- This topic is empty.
-
Posts
-
I have a question with regard to tax strategy.
I am on sabbatical this year and stay in China. So my school in the US pays me.
I also have a S-type company in the US and got a contract job to work for another company in New York. Since I am overseas now, can I use my own company to pay myself in China and use the Section 911 foreign source earned income exclusion to exempt that part of the income?
I know I have to pay regular tax on my school income, but what about the income from my own company since I am in China now? Thanks.
I have a question with regard to tax strategy.
I am on sabbatical this year and stay in China. So my school in the US pays me.
I also have a S-type company in the US and got a contract job to work for another company in New York. Since I am overseas now, can I use my own company to pay myself in China and use the Section 911 foreign source earned income exclusion to exempt that part of the income?
I know I have to pay regular tax on my school income, but what about the income from my own company since I am in China now? Thanks.
As you pointed out the salary received while on sabbatical is fully taxable in the U.S. assuming that you are not required to perform any services overseas and it is based on prior service.
As regards you Sub S income, you did not state the nature of income. If it is relating to services performed in the U.S. you need to issue yourself a W-2 and get no FEIE or other foreign service benefits. If the contract states that you are required to perform services for your client in China, your Sub S corp needs to issue you a W-2 and if you qualify for the Section 911 FEIE or housing deductions then the income qualifies as Sec 911 is based on the sourcing of income, which is where the service is performed, regardless of where the income is paid or received.
So if your customer/client pays your Sub S corp in the U.S., and your Sub S corp deposits the money into your U.S. bank personal account, the salary is foreign source IF you perform the services outside the U.S. Compensation allocable to days worked in the U.S. does not qualify.
Be sure to check the tax laws in China and if you pay a tax on compensation earned in China it may qualify for the US foreign tax credit.
Thanks. Let’s suppose a scenario like this which might not be true: I came to China on May 15, 2018 and go back to the US on June 15, 2020. Thus I stay in China for more than 330 days even though it is not in the same year. My S-corp has a contract with a company in New York on Nov. 1, 2009, and the New York company will send checks to my S-corp address.
Since I am in China, I have to perform and finish the task in China. If my S-corp issues me W-2 while I am in China performing those tasks, I would suppose the amount on the W-2 qualifies for the Section 911 FEIE. Am I right? or maybe not since I can not use the 330/365 for any calendar year?
By the way, do you do tax returns for people outside the US? What about joint personal and corp. tax? I might need someone to help me with my 2020 tax return. Thanks.
The physical presence test is based on a consecutive 365 day period regardless of calendar year. Thus you may be able to qualify for FEIE in both 2019 and 2020 based on the number of qualifying days in each year. So if you can count back to say May 1, 2019 as the beginning of your qualifying period you may be able to exclude about $61,000 of foreign sourced income in 2019. Same thing for 2020 where you may have a FEIE of say $30,000 based on what you say.
Again, the sourcing rules apply to where the services are performed so if your S corp contracts you to do the work while living and working in China, it is foreign sourced income.
- You must be logged in to reply to this topic.
