- quote -

He already has the S corp. Mainly, because I don't know how
the Guatamalan company (the ultimate payor) feels about paying
another Guatamalan company, which might have bad effects under
Guatamalan law (e.g. look-through to make it consider him an
employee). We know it's willing to pay his S corp.

Seth

- quote -

I suppose that would work. But why not have that Guatemalan
company receive the income directly and pay him the salary?
Why add the complexity of the S corp?

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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L K Williams <lanny[at]loxinfo.co.th> wrote:
- quote -

Would it pay to set up a Guatamalan company which would get
paid by his S Corp and pay him a salary? The S Corp is now
paying a subcontractor, so no taxes are due. He gets paid
in a foreign country by a foreign company (which he happens
to own, perhaps), so no SS tax. I don't know what
Guatamalan taxes there might be for a company that makes no
profit.

Seth

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OK, I think it is sinking in now.
The key point is that "pass through" income form even a
wholly owned S Corp does not qualify. Only individual income
qualifies, but this compensation could come from the S Corp
(with proper withholdings).

Thanks to Lanny K. Williams and Bill Brown for the help.

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"admiral-dave" <admiral-dave[at]att.net> wrote:

- quote -

Yes, that is exactly the scenario I had in mind. How else
would the Guatemalan company pay your company?

So, again, I will say that the exclusion does not apply for
the corporation; status as a C or an S corporation doesn't
matter. You can get the exclusion for any salary the
corporation pays for the work in Guatemala if you meet the
requirements. Income passed through to you on Schedule K-1
does not qualify for the exclusion.

Even though the salary could qualify for exclusion, the
company would have to withhold and pay the applicable social
security taxes. Working in a foreign country does not exempt
a US taxpayer employed by a US entity from these taxes.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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admiral-dave wrote:

- quote -

As LK indicated your salary (or other earned income) is
excludible if you meet the foreign residency requirement of
IRC Section 911 and if you earned that income by working in
another country.

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Thanks to L K. I appreciate your input of obviously expert
advice.

Should I assume that all your comments apply even if:
- the S Corp is wholly owned by me as a personal corp, and
- the compensation to my personal S Corp would be in the
form of consulting fees from the Guatemalan company

Thanks,
admiral-dave

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"admiral-dave" <admiral-dave[at]att.net> wrote:

- quote -

First of all, you shoulr understand that the Foreign Earned
Income Exclusion is not available to any taxpayer other than
an individual. It does not apply to pass-through income,
such as the income reported to you on the company's K-1.
So, even though the company earns the money in Guatemala, it
will be taxable to you when passed through.

On the other hand, the company should pay you a salary for
your work. Even though the salary would be paid by a US
company, the fact that you earned the income in Guatemala
makes it eligible for the exclusion (assuming you,
personally, meet either of the two tests.) The company
would have to withhold FICA and Medicare taxes and pay the
employer's share but might not have to withhold Federal
income tax. You would receive a W-2, report the salary on
line 7 of your return, and claim the exclusion using Form
2555 or 2555EZ.

On the other hand, if you are paid a salary by the
Guatemalan company, that salary probably is not subject to
the US social security taxes. If the payment to you is in
the form of a consultant's fee, etc. and paid directly to
you, it would qualify for the exclusion but still be subject
to the social security taxes.

You should also consult with an accountant in Guatemala to
determine what taxes might be assessed there. How Guatemala
taxes your income could affect your decision.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Shortly I will relocated to Guatemala to work several years
for a Guat cmpany. This company prefers to contract with me
(and pay me) through my US S Corp. versus to me as an
individual. (Their reasons are related to avoiding benefirs
under local labor codes.)

My question is can I take full advantage of the FEI
exclusion on my US taxes even though my compensation is
received though a personal S corp?

Many thanks,
admiral-dave

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