US Expatriate Entrepreneurs - States with No Income Tax

US Expatriates are not required by law to maintain a state of residency or pay state income taxes. However many expatriate entrepreneurs need to locate a corporation or other business entity for their  business, but do not want to have to pay state income taxes.  The following states have no income taxes and may be suitable to keep a US presence (and form a corporation or LLC located there for your business) but not subject yourself to state income taxes:

1. Nevada
2. Washington
3. Texas (does have a franchise tax on corporations)
4. Alaska
5. Florida
6. South Dakota
7. Wyoming 

We can assist you in forming a Corporation or LLC in these states, advise you on the best US tax elections to make (Subchapter S corporation election, etc) and the best way to utilize these entities with your offshore business operations.  We have helped hundreds of US Citizens doing business abroad in the same manner with great success.

If you went abroad, or are going abroad, and you live in California, Virginia, New Mexico and several other states that make it very difficult to give up your tax domicile (they want to keep taxing you after you have left the state to live outside the US) you may want to consider switching your legal residency (either before or after you have left) to one of these states and transfer all other indices of residency to one of these income tax free states.  It can avoid big potential problems later with the State you lived in (if it has tough rules on abandoning your tax domicile).

If you have questions email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com .

US Flow Through Tax Election for Your Foreign Corporation or LLC

You can make an election if you have a foreign corporation or LLC which may (depending on your individual  business circumstances) to treat that entity as a flow through entity for your US tax return. This means all profits and losses from the foreign entity flow through to you tax return. It also means you can offset any foreign taxes paid by the foreign entity against your US tax on that flow through income taking it as a foreign tax credit which will normally offset your US tax on that flow through income dollar for dollar. If the foreign tax rate is higher than your US tax rate, that will mean you will owe no US tax on that foreign entity's income on your US return.

Only certain foreign corporations or business organizations are eligible for the US flow through election. A list of the entities which are not eligible for this election are listed by country and included in the instructions for IRS Form 8832.  It is best to review this list and see what types of foreign entities will be eligible to make the flow through election if it would be beneficial to your US taxes prior to forming a foreign corporation or LLC.

You may have to talk with an International Tax Expert to determine if a flow through election will benefit your business plan.  It does avoid possibilities of double taxation (if you plan to distribute most of the income to yourself) and Controlled Foreign Corporation Subpart F rules as well as other potential US tax problems.  Most foreign attorneys and accountants who help you form your foreign business entity do not know these US tax rules.  It is often difficult after the fact to change the type of entity (depending on the foreign country in which it is formed) if you later discover that you do wish to have the income flow through to your US return.  We have helped well over a hundred expatriate business owners determining which type of foreign entity will be best for them under US tax law.