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Old 02-07-2015, 04:08 PM   #21
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I'm afraid you will have to spell it out a little more because I still don't understand - sorry.

If you are living overseas then you would be paying taxes overseas on the salary you pay yourself and you file taxes in the US and deduct the earnings you have made overseas. You may have low taxes paid in the USA but you will have paid taxes in the country you are living. What am I missing?
bad_LNIP has advocated this tax avoidance strategy elsewhere in this forum, most notably in the following thread

Thoughts on my game plan for ER?

I consider this type of tax avoidance to be practically begging the IRS for an audit with the likely result of having your tax dodge disallowed and being assessed back taxes and penalties, but bad_LNIP has apparently convinced himself that it's worth a try.
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Old 02-07-2015, 04:11 PM   #22
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Originally Posted by karluk View Post
bad_LNIP has advocated this tax avoidance strategy elsewhere in this forum, most notably in the following thread

Thoughts on my game plan for ER?

I consider this type of tax avoidance to be practically begging the IRS for an audit with the likely result of having your tax dodge disallowed and being assessed back taxes and penalties, but bad_LNIP has apparently convinced himself that it's worth a try.


Thanks for the reference, I guess I must have missed or forgotten that thread.
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Old 02-07-2015, 04:24 PM   #23
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I've also talked to multiple CPA types including one who took the exclusion for himself while working overseas. All approved.

Why is it begging for an audit? Why does the IRS select my return over others? Why would the exclusion be disallowed? Where have I gone wrong other than suggesting something unconventional but not incorrect per the irs.

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Old 02-07-2015, 06:15 PM   #24
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Seattle, as others have said it depends a lot on your sources for the $200k/year and how much is principal vs income. At that high a WR it is unlikely that you'll get to zero tax, but it is possible in some situations (high Roth and taxable account balances and little tax-deferred balances).

However, most people have high tax-deferred account balances. For some of us paying zero taxes can be quite suboptimal. I could pay zero taxes right now, but if I did between SS and RMDs once I turn 70 I would be pushed into the 25% tax bracket. In the long run, I am better off paying some taxes now and avoiding the 25% bracket (in favor of the 15% bracket) later in life.

So be careful that a myopic focus on the taxes you pay doesn't cause you to do something suboptimal.
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Old 02-08-2015, 12:10 AM   #25
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......However, most people have high tax-deferred account balances. For some of us paying zero taxes can be quite suboptimal. I could pay zero taxes right now, but if I did between SS and RMDs once I turn 70 I would be pushed into the 25% tax bracket. In the long run, I am better off paying some taxes now and avoiding the 25% bracket (in favor of the 15% bracket) later in life.

So be careful that a myopic focus on the taxes you pay doesn't cause you to do something suboptimal.
Alas, that was me just a few years ago... by making IRA contributions, could set tax rate to zero for some years. But last year, I woke up and started to calculate what the effects of future RMD's would be on us -eek! So have started to do Roth conversions up to the top of 15% bracket, plan on doing this every year till RMDs kick in, and delaying SS for me till 70.

Avoiding taxes today, although it feels great, may not be the best thing to do overall!
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Old 02-08-2015, 12:21 AM   #26
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Move overseas. The feie covers up to 200k in income

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FEIE is only on earned income.......and you are forgetting about local taxes.
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Old 02-08-2015, 06:36 AM   #27
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we will have a 6 figure income for a few years and pay very little tax while delaying ss .

we can pull up to 42k from our ira's and pay about 1500 bucks in tax. we can sell equities at zero capital gains , borrow out some life insurance money and never pay it back and use the money already in our taxable account.

had i known i would have moved some cash into overfunding that life policy. all the interest could have been borrowed out tax free with no fees or charges on any over funding.

at some point i may leverage a single premium life policy and instead of leaving my wife a bunch of taxable ira money i will use a portion of the ira and leave her nice clean tax free money with no rmd's. the kids can have what is left in the ira,s and pay the taxes over their lifetime.

in 2014 we sold some very profitable lease rights we held on commercial property by central park.

while heavily taxable we will owe lots of state and local taxes for 2014 most of which will be paid in 2015.

that gives us a big deduction for state and local taxes. typically that would just trigger the amt for us but by controlling our income for 2015 we will be below the amt threshold and will keep all of that deduction intact.

i am working part time for the next 6 months so i doubled up my 401k contributions to get as much income into the 401k as i can reducing its effect on taxable income this year.

we also get a 20% state tax credit on our long term care policy which costs us 8k a year for the two of us.

all in all we should be in good shape tax wise the next few years until i take ss and run out of the cash in our taxable account we set aside.
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Old 02-08-2015, 04:57 PM   #28
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FEIE is only on earned income......

True. You get a paycheck from a foreign corp. Viola! earned income.

.and you are forgetting about local taxes.

Local taxes? We don't need no stinkin local taxes. Most other countries tax people on ONLY income generated from the local country and income generated from your work for a corporation formed in a different country aren't reported and aren't charged.
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Old 02-08-2015, 05:14 PM   #29
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FEIE is only on earned income......

True. You get a paycheck from a foreign corp. Viola! earned income.

.and you are forgetting about local taxes.

Local taxes? We don't need no stinkin local taxes. Most other countries tax people on ONLY income generated from the local country and income generated from your work for a corporation formed in a different country aren't reported and aren't charged.
If you set up your company in a tax haven that doesn't tax your "income" and then manage to move around enough or are resident somewhere where local taxes aren't an issue I can see this working. But it's only a viable option for a small percentage of people. You have to live outside the US and manage your residency so that you are taxed on a remittance rather than an arising basis.....so you better not put down any roots in most European countries, the UK, France etc tax residents on their worldwide income.
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Old 02-08-2015, 05:16 PM   #30
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So are you saying that if you reside in the US and do work in the US, but get your check from a foreign corporation you can apply the FEIE?

No. You have to move overseas. Stay in the states if you want to pay a bunch in taxes.
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Old 02-08-2015, 05:36 PM   #31
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So are you saying that if you reside in the US and do work in the US, but get your check from a foreign corporation you can apply the FEIE?

No. You have to move overseas. Stay in the states if you want to pay a bunch in taxes.
Yes I re-read your posts and edited my post. Still I'd be interested in some practical details like where you'd set up the company and then where you'd live.
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Old 02-08-2015, 06:44 PM   #32
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Still I'd be interested in some practical details like where you'd set up the company and then where you'd live.

I am kicking around a few different countries, but lets say live in Panama, I work as an employee for a Bermuda corporation that invests in dividend paying stock, preferred stock, closed end funds, etc..and runs a model portfolio with a focus on generating income.

You are the portfolio manager, an employee paid by the corporation, which is not taxed in Panama and not reported to Panama. The wages are exempt from taxes in the US according to the FEIE.

I am less familiar with the European nations, but most countries don't tax for non domestic generated income. I am sure there are ways to make it work in Europe. Ireland springs to mind as a European country that helps with taxation issues.
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Old 02-08-2015, 08:02 PM   #33
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Still I'd be interested in some practical details like where you'd set up the company and then where you'd live.

I am kicking around a few different countries, but lets say live in Panama, I work as an employee for a Bermuda corporation that invests in dividend paying stock, preferred stock, closed end funds, etc..and runs a model portfolio with a focus on generating income.

You are the portfolio manager, an employee paid by the corporation, which is not taxed in Panama and not reported to Panama. The wages are exempt from taxes in the US according to the FEIE.

I am less familiar with the European nations, but most countries don't tax for non domestic generated income. I am sure there are ways to make it work in Europe. Ireland springs to mind as a European country that helps with taxation issues.
If you are resident many European countries tax worldwide income, UK and France definitely do. In the UK you can pay 30kGBP a year so that you would not be taxed on overseas income, but you would still be taxed on any money you brought to the UK.

I wonder if PFIC issues would be a problem with the scheme.
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Old 02-08-2015, 08:22 PM   #34
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I am kind of surprised that no one questions the ethics of spending $200,000 a year, and trying to find ways of enduring that other people pay for the defense of your country and all of the other things the federal government provides. I understand how people object to government waste, but to be that rich and really want to find ways not to contribute at all? Have you no shame? It is people like you who make the flaky, flaky Occupy Movement actually seem credible.
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Old 02-08-2015, 08:45 PM   #35
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I am kind of surprised that no one questions the ethics of spending $200,000 a year, and trying to find ways of enduring that other people pay for the defense of your country and all of the other things the federal government provides. I understand how people object to government waste, but to be that rich and really want to find ways not to contribute at all? Have you no shame? It is people like you who make the flaky, flaky Occupy Movement actually seem credible.
I'm as left wing as they come, but I see nothing wrong in following the rules of the tax code. IMHO it's the tax code that is wrong.

Personally I can't imagine spending $200k a year, well I can, but I just don't need to. I could sustain a $100k/year expenditure, but spend $30k a year and pay low taxes without having to think about it much.
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Old 02-08-2015, 09:03 PM   #36
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I'm as left wing as they come, but I see nothing wrong in following the rules of the tax code. IMHO it's the tax code that is wrong.

Personally I can't imagine spending $200k a year, well I can, but I just don't need to. I could sustain a $100k/year expenditure, but spend $30k a year and pay low taxes without having to think about it much.
And I'm far to the right of my friend nun, but I totally agree. As Justice Learned Hand once wrote:

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Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.
Davis65, are you really suggesting that citizens make voluntary contributions to the government in excess of what they legally owe?
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Old 02-08-2015, 09:04 PM   #37
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I am kind of surprised that no one questions the ethics of spending $200,000 a year, and trying to find ways of enduring that other people pay for the defense of your country and all of the other things the federal government provides.

I fail to see the ethical dilemma. It has nothing to do with national defense. We spend more than everyone else in the top 10 nations combined on defense.

I understand how people object to government waste, but to be that rich and really want to find ways not to contribute at all?

You have no idea the scope of waste in the government. I've contributed plenty to include several years of my life in the armed forces. Then you have to consider that the IRS gave fraudulent refunds of at least 5B in 2013.

Have you no shame?

Nah.
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Old 02-08-2015, 09:09 PM   #38
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Here is my favorite article on how to pay zero taxes, though I don't think we will get to absolute zero this year ourselves:

ROI: How to Avoid Paying Income Taxes - WSJ

Much lower taxes, hobby business expenses, ACA tax credits, college tax credits, and financial aid grant money - that's all in our ER plan. I don't make the tax and financial aid rules, I just follow them.

After reading books like Free Lunch and Perfectly Legal on all the tax breaks available to corporations and the ultra-rich:

http://www.amazon.com/Free-Lunch-Wea.../dp/1591842484

I don't feel guilty taking advantage of what I can.
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Old 02-08-2015, 09:29 PM   #39
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I'm not planning on paying federal income tax for a looooong* time. This year we're getting back a couple thousand dollars (no tax liability, refundable child tax credits). Should be more of the same in the future (at least the no tax liability part).

While working, we managed to get up to $150k in income and pay $150 in tax.

* Unless our portfolio does really well and I amp up the spending significantly. Or age 70 and RMDs kick in.
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Old 02-08-2015, 09:47 PM   #40
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Not a good idea to let the tax tail wag the financial dog. Having to pay taxes on retirement income is a (relatively) rich man's problem, and not at all a bad "problem" to have. Taxes in retirement are an area that is broad, complicated and changing all the time. Generally speaking, it's a good idea to defer and delay taxes, but individual circumstances vary greatly. Biggest issue AFAIK is RMD's and SS taxation. Best solution is ROTH conversions up to 15% tax bracket until 70, depending on your circumstances.

I am personally suspect of any avoid-all-taxes scheme. I believe the IRS is, too.
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