"Zach Nelson" <znelson[at]gmail.com> wrote:

- quote -

If we are looking at the Foreign Earned Income Exclusion,
everything there has to do with where you live, not where
the money comes from. As long as you meet the physical
presence test or the bona-fide residence test, it doesn't
matter how you are paid or by whom (at least in the scenerio
you describe). You are in a foreign country to work, you
qualify for the exclusion. Except: it may make a
difference in how much salary your S-corp should pay you.

For purposes of the Foreign Tax Credit, it all depends on
whether the other country taxes the income, not who paid you
or in what currency.

- quote -

Well, that depends on the German rules -- and with all the
pass-throughs, it may get complicated as to just *who* pays
the tax. I'm wondering if any tax might be owed by the
consulting company, who is actually the one in this case
receiving the German-source income. You may see it as a
reduction in what the consulting firm pays your s-corp. But
I might try to find someone more knowledgable about that
specific issue. Or someone with a lot of time to look it
up.

If the tax IS somehow owed by you -- then you would get a
foreign tax credit (pased-through via the s-corp) for the
lesser of the US tax or the German tax on that income. Has
the company dealt with that issue before? If so, I'd start
there.

- quote -

Whatever Katie said.......

- quote -

You sure would have to pay then! No, I doubt being a Greman
company's employee would be better. It may not even be
possible or practical, depending on immigration department
issues.

If the Foreign Earned Income Exclusion is the best solution
for you, I might make sure the right amount of income is
paid to you as wages and an appropriate amount is S-corp
profits. With all of those issues, I might be tempted to
get some professional help if I were you. Do the research,
learn about the issues, but there are many factors that will
come into play here, especially with all of the steps
between the customer and your pocket.

- quote -

That's the point! The answer may ultimately depend on using
some actual projected numbers then working through the
scenerios.

Bryan
------------------------ Bryan Kellar, EA
Oregon Tax Help, Inc. -- Portland, Oregon
www.oregontaxhelp.com
www.canadatax.org

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

znelson wrote:

- quote -

In order to be a nonresident while remaining domiciled in
PA, you must meet ALL of the requirements (no abode in PA, a
permanent place of abode elsewhere, and no more than 30 days
in the state). If you retain your PA home, you will remain
a PA resident during your absence unless you are changing
your domicile to Germany (which is possible, though
unlikely).

You should be eligible to exclude up to $80,000 per year of
foreign earnings for federal income tax purposes (IRC Sec.
911). Pennsylvania does not conform to this provision.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Zach Nelson" <znelson[at]gmail.com> wrote:

- quote -

out of curiosity, why are you conducting business through an
s-corp.?

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Zach Nelson" <znelson[at]gmail.com> wrote:

- quote -

Who pays you and in what country is irrelevant in
determining if the income is foreign income. Where you earn
it is what matters. So if you do the work in Germany it is
foreign income.

- quote -

That is a a question you need to address to the German
authorities. I suspect, though, that salary you earn in
Germany (though paid by your S corporation) would be taxed
in Germany. Whether you would withhold FICA (under a
totalization agreement) or German social taxes I'm not sure.
You need to get a copy of the US-German tax treaty to check
this out. (Your accountant should have access to it through
his tax research services). This should also address the
question of how S corporation income would be taxed in
Germany.

Generally, in order to avail yourself of the foreign earned
income exclusion you need to be paying tax to the host
country.

- quote -

Most states require that you continue to pay resident tax
when you move outside the US and until you establish a
"domicile" in another U S State. If you have the opportunity
to live wherever you choose, and you might be outside the US
for a significant period of time, it might make sense to
move to a state that doesn't have an income tax before
moving to Germany.

- quote -

That's not clear; you probably are better off funneling the
income through your corporation, since that gives you the
most control over your destiny. For example, I find that for
many overseas clients a qualified retirement plan is not a
good choice unless they will pay significant US tax even
after the foreign earned income exclusion and the foreign
tax credit. That's because you get no current tax benefit
but you still pay ordinary income tax rates when you
distribute income from the retirement plan down the road.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Katie,

Thank you for the excellent information. I am somewhat
confused by the 30 day rule however. What happens when I
move to Germany but do not sell my house in Pennsylvania,
but also do not spend more than 30 days in PA? For example,
if we move by January 15th of the new year? In that case,
while I would still hold onto my permanent abode I would be
considered a resident, but, I would be in the state less
than a total of 30 days for the entire year. So would that
relieve me of tax responsibility?

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Zach Nelson wrote:

- quote -


I'll let others deal with the international aspects of your question,
and address only the State of Pennsylvania.

Pennsylvania defines a resident to include any individual who is (1)
domiciled in Pennsylvania, or (2) though domiciled elsewhere, maintains
a permanent place of abode in Pennsylvania and spends more than 183
days of the taxable year in the state.

If you remain domiciled in Pennsylvania during your absence, you will
be subject to Pennsylvania tax on all of your income unless you meet
all of these requirements: (1) you do not maintain a permanent place
of abode in Pennsylvania; (2) you do maintain a permanent place of
abode elsewhere; and (3) you spend in the aggregate not more than 30
days of the taxable year in Pennsylvania. These definitions are in
Title 72, Penn. Stats. =A7 7301(m) &(p).

In many Personal Income Tax rulings, including Pennsylvania Personal
Income Tax Ruling No. PIT-99-068, 10/07/1999, the Pennsylvania
Department of Revenue has stated:

"Your domicile is your fixed and permanent home to which you always
have the intention of returning whenever absent, even though you may
live elsewhere. You can have only one state of domicile at any given
time. Your state of domicile does not change until you move to another
state or country with the sincere intention of making your permanent
home there and abandoning your previous domicile. If you move to
another state or country, but intend to stay there only for a fixed or
limited time (no matter how long), your domicile does not change. The
burden of proving a change in domicile rests upon whoever makes the
allegation."

Thus unless you intend to make a permanent home in Germany, you will
remain domiciled in Pennsylvania until you move to some other place
with the intention of making a permanent home there.

You may still be a nonresident if you give up your place of abode in
Pennsylvania (sell it, give up your lease, etc.) and establish a
permanent place of abode in Germany. In the same ruling, the
Department defines a "permanent place of abode" for this purpose:

"A permanent abode is a house, apartment, dwelling place or other
residence one maintains as a household for an indefinite period,
whether one owns it or not. An abode is not permanent if one occupies
it only during a fixed or limited period of time for a particular
purpose. Barracks, bachelor officer's quarters, quarters on ships and
other living accommodations provided by your employer for a definite
period do not qualify as a permanent abode. College dormitories,
fraternity houses, sorority houses and off-campus rentals by enrolled
college students do not qualify as permanent abodes."

As you can see, your residence status for Pennsylvania tax purposes may
be determined by the nature of your engagement in Germany. If it is
for a fixed period of time, no matter how long, then any place of abode
you establish there will not be "permanent," and you will remain a
Pennsylvania resident. On the other hand, if your engagement there is
indefinite, you can establish a permanent place of abode in Germany and
you will be a nonresident of Pennsylvania, even though you continue to
be domiciled there, as long as you have given up your Pennsylvania
place of abode and spend no more than 30 days in Pennsylvania in any
given year.

Katie in San Diego

The foregoing is intended for educational purposes only and does not
constitute legal or professional advice.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

I've researched this as much as I can, including reading
Publication 54 of the IRS. I've gotta say, there is so much
contradicting information out there, not to mention
confusing information, that I am no better of than before I
started the research.

If anyone could comment on my situation and recommend the
best approach to take, that would be greatly appreciated.
I've talked to my accountant but he is learning about
working abroad just as much as I am. So I really need to
self-educate here. Hopefully someone out there is/was in the
same situation as me.

I am currently a 1099 contractor working in the U.S. and all
of my income comes in through an s-corp I set up. I work
for/through a U.S. consulting company. So my income comes
through my s-corp, from the consulting co. who is then paid
by the company I do work for.

I have the opportunity to work in the company's German
offices. I would remain a 1099 contractor and would still
receive payment from the U.S. consulting company.

Questions:

1. Since I am paid in U.S. dollars by a U.S. company, but
working abroad, is my income considered foreign?

2. Am I liable for paying foreign German taxes on my U.S.
income? If so, can I deduct that amount from the U.S. tax I
must pay? (German taxes are HIGH).

3. Must I pay state tax even though I am abroad? I couldn't
find this information. (Pennsylvania)

4. Am I better off becoming a German employee of the German
company instead of remaining a U.S. contractor? (I would
most certainly have to pay German and U.S. tax then).

I am trying to come out of this with the most money in my
pocket obviously. Thanks in advance for all the help

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->