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View Full Version : Tax on salary paid overseas


oicur12
08-30-2014, 07:36 PM
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.


The Dominican
08-30-2014, 07:43 PM
Any heads up would be appreciated.

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

mike734
08-30-2014, 08:13 PM
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.


OceanicPilot
08-30-2014, 08:25 PM
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.

FlyingNasaForm
08-30-2014, 10:13 PM
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.

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.
Source: IRS Pub 54, bottom of page 13 (http://www.irs.gov/pub/irs-pdf/p54.pdf)

Don't trust us though. I've used a couple different firms to do my expat taxes and I prefer Taxes For Expats (www.taxesforexpats.com) 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.

Typhoonpilot
08-31-2014, 02:54 AM
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.


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

badflaps
08-31-2014, 10:44 AM
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."

DjHubberts
09-01-2014, 02:54 AM
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.

f10a
09-01-2014, 08:26 AM
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.

I believe the thieves in the IRS attempted to go after several Emirates pilots on the international water nonsense, and were unsuccessful.

unitedflyier
09-01-2014, 12:15 PM
I believe the thieves in the IRS attempted to go after several Emirates pilots on the international water nonsense, and were unsuccessful.

That whole international water things was such nonsense. I hope the Emirate pilots won. I heard the worst case was a hostage on a ship held by Somali pirates. The IRS said he couldn't prove where he was so they would assume international waters and he owed them for 3 YEARS. Yes thats right and as he didn't file for those 3 yes he was going to get fined etc. Unbelievable.

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.

Typhoonpilot
09-01-2014, 04:51 PM
I believe the thieves in the IRS attempted to go after several Emirates pilots on the international water nonsense, and were unsuccessful.


They have gone after quite a few and have been partially successful. Huge waste of government resources to gain very little extra revenue. The problem is that they place the burden of proof on the taxpayer. One EK pilot spent $5000 on legal fees and fought them for 5 years. In the end they paid him $300 instead of the $30,000 they were asking him for. Harassment plain and simple. If you get this audit contact Nick Romer, he's helped quite a few EK pilots and is very familiar with how to proceed.



TP

Lucky8888
09-02-2014, 12:29 AM
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.


Not anymore. On June 28 China formally agreed to accept the provisions of FATCA (Foreign Account Tax Compliant Act) which requires the reporting of all bank accounts owned by U.S. Citizens and green-card holders to the IRS. This is becoming more and more prevalent throughout the world.

f10a
09-02-2014, 08:43 AM
They have gone after quite a few and have been partially successful. Huge waste of government resources to gain very little extra revenue. The problem is that they place the burden of proof on the taxpayer. One EK pilot spent $5000 on legal fees and fought them for 5 years. In the end they paid him $300 instead of the $30,000 they were asking him for. Harassment plain and simple. If you get this audit contact Nick Romer, he's helped quite a few EK pilots and is very familiar with how to proceed.



TP
Real shame this happens when the law shifts the burden of proof back to the IRS when evidence is presented by the "taxpayer" per 26 U.S. Code 7491. What is even more incredible is how the IRS requires one to pay their ridiculous fines and "adjusted" account balances before one is allowed to bring a claim against them. Is that not what extortion is? No wonder Americans are renouncing their citizenship in record numbers and even then the IRS will come after you for 10 more years!

DjHubberts
09-02-2014, 04:26 PM
Not anymore. On June 28 China formally agreed to accept the provisions of FATCA (Foreign Account Tax Compliant Act) which requires the reporting of all bank accounts owned by U.S. Citizens and green-card holders to the IRS. This is becoming more and more prevalent throughout the world.

SON OF A *****! However, what China says and what it does are usually two different things. Not like it matters, I claim what I have overseas.

What is really amusing though, is the fact that the US won't return the favor to other countries and their citizens. The US hides behind privacy laws and tells other countries to pound sand when they get the same style requests. Turns out, the safest off shore bank accounts for everyone BUT Americans are US banks.

Lucky8888
09-02-2014, 04:49 PM
SON OF A *****! However, what China says and what it does are usually two different things. Not like it matters, I claim what I have overseas.


I don't think so in this case. Chinese (and other domiciles) registered banks don't want the financial exposure of non-compliance that resulted in a $1.3B Justice Department fine of Credit Suisse.

DjHubberts
09-02-2014, 05:27 PM
Not so sure about that. I think most everyone in our financial system knows what will happen if the Chinese don't show up for a treasury auction.


Sent from my iPad using Tapatalk

polly
09-03-2014, 05:27 PM
Well sad to say the UAE signed a treaty with the US and as a US citizen you must file a W9 it is just getting harder for pilots from the US. The IRS is like an octopus and getting more desperate. So EK and EY you are gonna have to fill out a W9. Now the IRS knows everything about you. To open a bank account in the UAE you MUST fill out a W9 first and now all deposits are recorded including housing and education. On top with this international waters BS good luck.

yellowfever
09-04-2014, 08:20 AM
The US government is big and desperate and they are gonna come after more than you can imagine!

U.S. National Debt Clock (http://www.brillig.com/debt_clock/)

Probe
09-07-2014, 06:06 PM
The IRS has a branch office in PEK. I have heard of expats (non-pilots) getting busted because of their Chinese bank accounts.

The IRS came after me for the overwater thing after going after several other americans at the same airline. A couple of them had a much harder time than I did, but we all won. When I was explaining my very very small amount of overwater time to the IRS Nazi on the phone, he had a high altitude map out and was questioning my route and measuring the distance and calculating the time. I was a bit shocked.

They originally sent me a bill for about 90k in back taxes, penalties and 40% interest per year (it was almost 3 years hence). In the end, they sent me an additional refund of 700 dollars.

A friend of mine used HR Block and they have a division that specializes in expat tax law. They represented him as well with the IRS over the same issue.

bedrock
09-12-2014, 09:13 AM
Buy some gold, put it in a safe in Hong Kong or similar place.