it, it will probably be several hundred dollars a year.

All together, it will probably cost somewhere $500-$1,000 per year own and operate this US corporation. I've actually thought a lot about setting up a service for SEOs in your situation to do this that would include getting the bank account and a cell phone for account verifications.

And then there are the actual income taxes that corporation may owe. This will largely depend on the skill and thoroughness of your tax preparer. On $20-30k in gross income, your actual taxes would be zero or very low.

intercalation said:

Sorry, I meant thinking about S/C-corps versus sole proprietorship. I know that structuring payments between the owner "salary" and capital distributions can decrease taxes but I also know it can be disallowed if you go too far. Do you know guidelines for this specifically for IM businesses?

Also I'm unsure about different tax treatments when hiring employees. I think that it doesn't matter but I'm not certain. Thanks!

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As far as hiring US employees, the rules are the same whether you're in a corporate form or sole-proprietorship. You have to withhold payroll taxes, submit those taxes along with quarterly reports, and pay into unemployment insurance. This is why more and more firms are moving to a contractor arrangement, which would almost certainly be the case for an IM business.

I can tell you that if you are making any kind of money at all, I would always recommend incorporating instead of operating as a sole proprietor. The two major advantages are that in a corporation you don't owe self-employment tax of 15.3% on your net earnings and if you ever get sued, only the corporation's assets are at risk instead of your entire life.

The issue about dividends vs. salary is something to think about down the road. Essentially if your business is successful and in operation for many years, and you are actively working in the business, the IRS says you should be paying your position a salary commensurate with the work you do. That salary is then again subject to all the payroll taxes (15.3% again). The key to the whole thing is that feds want to make sure money is going into the social security and medicare programs because they are bankrupting the government.

Now you'll notice that there are a number of qualifiers in that 2nd sentence of the preceding paragraph. Think about it .

Thanks so much for your detailed answer.

I now have a doubt: wouldn't I have to pay taxes in my country too? I'd reside here all the time, wouldn't this be against the law? A situation like this this kinda reminds me of people creating offshore companies to avoid high taxes in their country.

Although It'd be strange as nothing would happen in my country as far as my job is concerned.
Thanks again for your help and time

emzed said:

Thanks so much for your detailed answer.

I now have a doubt: wouldn't I have to pay taxes in my country too? I'd reside here all the time, wouldn't this be against the law? A situation like this this kinda reminds me of people creating offshore companies to avoid high taxes in their country.

Although It'd be strange as nothing would happen in my country as far as my job is concerned.
Thanks again for your help and time

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No, you won't owe double taxes. There are only a couple countries in the world (the US is one of them) that expects taxpayers to pay taxes on foreign earnings.

In other words, you're American working as a contractor in Iraq. You owe Iraqi taxes AND American taxes (but the US is nice enough to give you a credit for the taxes you paid in Iraq already - and there's an exemption for about the first $100k of earnings).

If you're French working in America, you only owe taxes to America. France does not expect a cut from the money you made in other places. This is true pretty much everywhere except Cuba and North Korea.

burnett4congress said:

No, you won't owe double taxes. There are only a couple countries in the world (the US is one of them) that expects taxpayers to pay taxes on foreign earnings.

In other words, you're American working as a contractor in Iraq. You owe Iraqi taxes AND American taxes (but the US is nice enough to give you a credit for the taxes you paid in Iraq already - and there's an exemption for about the first $100k of earnings).

If you're French working in America, you only owe taxes to America. France does not expect a cut from the money you made in other places. This is true pretty much everywhere except Cuba and North Korea.

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The more I look into this, the more I find that I have to pay taxes in the country I reside, which would not be in the US. There are also people who set up legit businesses outside the country they reside, but still run into problems with taxes as they live and have their interests in their home country, and not where they actually run the business.

I found it's a joke to open an LLC online and set it up correctly, with a US bank account and everything. But am unable to find a clear answer regarding taxes.
I also spoke with an accountant but doesn't seem to know what I'm talking about- it's kind of an unusual and tricky situation, I guess I'll have to find an expert- but don't know where!

Problem is that I won't take any action until I find clear answers from a local accountant/expert.

Thanks again for you help.

emzed said:

The more I look into this, the more I find that I have to pay taxes in the country I reside, which would not be in the US. There are also people who set up legit businesses outside the country they reside, but still run into problems with taxes as they live and have their interests in their home country, and not where they actually run the business.

I found it's a joke to open an LLC online and set it up correctly, with a US bank account and everything. But am unable to find a clear answer regarding taxes.
I also spoke with an accountant but doesn't seem to know what I'm talking about- it's kind of an unusual and tricky situation, I guess I'll have to find an expert- but don't know where!

Problem is that I won't take any action until I find clear answers from a local accountant/expert.

Thanks again for you help.

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Fair enough, I'm not an expert in your country's tax laws. But it would be extremely unusual for an American business to owe taxes in a country it doesn't do business in and isn't based in.

burnett4congress said:

Fair enough, I'm not an expert in your country's tax laws. But it would be extremely unusual for an American business to owe taxes in a country it doesn't do business in and isn't based in.

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As a business you probably wont, but if you as a person bring the money in to your country? (you take it home as cash for example).

gergo2007 said:

As a business you probably wont, but if you as a person bring the money in to your country? (you take it home as cash for example).

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It depends on how you have it structured.

This gets into the area that tax guys consider fun

Money being paid out from a corporation can happen in lots of ways. Maybe it's a shareholder loan repayment. Maybe it's a dividend/ownership share. Maybe the company spends all the money internally and thus there are no net profits.

Each way has its own tax implications. Which is best for you will depend on everything else that is going on in your life. If you are outside the US, then you will have to know how each of those situations are treated in your country.

burnett4congress said:

It depends on how you have it structured.

This gets into the area that tax guys consider fun

Money being paid out from a corporation can happen in lots of ways. Maybe it's a shareholder loan repayment. Maybe it's a dividend/ownership share. Maybe the company spends all the money internally and thus there are no net profits.

Each way has its own tax implications. Which is best for you will depend on everything else that is going on in your life. If you are outside the US, then you will have to know how each of those situations are treated in your country.

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Perfect answer, thank you very much!

are your services for sale?

superslikuzi said:

are your services for sale?

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Yes, we do tax work all year if that's what you mean. If you have specific questions feel free to PM me.

I have thought in the past about doing a special corporate setup for BHW members. With a corp you can get around any ban because each corporation is a new person. Still thinking about it I guess.

Everything posted in this thread i correct. I've been doing taxes and have had my own firm for 13yrs. The one thing i will tell people is this, you don't have to file taxes there is no laws (on the books) that require you to. If you do some research you will find many citizens have taken the IRS to court for tax evasion and won. The IRS and FED were both created in 1913 the point of taxes is to pay fed debt (essentially it's interest on the money the fed supplies the U.S with). If your one of the people constantly receives a refund i would say keep filing, if your not then this is something to think about.

trackfiends said:

The one thing i will tell people is this, you don't have to file taxes there is no laws (on the books) that require you to.

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While this may be true, I wouldn't NOT file taxes, as most people do not have the time nor the resources to fight that claim, and most end up in jail or heavily fined for their efforts. Want to find a good accountant? Ask him (or her) one question... What is 2+2? Answer: Any number but 4, they are incompetent; 4, they can do simple math; Best answer - "whatever you need it to be!"

As far as LLC's versus Corporations you should also consider self employment taxes and payroll taxes associated with employees of the corporation. LLC's are generally much cheaper to set up. However if you anticipate making good money it may be beneficial to pay the extra money and become incorporated. LLCs tend to just limit liability. You get what you pay for.

A good tax accountant will save you way more than they cost.

Great info, thanks!

I've been researching the 30% withholding tax law for foreigners and W-8BEN, and its confusing me like crazy. If one is a non-us citizen and non resident will they have to pay taxes on the sale of U.S. stocks if they use a non-us broker?

.....

And then there are the outright scams. There are tax preparers out there that do all kinds of crazy things and leave you holding the bag. Here's one example from not too long ago (names have been changed):
Bill and Mary are new clients and come in to do their joint return.

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I have had a few clients in similar situations, scary but real. People are cautious about online transactions these days for fear of identity theft but don't even think about twice about who does their taxes nor financial transactions! It amazes me.

has anyone structured themselves to be invisible (multiple corporations, offshore banks, etc.) so no one can find out where the money is coming from ? I would be interested in such a service.

I've been talking with a couple BHW members about getting their tax stuff straight for the end of the year. Any interest in doing a webinar to go over some year end items to make sure you are ready for your upcoming tax season?

STKMKTFTGRU said:

I've been researching the 30% withholding tax law for foreigners and W-8BEN, and its confusing me like crazy. If one is a non-us citizen and non resident will they have to pay taxes on the sale of U.S. stocks if they use a non-us broker?

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In most cases you would file a 1040NR telling the IRS that you aren't living or working in the US and the withholding should be refunded to you.