# 100% Owner of US S-Corp



## timdfw (Jun 11, 2019)

US-citizen, looking to travel extensively outside of the US. I am a 100% owner of a US-based S-Corp. I am the sole W2 employee, receiving wages into my US checking acccount.

My specific question relating to the physical presence test of the FEIE is that my company's income is derived from consulting work from companies who are based in the US / Canada. If I personally am outside of the US, though am working with US / Canadian companies, is this income "foreign earned"? 

From several sources, the analogy is like this: "If I live outside of the US, but fly into New York for a workshop where I make $10,000, that income is "earned" in the US. However, if I do consulting / workshops via Skype / Webex / email correspondence from OUTSIDE of the US (yet with companies IN the US), then that is considered "foreign earned".

I will have no problems passing the physical presence test, but the IRS definition of "foreign earned" income is a bit vague.

Any help, pointers, shoves in the right direction are much appreciated.

Thanks!
Tim


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## Bevdeforges (Nov 16, 2007)

Basically, the concept is pretty easy. You are deemed to be working in whatever country you are physically located in while doing the work. So, if you spend 100% of your time outside the US working on clients of your S-Corp, the salary portion of your S-Corp income should be eligible for the FEIE.

Just be aware that the IRS does have the right to re-classify part of your distribution from the S-Corp if they find that what you're claiming as your "salary" is excessive.

The other trick is that you'd be subject to FICA contributions on your salary unless you could produce a certificate showing you were registered with and paying into the "social security" system in whatever country you were claiming residence in. (And whether your country of residence would recognize a US S-Corp as a valid business entity is a whole different question that could interfere with whatever visas you had to live in the country.)


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## timdfw (Jun 11, 2019)

Thanks for the feedback! I honestly don't mind the SS/Medicare contributions, though it would be nice to avoid them! I'm not planning on establishing residency anywhere, rather traveling to many countries. Not sure if that makes a difference in your reply / advice.


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## Bevdeforges (Nov 16, 2007)

You only need to establish residence somewhere if you're going for the "bona fide resident" option. Physical presence only requires that you are outside the country for the necessary 330 days of any period of 12 consecutive months. If you are in a series of different countries it doesn't really matter.


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## Moulard (Feb 3, 2017)

Typically under totalisation agreements, a US citizen working for a US company for a "short" period of time can pay into the US social security system and vice versa. Short is typically less than 5 years.. But you would have to look at the specific totalisation agreement as they are all slightly different.

Also remember that the physical presence test is only one of the tests that you must pass. 
It is not merely a case of being "personally outside the United States"

You must also pass the tax home test. From Pub 54...

Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. ...

... You aren’t considered to have a tax home in a foreign country for any period in which your abode is in the United States.

The location of your abode is based on where you maintain your family, economic, and personal ties. Your abode is not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. You abode is also not necessarily in the United States while you are temporarily in the United States, However, these factors can contribute to your having an abode in the United States.


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## underation (Oct 25, 2018)

Couldn’t you just move from country to country while working for American and Canadian companies, paying US or host-country taxes as required?


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## Bevdeforges (Nov 16, 2007)

underation said:


> Couldn’t you just move from country to country while working for American and Canadian companies, paying US or host-country taxes as required?


It would very much be dependent on the visa requirements for the countries you were just "passing through." But, without establishing residence outside the US, you could be challenged on taking the FEIE. (You could also be challenged on your ability to work in the country while you are there.)


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## underation (Oct 25, 2018)

Bevdeforges said:


> It would very much be dependent on the visa requirements for the countries you were just "passing through." But, without establishing residence outside the US, you could be challenged on taking the FEIE. (You could also be challenged on your ability to work in the country while you are there.)


Yes, I see what you mean.

Presumably if you could get a visa that allowed you to work, you could pay taxes in the residence country and claim FTCs from the US. But you couldn’t then move on to a new country without starting all over again with a different set of visa requirements. And would you end up being suspected by the IRS of treaty-shopping. Would you in fact _be_ treaty-shopping.


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## Nononymous (Jul 12, 2011)

It sort of depends on the length of stay in each country. If you are planning to stay longer than what a tourist visa normally allows, then you'll need to come clean about working, ask permission, possibly set up in the tax system, and so on. Presumably that's a bureaucratic and linguistic nightmare, which is why digital nomads are a thing.

Apparently the digital nomad approach really is possible. You stay somewhere as a tourist and shift when your time is up (or do border runs to renew the tourist visa, if that is allowed). You work remotely, unbeknownst to anyone. And you stay out of the US and claim the FEIE and pay no US taxes. 

It may not be sustainable for one's entire life, but people do manage to pull it off for a few years.

PS on edit: Not sure how the social security contribution thing works, so can't really comment. But be aware that you will need some sort of portable but reliable travel health insurance for your years of wandering. Probably that's cheaper than US health insurance so another gain. And the FEIE limit is now up to about $108k, so that's what you can pay yourself free of US income tax.


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## Nononymous (Jul 12, 2011)

From https://www.greenbacktaxservices.co...s-for-the-adventurous-american-digital-nomad/

_1) You are living outside the USA, traveling and living in various countries as your mood strikes you. You earn a living telecommuting with a finance job that pays you through a US bank account. You return to the USA during the holidays and once for a friend’s wedding. The total number of days you spent in the USA is 26 during the calendar year and you did not earn any income while in the USA. The total amount of your income is $99,500._

You will qualify for the foreign earned income exclusion using the physical presence test. Since you did not live in any one foreign country to establish yourself as a bona fide resident, you will not qualify using that test. You lived outside the USA for more than 330 days, which qualifies you for the physical presence test. Your entire salary will be excluded from taxation using the foreign earned income exclusion. You will still need to file a tax return to report your income and notify the IRS of your qualifications to take the FEIE.


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## underation (Oct 25, 2018)

Nononymous said:


> You work remotely, unbeknownst to anyone. And you stay out of the US and claim the FEIE and pay no US taxes.


Pay no taxes to the country of residence - that’s the aim, isn’t it?

It’s the residence country that has taxing rights over the would-be tax evader’s worldwide income, unless s/he claims FTCs or treaty exemption.


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## Nononymous (Jul 12, 2011)

underation said:


> Pay no taxes to the country of residence - that’s the aim, isn’t it?


Yes, that's how it works. The idea is to travel as a tourist and not stay put long enough for anyone to notice or consider you a (_de facto_ or _de jure_) tax resident. 

If you keep moving it's fairly safe, from what I've read. Dangers arise if you park yourself somewhere indefinitely and regularly do border runs to renew the tourist visa. (This seems to be a thing in SE Asia or the Caribbean.)


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## underation (Oct 25, 2018)

Nononymous said:


> Yes, that's how it works. The idea is to travel as a tourist and not stay put long enough for anyone to notice or consider you a (_de facto_ or _de jure_) tax resident.
> 
> If you keep moving it's fairly safe, from what I've read. Dangers arise if you park yourself somewhere indefinitely and regularly do border runs to renew the tourist visa. (This seems to be a thing in SE Asia or the Caribbean.)



Or make the mistake of actually trying to get a life.


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## Bevdeforges (Nov 16, 2007)

underation said:


> Pay no taxes to the country of residence - that’s the aim, isn’t it?
> 
> It’s the residence country that has taxing rights over the would-be tax evader’s worldwide income, unless s/he claims FTCs or treaty exemption.


Unless you hang out in one of those countries that has no income tax! Check out places like the Emirates.


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## underation (Oct 25, 2018)

Indeed.


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## underation (Oct 25, 2018)

> ..hang out in one of those countries that has no income tax!


Seems to achieve the OP’s aim, with no need for any subterfuge.

If a US citizen works remotely for US companies from a country that doesn’t tax income, and files US tax returns in order to claim the US FEIE and thus be able to stop the withholding and pay no tax, that’s not tax evasion, because no tax is due either to the residence country or to the source country.

So it’s not necessary for the OP to flee from country to country, working secretly, constantly at risk of arrest and deportation, in order to pay no income tax. As long as s/he works only in countries which don’t tax income, there won’t be any need to hide.


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## Bevdeforges (Nov 16, 2007)

underation said:


> Seems to achieve the OP’s aim, with no need for any subterfuge.
> 
> If a US citizen works remotely for US companies from a country that doesn’t tax income, and files US tax returns in order to claim the US FEIE and thus be able to stop the withholding and pay no tax, that’s not tax evasion, because no tax is due either to the residence country or to the source country.
> 
> So it’s not necessary for the OP to flee from country to country, working secretly, constantly at risk of arrest and deportation, in order to pay no income tax. As long as s/he works only in countries which don’t tax income, there won’t be any need to hide.


Yes, but.... getting a long-stay visa to a country with no income tax can be a "challenge."


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## underation (Oct 25, 2018)

Bevdeforges said:


> Yes, but.... getting a long-stay visa to a country with no income tax can be a "challenge."


Yes, no doubt. But if the UK is anything to go by, it can also be a challenge getting a settlement visa or working illegally on a tourist visa in a country which does tax income.

Real nomads never had these problems; that’s probably why there seem to be very few real nomads left nowadays.


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