Off shore non tax havens? (Expat Contracts)
 

If I take a contract in Asia, any preferred off shore tax havens to avoid cutting Uncle Sam an deserved check each year? I believe if you're away for more than 330 days / year, you're not liable for federal tax, but I plan on coming back for more than 35 days per year.

I would say it's undeserved tax cut for Uncle Sam. IIRC, any money you make out of country as an American citizen is taxable.

Income from Abroad is Taxable

If I make my money from a foreign country with a foreign company, there is no reason that the IRS should get any of it just because I am an American citizen.

I wish you luck convincing the government of that. The US is, I believe, the only country that charges it's non-resident citizens tax on income earned overseas.

You do get an exemption on the first $84,000 of income though.

ok, so let me muddy the waters a bit. I have dual citizenship - US and EU. You mean to tell me if my check goes to a swiss bank account ( or fill in the blank ), the US still gets taxes after the first 84k?

It pains to think how many pilots are using "jailhouse" lawyers to help them with an very important issue. To screw it up could be VERY expensive.

First, whether you like it or not, if you wish to remain a US citizen (i.e., return to the USA before you die), the IRS will tax you for all income over $91,500 for tax year 2010. Please start by reading the actual form and instructions:

IRS Form 2555

Instructions for Form 2555 (2010)

There are exactly two ways to qualify:
 

Physical Presence Test

To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.

To figure 330 full days, add all separate periods you were present in a foreign country during the 12-month period shown on line 16. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. See Pub. 54 for more information and examples. [my notes... this means you fly a leg from Bumfrack, Foreign country, over the pond to another foreign country.... that day will not count for your 330 days, since you were not in a foreign country, but instead over international waters.]

Note. A nonresident alien who, with a U.S. citizen or U.S. resident alien spouse, chooses to be taxed as a resident of the United States can qualify under this test if the time requirements are met. See Pub. 54 for details on how to make this choice.


Bona Fide Residence Test

To meet this test, you must be one of the following:

A U.S. citizen who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return), or

A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return). See Pub. 901, U.S. Tax Treaties, for a list of countries with which the United States has an income tax treaty in effect.

Whether you are a bona fide resident of a foreign country depends on your intention about the length and nature of your stay. Evidence of your intention may be your words and acts. If these conflict, your acts carry more weight than your words. Generally, if you go to a foreign country for a definite, temporary purpose and return to the United States after you accomplish it, you are not a bona fide resident of the foreign country. If accomplishing the purpose requires an extended, indefinite stay, and you make your home in the foreign country, you may be a bona fide resident. See Pub. 54 for more information and examples.

Line 10. Enter the dates your bona fide residence began and ended. If you are still a bona fide resident, enter “Continues” in the space for the date your bona fide residence ended.
Lines 13a and 13b. If you submitted a statement of nonresidence to the authorities of a foreign country in which you earned income and the authorities hold that you are not subject to their income tax laws by reason of nonresidency in the foreign country, you are not considered a bona fide resident of that country.
If you submitted such a statement and the authorities have not made an adverse determination of your nonresident status, you are not considered a bona fide resident of that country.

I have the same status. The answer to your question is yes (with a caveat of $91,500 threshold for 2010). You don't have to like it for it to be true.

PLEASE, PLEASE read the actual IRS pubs, and see what the IRS is looking for in their audits:

IRS Audits of Foreign Income

Congratulations. You will be liable for taxes on the entire amount. :eek:

Not necessarily.
I suggest you speak to a tax lawyer (I have) and you will find a huge difference between the physical presence test and bona fide residence test.
You can come back more than 35 days per year and not have a tax liability.

Yep.............

Thanks. Lots of good info....

Yes, I posted the IRS language on that verbatim here:

http://www.airlinepilotforums.com/mo...tml#post907406

A very close relative is a CPA and Tax Lawyer. Doesn't make me any smarter, which is why I tend to stick to the actual raw data (IRS language) and the results of ACTUAL audits.

If you do not meet the 330 day rule, as the poster suggested, then you MUST meet the residency rule. One of the other.

The bottom line on any of this... there is always somebody who has made a claim on his taxes that I may not think is quite right. Ask the simple question... did it pass an IRS audit?

I use the bonafide resident criteria to meet this $91,500 tax exclusion. To meet that isn't just saying I'm a resident elsewhere, because I work there. It means actually being a resident.

Number one in my mind is not having a contract that is "temporary". That means it is an ongoing venture. Signing a one year "I'll fly XYZ airplane" and then go home probably doesn't meet the criteria.

Also, did you maintain a residence in the USA during this period? Or did you rent it out to family members? These are questions that the IRS actually asks in by-mail audits. I posted links to these earlier.

IRS form 9209, "Bonafide Resident / Physical Presence Questionaire"
IRS form 9211, "Foreign Earned Income Exclusion Questionaire"
IRS form 9212

http://www.taxmeless.com/IRS%20Audit...re%2071407.pdf

Also, residency abroad may mean something as basic as paying taxes in the foreign land and having the "green card" for that country. I have a green card, and my contract specifically states that I pay taxes in the foreign land.

A driver's license, phone bill, utilities bills, etc., all are supporting evidence of your residency abroad. I have all these.

I am in the same boat with both EU and US citizenship. So if I make $100k a year in my EU country, I will be taxed from that EU country AND the US? If thats the case I'm guessing that would leave me with 30% of my income after taxes?

And how would the US find out about what you made in your other country?

Possibility 1: Yes, both. Will be taxed in USA, and probably state and municipal taxes. And taxes in the EU country.

Possibility 2: No, if for some reason that EU country does not tax it's citizens. I don't know of any, by the way. Sometimes contracts are written that the airline will pay any local taxes (my contract is done that way).

Possibility 3: Sure, don't claim the money you earned in an EU country to the IRS. The IRS will NEVER find out. Go for it !!! It's not like those are first world countries doing international banking (and paper trails).

Possibility 4: No, if you renounce your USA citizenship, and stop paying taxes and filing tax forms in the USA. Problem solved. Only pay EU member country taxes (I'd bet that the tax rate in ANY EU country is higher than the USA, by the way).

Possibility 5: No, if you meet all the requirements of 330 days abroad / residency abroad while earning foreign earned income. Then, tax excluded to $91,500 for 2010. You still must file USA taxes every year.

Thanks for the info, it's interesting for sure how that could work out. I would rid of my US citizenship before giving up my EU, but I'll worry about that if I cross that road. Only problem I see is if I do try to avoid US taxes if abroad, I fly into the US for an overnight and I get caught up in customs over tax issues.

The other solution to your issue is that the taxes you pay in the EU offset you tax liability in the USA. Double taxation is generally not allowed. Check to see the tax treaty between your specific country and the USA. To keep your U.S. citizenship you're gonna need to file a tax return. It's probable that you will not owe any taxes to the USA if you are resident in the EU; have foreign earned income; and pay tax in the EU. You still have to file though.


Typhoonpilot

Hi guys.

Thanks for the info in this thread. I am going to be accepting a job over seas that is not a contract gig.. it is a permanent position, and I should be making right around 90k/yr. They will be airline'ing us home while the plane is in scheduled maintenance, which is twice a year for 3 week periods.

So realistically I should be right around 320 days over-seas for the calendar year of 2011. Since I wouldn't qualify for the 330 day abroad exemption, would I be able to qualify for the second one that TonyWilliams posted?.

Is it a "you dont pay any taxes on the first $90k" type thing, or is it just a reduced tax amount?

Thanks!

If you get a residence visa for the country you are based in you will be okay, otherwise you are not. You also need to read the language carefully. In an IRS audit you would have to prove that you were "in" a foreign country for 330days of the year. Time in transit between countries does not count so for pilots that one is almost impossible to use unless you are flying domestic or back home every night.

Get advice from a professional though. Nick Romer in Tennessee is pretty good on this stuff.



Typhoonpilot

You don't have to come to the USA if you're only 10 days short. Go skiing in the Swiss Alps, or hit the beach in South Africa, shopping in Dubai, or build an igloo in Finland.

Is there any chance you can apply for resident status in the country you plan to work?

The $90k-ish thing is exempt; above that, you pay the taxes.

Thanks both of you. I will check out that CPA and inquire about resident status.

Tony, I might do as you suggest =)