Bob is a student of mine—he took the Tax-Savvy Expat Entrepreneur course. Let’s talk about Bob’s tax situation before and after taking the course.
First, the facts
Bob lives full-time outside the US. He visits the US about once a year, always staying for less than a month each year.
Bob has a couple of different businesses:
- a products business (selling items on Amazon FBA) and
- a web publishing business (selling ads and doing affiliate marketing on a niche website).
Bob has a couple of independent contractors who help him with his businesses, and both of them live outside the US.
When he started business, he knew he should operate through a legal entity. After looking around, a Wyoming LLC seemed like the obvious choice. So, he formed a single-member LLC in Wyoming, and he didn’t elect S corp status.
Bob nets about $150,000 per year currently from both businesses. However, he has some serious growth opportunities on the horizon that could easily cause that number to skyrocket.
Before becoming a Tax-Savvy Expat
Let’s talk about Bob’s US tax situation before he took the course.
Because Bob operates these two businesses through a single-member LLC, Bob is self-employed for US tax purposes. So, right off the top, Bob must pay self-employment tax every year, which costs Bob about $15,000.
Then, Bob must personally deal with the US federal income tax on his $150,000 of income. He can take advantage of the foreign earned income exclusion, but that expat tax benefit doesn’t work well for self-employed people like Bob for two reasons:
- Under the “scaleback rule,” the amount of the foreign earned income exclusion is reduced to take into account the business deductions Bob can also use against his gross income, and
- Under the “30% rule,” Bob can only treat 30% of his income from the products business as “foreign earned income.”
Then, Bob doesn’t have high enough housing expense to take advantage of the foreign housing deduction, and he doesn’t pay any non-US tax (so the foreign tax credit doesn’t help either).
So, Bob must pay around $10,000 in US federal income tax each year. Combine that with the self-employment tax, and about $25,000 of Bob’s money gets sent over to the IRS every single year.
After becoming a Tax-Savvy Expat
Bob found me through listening to the Tax-Savvy Expat Podcast. He then decided to take Tax-Savvy Expat Entrepreneur, my online course.
Through several easy-to-follow video lessons, the course showed Bob that:
- Operating through a “naked LLC” is a terrible structure for his situation;
- Instead, he should have a non-US corporation above his LLC;
- That way, he’s an employee of the non-US corporation (meaning bye bye self-employment tax), and he can keep the amount he makes above his salary in the corporation and pay tax only later when he takes it out.
So, operating under the structure Bob learned to setup in the course, Bob’s US tax bill drops down to $0 a year. And Bob isn’t doing anything illegal, shady, or the slightest bit risky or on-the-fringes at all—he’s simply taking advantage of age-old tax rules that have a simple application to his situation.
Spinning straw into gold
Setting up the non-US corporation structure cost Bob about $2,000—that includes the cost of the course and the cost of the fees to create the legal entities necessary for his structure. Then, he’ll pay about that same amount each year to maintain the structure.
So, that investment of around $2,000 allows Bob to legally keep at least $25,000 in his own pocket, year after year after year. That extra boost to Bob’s business has allowed him to:
- expand his inventory and offer more items in his products business and
- pay more for advertising and content in his affiliate marketing business.
It’s also just put him on a better footing to grow in the future, knowing that his tax savings will grow right along with his income.
You can do the same thing
Have any ideas for what an extra $25,000 every year would do for your business?
You can use the same structure Bob used as long as you meet the following three requirements:
- You live full-time outside the US (i.e., you qualify for the foreign earned income exclusion);
- You have a business where you sell something other than your own time, such as other peoples’ time, a product, access to software, etc.; and
- You don’t have employees or independent contracts running your business in the US.
If you meet those three requirements, you can also significantly reduce your US tax bill, perhaps even to $0 a year, simply by using the proper legal structure for your situation.
The First Step
The first step is to understand the exact structure you need to set up and exactly how to do it. The Tax-Savvy Expat Entrepreneur course shows you everything you need to know.
Then, beyond just showing you how this all works, the course actually helps you do it. It contains:
- Links to the resources you need to set everything up and
- The legal documents you’ll need along the way.
Finally, the course comes with a one-hour consultation with yours truly. On our call, we’ll cover any unique aspects of your situation and make sure you have everything you need to get up and running.
It’s really that easy. In just a week from now, you could have a structure all set up that saves you money, year after year, all completely legally.
You just need to take the first step and take the course.
Download this FREE REPORT to discover common (and costly) expat tax myths.
Want to know more? The Tax-Savvy Expat courses teach you everything you need to know about expat tax.