Tax on salary paid overseas
#1
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Thread Starter
Joined APC: Sep 2008
Posts: 322
Tax on salary paid overseas
hey all,
I have just started a 6 month contract overseas and assume there is no way around paying fed/state tax. I am working in a country that does not have a tax treaty with the US.
Are there any tricks to minimizing income tax while working this job? Its not a huge salary and will only be 6 months work for the whole year. Is it common for guys to get paid in a cayman account and not declare or is that scam reserved for the fat cats only?
Any heads up would be appreciated.
I have just started a 6 month contract overseas and assume there is no way around paying fed/state tax. I am working in a country that does not have a tax treaty with the US.
Are there any tricks to minimizing income tax while working this job? Its not a huge salary and will only be 6 months work for the whole year. Is it common for guys to get paid in a cayman account and not declare or is that scam reserved for the fat cats only?
Any heads up would be appreciated.
#2
Here is a heads up..., Don't try to outsmart the IRS!
I've always found that sites like this one are fairly good to get information about flying the line or training at a particular outfit, for such an important issue like taxes, this is NOT the place to come for information...., the office of a tax attorney that specializes in foreign income matters is where you should get that answer
I've always found that sites like this one are fairly good to get information about flying the line or training at a particular outfit, for such an important issue like taxes, this is NOT the place to come for information...., the office of a tax attorney that specializes in foreign income matters is where you should get that answer
#3
I don't believe a tax treaty is necessary to qualify for the physical presence test or the bonifide resident test, one of which you must pass to qualify for the foreign income exclusion. I've had three overseas contract jobs and two of the three were extended well beyond the initial term. If you think your contract might be extended then I expect you will pass the physical presences test. You will need to be out of the USA for 330 days in the last 365. (The rules may have changed since I did it) there are plenty of competent tax attorneys available. An hour with one would be worth your while.
#4
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Joined APC: Mar 2008
Position: G650 Captain
Posts: 125
I totally agree with what's been said. I've worked overseas for six years now and one of the first things I did was to hire a CPA with lots of experience in foreign income. He probably saves me more money than I spend on him.
#5
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Joined APC: Jul 2008
Position: G550 & CL300 PIC
Posts: 369
No, the IRS views this as a temporary assignment. You have to pay taxes
There are 2 ways to qualify for the $99,200 Foreign Earned Income Exclusion (FEIE).
1. Be out of the country for 330/365 days
2. Be a bonafide resident of a foreign country for one year.
Source: IRS Pub 54, bottom of page 13
Don't trust us though. I've used a couple different firms to do my expat taxes and I prefer Taxes For Expats for my returns. Talk to them. If you end up using them please send me PM so I can give you my name and get credit for the referral.
-----------------------------------------------------
Now, there may be a way to legally change that "No" into a "Yes". I am still learning about this and have yet to do it. This is also an oversimplification of the setup. You'll need to consult a firm that deals with this sort of thing, which I can refer you to. But, if done right, and you meet all the conditions, it is completely legal.
1) Open an off shore company in a place like Belize, we'll call it oicur12 Aviation
2) Your employer pays oicur12 Aviation for pilot services
Now you oicur12 (the person) will not be taxed on that income until the Belize company pays you. So you keep the money offshore and invest it. If you ever become an expat again and do qualify for the FEIE the Belize Company could then pay you (the person) some or all of your money up to the maximum exclusion under the FEIE + foreign housing credit + any foreign tax credit.
There are 2 ways to qualify for the $99,200 Foreign Earned Income Exclusion (FEIE).
1. Be out of the country for 330/365 days
2. Be a bonafide resident of a foreign country for one year.
The location of your tax home often depends on whether your assignment is temporary or indefinite. If you are temporarily absent from your tax home in the United States on business, you
may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion.
If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise.
may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion.
If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise.
Don't trust us though. I've used a couple different firms to do my expat taxes and I prefer Taxes For Expats for my returns. Talk to them. If you end up using them please send me PM so I can give you my name and get credit for the referral.
-----------------------------------------------------
Now, there may be a way to legally change that "No" into a "Yes". I am still learning about this and have yet to do it. This is also an oversimplification of the setup. You'll need to consult a firm that deals with this sort of thing, which I can refer you to. But, if done right, and you meet all the conditions, it is completely legal.
1) Open an off shore company in a place like Belize, we'll call it oicur12 Aviation
2) Your employer pays oicur12 Aviation for pilot services
Now you oicur12 (the person) will not be taxed on that income until the Belize company pays you. So you keep the money offshore and invest it. If you ever become an expat again and do qualify for the FEIE the Belize Company could then pay you (the person) some or all of your money up to the maximum exclusion under the FEIE + foreign housing credit + any foreign tax credit.
Last edited by FlyingNasaForm; 08-30-2014 at 10:31 PM.
#6
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Joined APC: Aug 2005
Position: tri current
Posts: 1,485
hey all,
I have just started a 6 month contract overseas and assume there is no way around paying fed/state tax. I am working in a country that does not have a tax treaty with the US.
Are there any tricks to minimizing income tax while working this job? Its not a huge salary and will only be 6 months work for the whole year. Is it common for guys to get paid in a cayman account and not declare or is that scam reserved for the fat cats only?
Any heads up would be appreciated.
I have just started a 6 month contract overseas and assume there is no way around paying fed/state tax. I am working in a country that does not have a tax treaty with the US.
Are there any tricks to minimizing income tax while working this job? Its not a huge salary and will only be 6 months work for the whole year. Is it common for guys to get paid in a cayman account and not declare or is that scam reserved for the fat cats only?
Any heads up would be appreciated.
As above, check with a competent tax consultant. That said, in my experience there are very few "competent" tax consultants. There are a lot of idiots in the field so you could easily get bad advice. I've had tax attorneys cost me thousands because they were way too conservative.
You might want to look at just taking the daily per diem deduction for the city you are in. If it is a city with a high daily per diem rate then that might help reduce your tax burden significantly.
Also, you could theoretically stay out of the country for 330 of 365 days even though only working this contract for 6 months. That would qualify you for the full foreign earned income exclusion.
TP
#7
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Joined APC: Apr 2011
Position: retired 767(dl)
Posts: 5,724
Cayman is yesterday, you might as well be talking to the Bank of NY. Info trades between them like poop through a goose. However, Panama or Belize, are different animals. The Channel Islands are fun too. Write from "camp."
Last edited by badflaps; 08-31-2014 at 10:47 AM. Reason: Grammar correction and spelling
#8
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Joined APC: May 2006
Posts: 131
A Chinese bank account is just about the best thing out there as they report nothing to the US Banking system. The only problem there is good luck getting your money back out.
In all honesty though, the other thing to keep in mind, and I am sure that some of the long haul guys can help with this, is any money earned while flying over international waters is NOT covered by the foreign tax exemption. How they figure that out, good luck. I'd hate to be in that meeting.
In all honesty though, the other thing to keep in mind, and I am sure that some of the long haul guys can help with this, is any money earned while flying over international waters is NOT covered by the foreign tax exemption. How they figure that out, good luck. I'd hate to be in that meeting.
#9
Gets Weekends Off
Joined APC: Jan 2007
Posts: 610
A Chinese bank account is just about the best thing out there as they report nothing to the US Banking system. The only problem there is good luck getting your money back out.
In all honesty though, the other thing to keep in mind, and I am sure that some of the long haul guys can help with this, is any money earned while flying over international waters is NOT covered by the foreign tax exemption. How they figure that out, good luck. I'd hate to be in that meeting.
In all honesty though, the other thing to keep in mind, and I am sure that some of the long haul guys can help with this, is any money earned while flying over international waters is NOT covered by the foreign tax exemption. How they figure that out, good luck. I'd hate to be in that meeting.
#10
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Joined APC: Nov 2010
Position: B777 x2 furloughed from United
Posts: 180
The US is only 1 of 2 countries that double taxes. Not sure of the other one. The only sure way is to do what an increasing number of Americans are doing and that is dumping their citizenship. Shame you have to even think about doing that.
For 6 months I would play safe and by the rules so you don't have to worry about a letter or knock on the door.
Good luck.
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