View Full Version : 80k Tax exemption
Quick Question about this 80k Tax exemption and the specifics.
I am self employed as a webmaster and dot com chaser, so this 80k tax exemption, does this apply to money I make from american companies? Or companies in France, Argentina, Mexico, The UK, etc etc or does it apply to where my servers are located? Or does it only apply to money I make in Argentina?
For example, If I move my servers out of the USA, but still sell my traffic and goods to companies in the USA and other countries, will I still have to pay taxes and qualify for the 80k exemption? Sorry if I sound a little confused. Just trying to get clarification.
Thomaso276
05-18-06, 19:38
I have no idea but it sounds like you can afford a professional advisor on this matter.
Good luck
I have no idea but it sounds like you can afford a professional advisor on this matter. Good luckMy Scottish genetics tend to take over this part of the brain.
Watch me split a roll of Toilet paper and make 2 rolls j / k
The geographic source of the income is irrelevant as is the location of your servers. What matters is physical presence and that the income is earned. So, you are fine. Yes, I am a CPA. My bill will arrive shortly.
Oh yeah, and two more important things to consider:
1) The FEIE does not by itself relieve you of the obligation to pay self-employment tax.
2) If you exclude all your income, you can't contribute to an IRA.
The geographic source of the income is irrelevant as is the location of your servers. What matters is physical presence and that the income is earned. So, you are fine. Yes, I am a CPA. My bill will arrive shortly.
Oh yeah, and two more important things to consider:
1) The FEIE does not by itself relieve you of the obligation to pay self-employment tax.
2) If you exclude all your income, you can't contribute to an IRA.Thanks Dickhead, just what I needed to know. The self employment tax is what 6% I think? Better than paying 45% on the first 80k I make, so I have no problems paying that self employment tax.
Where do I send the toilet paper to? Errrr. I mean the check?
Thanks Dickhead, just what I needed to know. The self employment tax is what 6% I think? Better than paying 45% on the first 80k I make, so I have no problems paying that self employment tax.Try 15%+ on the first 94K in income. You pay both the employer's and the employee's portion of both Social Security and Medicare tax. There is no 94K cap on Medicare tax, which is about 2.5%.
Try 15%+ on the first 94K in income. You pay both the employer's and the employee's portion of both Social Security and Medicare tax. There is no 94K cap on Medicare tax, which is about 2.5%.I have no employees, I am a one man operation, and outsource some of my work to India, and Argentina.
The geographic source of the income is irrelevant as is the location of your servers. What matters is physical presence and that the income is earned. So, you are fine. Yes, I am a CPA. My bill will arrive shortly.
Oh yeah, and two more important things to consider:
1) The FEIE does not by itself relieve you of the obligation to pay self-employment tax.
2) If you exclude all your income, you can't contribute to an IRA.DH,
What is the usual documentation necessary to establish legitimate foreign residence for the tax exemption? Lease agreements, utility statements? It's best I get my ducks in a row now.
Thanks,
Doggboy
I have no employees, I am a one man operation, and outsource some of my work to India, and argentina.If you are self-employed, you have to pay the 15% Social Security / Medicare tax on all your net income up to 94K, and the Medicare only portion above that. It doesn't matter if you have zero employees or 50. This is in addition to your federal and state income taxes due.
Yo Dogg,
The best proof is your humble passport. The auditors will want to see where you spent your time and will allow 30 days visit to the USA per year.
The lease, utility bills, phone bills are also nice, but put a copy of the PP, for the months you are absent from the USA, in with your tax records.
PS: DO FILE on time every year, even if you have not been back to the USA.
Jackpot
15.3% up to $94,200 (for 2006) and 2.9% thereafter.
Jackpot is confused. There are two ways to obtain the foreign earned income exclusion. One way is to be physically present in one or more foreign countries for at least 330 full days (that gives you slightly more time in the US than Jackpot indicates). Cut and dried.
But that is not foreign residency, which is the other way to obtain the exclusion. All you guys who are down here more or less full-time should read IRS Publication 54, which lays all this out. It's not particularly hard to understand, as IRS publications go. Furthermore if you are living outside of the US on April 15th you automatically get an extension to file. Can't remember right now if it's two months or four (Later: it is two months). All you need to do is write on your return, "Outside the US on April 15th" or some shit like that.
(Later) Keep in mind that an extension of time to file is not an extension of time to pay so if you owe money, or think you might, you need to settle up by April 15th (note that the actual due date is the Monday following April 15th if April 15th falls on a Saturday or Sunday) or face interest and penalties. This can be done in a number of ways: with the extension form 4868 (or is it 4686???); via the vouchers for making estimated tax payments, or by mailing cash directly to George W Bush or any of his cronies (just kidding with that last one).
Oh yeah and filing for the FEIE does not require you to attach proof you were out of the country for 330 full days. You'd better have proof if you get audited though. Here Jackpot is on the right track about the passport as proof in the case of Argentina. However, bear in mind you can get the exclusion just as well by having been in countries such as Mexico which you can visit without a passport (at least under some circumstances).
Escapee5150
05-19-06, 05:01
Maybe it should be 227 days. No 336 days. No, I know. 318 days.
Socialism is really boring and stupid.
You can see the corruption. It is written there on the tax forms for all to see.
I wonder how all those Mexicans that can't even speak english keep up with all these rules. Gosh, they must be really really smart.
If you exclude all your income, you can't contribute to an IRA.I'm not so sure about that. Generally speaking, excluded income cannot be used for various items, such as IRA contributions. But if your earned income is 90k and you exclude the full 80k, I think the 10k part that was not excluded can be used. Maybe wrong, I've mostly made 401k contribitions on which the foreign exclusion has no effect.
I fully used the exclusion for at least 5 years and never had to prove anything. You do list your foreign residence address and dates spent in the USA on your return but thats about it. I was audited one of those years and the IRS did not question my exclusion. Just let the CPA preparer worry about that.
If you are employed, you can send a simple letter to your US employer and have them stop witholding income tax from your paycheck until you hit the annual 80k exclusion (more like 95k if you're maxing your 401k). That way you never pay the tax in the first place instead of getting a 24k refund the subsequent year, depending on your tax bracket.
If you don't have a tax preparer, I recommend using TurboTax which is what many paid preparers use anyway. Its especially convenient when filing overseas since its all electronic. It can handle many tax situations including the foreign exclusion. If your return is normally 2000 pages it may not, not sure.
As DH mentioned, I highly recommend reading the Pub. 54 on the exclusion from the IRS site. Its very clear and thorough.
Emailed my accountant in Miami today with some questions about the 80k tax exemption. She is not an expert in international tax questions, and expressed some concern that I might not be eligible given that while I am IN BA, I am working for companies in the US. I have heard this caveat thrown around before. She said she would run it by an accountant more experienced in these matters who works in Miami. Obviously some confusion from people you would think would not be confused. Let me express my thanks to all and sundry who are providing the info here. Much appreciated.
Your Miami (!) accountant must have not limited, but zero international/expat tax knowledge. This 80k exclusion is about as basic as it gets. Much simpler than, for instance, capital gains rules. Again, read Pub 54 on the IRS site. The payor of your earned income and where it is paid is 100% irrelevant. Only the taxpayer must be in a foreign country (except Libya, Cuba, N Korea IIRC) for 330 full days per year, thats it. The regulation is crystal clear and even gives an example IIRC of an expat living in France yet being paid by a US corp in US dollars to a US account - he qualifies for the exclusion with 330 full days.
With all due respect, Doggboy, this has now been posted numerous times by people with personal experience and can be verified instantly in the IRS site.
Thanks for the info Moore. I will point out here that one of the drawbacks of having alot of information, and disseminating said information, is that folks will "depend" on it at times. Comes with the territory. You, Dickhead and a number of others are a wealth of extremely valuable info to alot of newbies, and not so newbies. I could have waited for the inevitable news from Miami that would have confirmed to the "T" what has been posted by you and others. Or, as I did, just throw it out there for comment. BTW, I went to the ENT clinic out Belgrano way. If they don't cure me, I'm blaming YOU!:D
"I'm not so sure about that. Generally speaking, excluded income cannot be used for various items, such as IRA contributions. But if your earned income is 90k and you exclude the full 80k, I think the 10k part that was not excluded can be used."
Sure, that's correct. But that's not what I said. I didn't say "if you use the full exclusion, you can't contribute to an IRA." I said, "if you exclude all your income you can't contribute to an IRA." That's also correct. In other words, my assertion pertains to earned income of 80k or less.
"If you are employed, you can send a simple letter to your US employer and have them stop witholding income tax from your paycheck until you hit the annual 80k exclusion"
True, but not until the year after you leave the country (the second year you are eligible for the exclusion), because the rule says something like "you had zero taxable income last year and expect zero taxable income this year." I'll go check the W4 and see exactly how it's worded.
Oh yeah, and another important thing: The 330 full days you are out of the country can be in any 365 (consecutive) day period; it doesn't have to correspond to a calendar year. You can (and should) choose the 365 day period that maximizes the exclusion.
"Emailed my accountant in Miami today with some questions about the 80k tax exemption. She is not an expert in international tax questions, and expressed some concern that I might not be eligible given that while I am IN BA, I am working for companies in the US."
That is absolutely pathetic and you need a new accountant. I, too, have a US employer with my salary going into a US bank account.
"You can claim exemption from withholding for the current tax year only if both the following situations apply:
For the prior tax year, you had a right to a refund of all federal income tax withheld because you had no tax liability, and
For the current tax year, you expect a refund of all federal income tax withheld because you expect to have no tax liability."
From the IRS website. My emphasis added. I couldn't cut and paste from the W4 itself but it says the same thing and has the emphasis added.
"If you are employed, you can send a simple letter to your US employer and have them stop witholding income tax from your paycheck until you hit the annual 80k exclusion"
True, but not until the year after you leave the country (the second year you are eligible for the exclusion), because the rule says something like "you had zero taxable income last year and expect zero taxable income this year." I'll go check the W4 and see exactly how it's worded.I had the witholding adjusted just a few months after moving to BA. But what do I know, that was my bean counter's call. He signed the returns.
"Emailed my accountant in Miami today with some questions about the 80k tax exemption. She is not an expert in international tax questions, and expressed some concern that I might not be eligible given that while I am IN BA, I am working for companies in the US."
That is absolutely pathetic and you need a new accountant. For once I fully agree with Dickhead. I'm not sure what's more pathetic - her not knowing about this simple rule or her being too lazy to take 5 minutes to get off her fat American Warhog ass (actually no need to leave her desk) and look it up on the internet. Both very pathetic, but probably the latter is worse. And she is based in international/expat hub Miami, Jesus.
I hope you're not paying her more than minimum wage. Actually 70% of minimum wage and one blowjob/week.;)
MiddleAgeGuy
05-20-06, 01:54
What ever happened to inflation for the $80k. Seems like it has been stuck there for a long time. I think it was $60 or 70k about 35 years ago.
Regarding social security, I had worked and lived in the US for a couple years and avoided paying the social security and medi by evidencing I was paying a similar type plan in another country. Saved me thousands each year and I was dreading the immanent green card which would have forced me into the US system. Left with a week to spare on that one.
I know that in ARG you have to pay their equiv. If you work in the system so, does the US give you a holiday on social sec and medi if you can prove you are paying it elsewhere?
MAG
MAG,
The exclusion hasnt moved much. I think when I started using it about 5 years ago it was maybe 74k, but Id heard that it has been in the 60s-70s for decades. Compare that the ceiling for 1.45% Medicare taxes - I think I remember not so long ago it was in the 60s and is now approaching 100k.
IIRC, foreign employees in Arg must demonstrate that they are covered by a foreign social security system in order to avoid local ss taxes, but the exemption only lasts for 2 years. Didnt you answer your own question about avoiding US ss tax - apparently you did?
If I were not a US citizen I would like to have a green card. People die for them.
Changes afoot in the subject thanks to the new tax bill. Exemption goes to 82K, but taxation of income of expats to get greater. If somebody has access to the online version of Wall Street Journal, why not post it here. It's in today's print edition.
Unlike the standard deduction and the personal exemption, the foreign earned income exemption is not indexed for inflation and needs an actual change in law to move it. The Social Security base was pegged at a rate exceeding inflation under a bill passed during the Clinton administration in '93 or '94 or so; it's inflation plus some factor I can't recall. Maybe inflation plus 100 basis points, or something like that.
Since I work for a state government, and it has a separate retirement program, I don't have to pay the 6.2% Old Age, Survivors' and Disability Insurance (OASDI) component of Social Security. I only have to pay the 1.45% Medicare portion. That's the only US tax I pay.
Hunt, ask and you will receive:
Hunt, ask and you will receive:Thanks Ba Luvr.
"that figure rises to $82,400 for this year -- but income above that level is now typically subject to higher effective tax rates than before."
?
It doesn't explain how or why this is true.
I don't subscribe so why don't you be a nice guy and tell us why?
"that figure rises to $82,400 for this year -- but income above that level is now typically subject to higher effective tax rates than before."
It doesn't explain how or why this is true.I don't get it either. Possibly you have to remove the exclusion for calculating your tax bracket(s). The WSJ columnist wrote it almost as good as I would have if I didn't know what I was talking about. As JFK said - words can always be explained away, numbers can't.
First let me state that I don't pretend to be qualified to speak in general about the, now, $82,500 income exclusion. But I have just become an expert at volunteering to pay taxes in Argentina so my accountant would file for the exclusion which to him meant proving that Argentina was my tax home and essentially that I was registered and paying taxes here. The trade off, paying a nominal tax and getting the huge exclusion didn't take a lot of contemplating to comply with his requirement - as "by the books" as it seemed to be.
You can register to pay taxes here with only a passport and two bills with your name. To start the process requires that you obtain a CDI at the AFIP office your address is registered in. Getting the CDI requires providing original copies of two documents with your name on them, e. G. Phone and Fibertel. Once you have the CDI you can register as a Monitributo (a category for small tax payers) There is a Monotributo form (#183) plus again the passport, a copy of the passport, the originals of two bills or bank account plus a copy with your name and address and the completed Monotributo form in duplicate. You'll also need a keyword and password so that you can complete the process online using your CDI number. You must create a keyword and password online at the AFIP website, then download the form for enrolling your keyword / password from the AFIP website. Fill it out, take it to AFIP where they'll enter you in the computer and your keyword / password will work.
**Get CDI, set up keyword password, get Monitributo established, then.
The last step is getting Adhesion, which means getting yourself classified in a tax category and a tax rate. Once you've completed all of the above you enter the AFIP website, use your keyword / password, elect Monitributo, fill out the forms online with various bits of information, select an Obra Social (which appears to be the union of the type of work you do) and when all entered you'll receive a verification with a tax bill. The website has collected all your information and determined your tax payment which can then be paid online or in person at designated locations. You start paying after you get the rest of your new keyword for making payments in the mail within 5 weeks.
##Very important. The AFIP civil service workers and the AFIP website give you the impression that you can complete the Monotributo Adhesion aspect from any computer, but in fact after trying with 4 different browsers on my own computer and going to Locutorios I discovered that only designated Locutorios are "open" to completing the Monotributo Adhesion form. Everything else is blocked or disfunctional. The Telefonica Locutorios are not blocked and you can complete the process and print out your tax formula there.
You can generate your first AFIP keyword / password from any computer it seems. After that find a Telefonica Locutorio to complete the Monotributo.
Bacchus9,
Thanks alot for the post. God knows how time and trouble you saved me. You looked like Matt Snell going through the line there.
Bacchus9,
Some of this is useful data but why on earth would you willfully register as a self-employed taxpayer / sole-proprietor (monotributista) in Argentina and, worse yet, volunteer to pay taxes? I have a CUIL issued by the AFIP which is simply 20 – My DNI# - 3 which is more or less a social security number that is required to work legally as an employee. But employers are fully responsible for withholding and paying employees' social taxes, income taxes, etc. Most probably don't since over 50% of the nation's economy is/was "in black" (off the books) IIRC. The majority of people don't pay taxes in Arg.
If you have not yet registered as monotributista then I advise you not to. If you have, then I suggest you try to cancel your registration immediately. You simply don't need it and are just asking for problems from tax authorities. Off the record, my advice to most expats/immigrants here is to pay the 0.5% asset tax on any owned real estate (apparently the only verifiable individual tax and tax base that gets any real respect in Argentina) and ignore the rest of the taxes like most natives do. If you're opening a business in Argentina with an office, local employees, and other verifiable local cost bases then my advice is different but that's not the case for most.
The information you posted about obtaining the CDI is useful for many since it is required for certain transactions/procedures for foreigners that don't have a DNI.
However, fire your US accountant and RTFF. How many times must we clearly state on this thread that the only requirement for obtaining the 83k foreign earned income exclusion is your physical presence in a foreign country for >330 full days per year. That's it, nothing more. It's real easy. For the 10th time, it doesn't matter where the income is earned or paid and it surely doesn't matter if you're paying taxes to a foreign country, registered or not, or if you have a "foreign tax home". That is all irrelevant and I have no idea how your accountant would come up with such a ludicrous idea which could potentially cause a costly/endless nightmare for you since you are now apparently registered as a paying monotributista in a very dodgy system that may decide to extort money from you every year. Jesus that was some horribly stupid advice from your clueless accountant. There are many simple ways to evidence that you did or did not reside in a foreign country for the required period in the unlikely event that the IRS doubted your claim.
Again, the foreign earned income exclusion is very simple, crystal clear, and has been posted numerous times on this thread. The actual regulation can be verified instantly in the IRS website (Pub 54) which has also been posted previously/recently.
Thanks the advice Moore, although I don't believe I'll take it all.
I have now read Pub 54 which is much more explanatory than a previous IRS doc which made it appear that the foreign tax home was something that required proof. Pub 54 seems to say "look in your pants and if you see that you're in them and you're located in a foreign country you have a foreign tax home". I'll certainly be putting it in front of my tax accountant on Monday, that he might fry in his own oil.
I'm not inclined to go into my circumstances further in a public forum. But I'll maintain the montributo as I'm still here without a DNI. While I'm waiting for one and active here I would prefer to be in a position of having paid something should it ever become an issue than to appear to of never considered it. The tax amount prescribed is peanuts.
I'm well aware of the white and black nature of transactions here and do have associates in small business paying taxes taking advantage to be on the black where possible.
This is not an attempt to end the conversation but is how I look at it.
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