[croggle]

Elaboration time... I did this in the UK, similar likely applies in the states.

I used to be an 'independent contractor'. I work for companies doing ecommerce / Java / Consulting work. I work a fixed term contract and leave when the project is complete.

I set up a limited liability company with me as the director and the only employee. When I get a contract (work), the client hires my company rather than hiring me directly. Depending on your specific tax laws, you pay a lot less tax using this kind of setup i.e. you pay yourself a low salary and the rest in (low tax) dividends.

This is the standard way most IT contractors operate.

[gk1]

I'm not even remotely close to being a lawyer, but I thought in the US a single-member LLC is taxed the same as a sole proprietor.

[wslh]

There is another trick not mentioned here. If you live outside US and have an LLC with only one person you don't pay taxes in US. This works assuming your work is done outside US.

So, say you live in a very relaxed tax environment, you can incorporate your LLC, sell software services to US companies and pay small taxes in your country.

[rdl]

Look up "Controlled Foreign Corporation". :(

[gamblor956]

It's not a CFC. He's described an NRA residing in a foreign country selling software to US customers from a location outside the US. This is foreign-source income that is generally not taxed in the US unless you have citizenship or tax residency (i.e., a green card, or a company that is incorporated or physically does business in the U.S.).

In fact, what he's described works even better without the LLC, as the organizing an LLC in a state gives that state jurisdiction to tax sales to customers in that state! (State tax laws work differently than federal tax laws and are generally not affected by tax treaties.)

[rdl]

Ah, the NRA part wasn't explicit or something I assumed.

[wslh]

No, look at this:

References to:

- http://www.law.cornell.edu/uscode/text/26/861

- http://www.law.cornell.edu/cfr/text/26/1.1441-1

- http://www.irs.gov/pub/irs-pdf/i1042s.pdf

NAME_OF_COMPANY LLC is a single member LLC, and as such disregarded for federal tax purposes as a separate entity from its owner, FULLNAME, a resident of COUNTRY and a nonresident alien for US tax purposes. According to Section 1.1441-1 of Treasury Regulations (page 3 of the attachment) , payments made to a whole owned domestic entity that is disregarded for federal tax purposes and whose single owner is a foreign person, shall be treated as payments made to the owner of the entity. This means that payments made to NAME_OF_COMPANY LLC for federal tax purposes are considered to have been made to FULLNAME. The Regs go on to explain that the single owner of the US disregarded entity must furnish a From W-8 with his name and address to the US payor . An ITIN is required only to claim a reduced rate of withholding under treaty, but since in this case the payments were made for income from sources WITHOUT the United States, no withholding is required to begin with, so there is no need to claim any treaty benefits at all and provide an ITIN as a result.

If you want I can contact you with an specific accountant and you can discuss the details with her.

[rdl]

Are you talking about a non citizen doing this, or a citizen/permanent resident?

A noncitizen actually can use the USA as a tax haven in ways similar to this (I'm not sure of the specifics of this particular situation). IMO there isn't a whole lot special about non US people not owning US taxes when outside the US.

A US citizen or permanent resident is taxed on global income (you do get around your first 95k/yr deducted if you are out of the country enough, which is why I went diving for 4 months at the end of a contract and net made more money than returning to the US that year). A corporate entity being treated as disregarded just exposes that income the us person's global us tax liability.

(Again, I am absolutely not a lawyer; this is not tax advice)

[wslh]

I am talking about a non US citizen.

N.B. I don't know why somebody downvoted me for clarifying the previous point.

[JamesSwift]

By default, yes, but you have the option to elect as a corporation.

[neltnerb]

Noting that if you're expecting to lose money on the business initially, I believe you can't write that off on your personal taxes if you're not taxed as a partnership. I think it is common to have an LLC taxed as a partnership initially and switch to being taxed as a corporation (which you can do I think within the first few months of each year) after it becomes profitable.

(IANA Lawyer or Accountant)