Bill Brown wrote :

- quote -

Not to be pedantic, but it simply isn't true that "all the
federal tax rules are the same" for U.S. citizens, even
before you consider residence. Let alone "U.S. nationals".

To start with, non-citizen nationals (American Samoa, Swain
Island) and certain other persons associated with offshore
territories are subject to arcane rules and "mirror taxes".
There's not a lot written on this even in the technical
manuals (BNA, CCH, RIA Tax Notes...) that professionals use.
The most "comprehensive" (and for all that it's not really
very comprehensive) exposition is a Department of Treasury
publication of October 1979, "Territorial Tax Systems".

Estate tax is a further quagmire. Estates of persons who are
U.S. citizens by reason of birth or naturalization in Puerto
Rico, and who reside there at death, are subject only to PR
estate duty on PR assets. (As US estate duty phases out, and
if it remains phased out after 2010, this may be of little
significance. But it does highlight the fact that there are
different sorts of "U.S. nationality" for tax and other
purposes.)

North American Indians (Native Americans, First Canadians,
Inuit) are subject to rules that are even more arcane. In
the unlikely event that concerns you, start with the Jay
Treaty (1794) and the various tax, money laundering and
fraud cases such as Trapilo and Boots, as well as Goodwin
and Saxbe all of which you can Google.

As for the foreign earned income exclusion: this remains
useful for Americans abroad who are low-paid and those who
are subject to heavy local taxation. (Neither it nor the
foreign tax credit helps in the case of foreign wealth taxes
such as those levied in France and Switzerland). But as of
2006, the rate of tax applied is much higher than it was
because exempt income is factored into the bracket
calculation. Many taxpayers will find that it pays to avoid
current taxation and to look for tax sparing and postponment
(pension) opportunities. Some US tax treaties (Canada, UK)
are fairly generous in that regard. Many US taxpayers abroad
rely on staying beneath the radar, knowing that audits are
quite rare and generally undertaken only for the very rich
and where money laundering and crime are suspected.

Be aware that unless you qualify to use a foreign currency
numeraire as your unit of account (which individual
taxpayers generally cannot do) the inevitable depreciation
of the US currency as the massive deficit spending and
foreign-held debt come home to roost will create phantom
income on borrowed capital. Only in specific circumstances
can you claim a tax loss when you pay off such debt. Quijano
v. U.S. (can be Googled).

American citizens married to foreigners subject to community
property law in their home countries (of domicile) face
particularly interesting rules and opportunities. Which
become even more interesting when their spouses are
diplomats and are assigned to Washington or to the United
Nations in New York.

Sorry for all the digression. But you really haven't given
enough facts. Suffice to say, you can set up your enterprise
in a jurisdiction with a favorable US tax treaty. You could
use a US LLC, but you risk being taxed as well in the
country where your firm has its "seat" (principal office)
and where it does business, and you could conceivably wind
up not being about to deduct foreign tax from US tax unless
you register your foreign branch as a proper, taxable unit.
And if you're going to do that, where's the advantage of
being a US company.

Note that some years ago it was fashionable in France for
small businesses (not the "small" as the US Dept. of
Commerce defines it, with up to 5,000 or more employees and
millions of dollars in revenue, but "mom and pop"
storefronts) to incorporate in England (where they would pay
little tax) and not register properly in France. It didn't
take all that many years for the French fisc to figure out
what was going on and to impose taxes and penalties.

That said, many large firms -- up to and including Microsoft
-- set up firms in tax havens with little or no local tax on
foreign profits and assign intellectual property rights to
those firms. But Microsoft has expensive Wall Street and
City of London lawyers and accountants and you do not.

The message to the OP: Be careful.

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A further point I forgot to include: A US entity will likely
be required to deduct and pay FICA. Or, since an LLC is
(absent a contrary election) a disregarded entity, SET.

If the LLC is a disregarded entity in the USA and taxed as a
corporation in, say, Canada or the UK, it becomes a hybrid
entity and not many "tax experts" are expert enough to deal
with that. At least not at a price you can afford.

Read carefully the totalization agreement between the US and
your country of residence. (Can be found by Googling on the
SS Admin. site.)

<< ================================================== ===== > << 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. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

<a_kennis[at]yahoo.com> wrote:

- quote -

It's not obvious that a US taxable entity is the best form
of entity for a business that has neither a permanent
establishment in the USA nor any assets or employees there
nor is doing any business there.

You shouldn't rely on a ng for advice on this critical
point: you should seek out a lawyer conversant in the law of
the place you live (and, presumably, work) and US tax law.

You may or may not be a domiciliary of a US state; if so you
could be subject to tax by that state. Some states do not
tax nonresident domiciliaries; some states have no income
tax.

<< ================================================== ===== > << 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. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

akennis wrote:

- quote -

All the federal tax rules are the same for U.S. citizens no
matter where they reside.

One potential problem that comes to mind is converting
excludible foreign earned income into taxable corporate
profits. That foreign earned income exclusion only applies
to individual taxpayers.

<< ================================================== ===== > << 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. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Bill Brown wrote:
- quote -

Sir:

I appologize. I have been filing the standard 1040 along
with form 2555 (Foreign Earned Income Exclusion).

With that mistake cleared, can you shed light on any
possible pitfalls for a non-resident US citizen operating a
LLC.

Thank you,

Albert

<< ================================================== ===== > << 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. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

akennis wrote:

- quote -

That would be your first mistake. U.S. citizens do not file
Form 1040NR. U.S. citizens file Form 1040.

- quote -

The most pressing tax issue is to file proper returns for at
least the past 6 years or the time you've been filing
1040NRs, which ever is shorter, then move on from there.

<< ================================================== ===== > << 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. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I am considering to start a LLC based software company. I
am a US citizen, but have been living outside the States for
some time now. I have been filing federal & state 1040NR
forms during this time, while paying taxes to my local
government.

What are the most pressing tax issues to such a
circumstance? As far as I understand it, I should be able
to continue filing 1040NR forms and allocate the LLC
proceeds as foreign income - is this correct?

Thank you.

<< ================================================== ===== > << 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. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >