QUESTION: Are there any offshore tax breaks for someone who is drawing
Social Security and is still working? Because I'm working, 85% of my
Social Security benefits are taxable in addition to the income from my
work. And since I'm self employed, I have to pay Social Security and
Medicare taxes on my earnngs, in addition to state income taxes. When
I add up all the taxes, I'm paying more than 50% in taxes on any
additional income that I might make.

REPLY: There are some significant benefits available if you are
willing and able to live and work outside the U.S. for more than a
year. By setting up a foreign corporation to operate your business,
the corporation can pay you a salary that could be eligible for the
foreign earned income exclusion of up to $87,600 in 2008. If you are
married and your spouse is an employee of the corporation, you could
receive a combined total of $175,200 of tax free income if you live
and work in a country that does not have an income tax.

In addition, the salary you receive from your own corporation is not
subject to Social Security taxes. And if you meet the eligibility
requirement for the foreign earned income exclusion, you may also be
able to avoid any state income taxes on your foreign earnings. And if
the foreign corporation has earnings in excess of the eligible foreign
earned income exclusion, those corporate earnings could be tax
deferred so long as they are derived from an active trade or business
outside the U.S. Finally, most of the things you can do in the U.S. to
legally avoid or defer taxes will do the same even if you don't live
in the U.S.

That's a thumbnail summary of a variety of highly complex tax rules
that are subject to a multitude of exceptions and limitations that
have not been discussed in this brief email.

The comments in this memorandum are not intended to constitute an
opinion regarding any specific tax issues because additional tax
issues may exist that could affect the tax treatment of the tax issues
addressed in this memo. This memorandum does not consider or reach a
conclusion with respect to those additional issues and was not written
and cannot be used for the purpose of avoiding penalties under code
section 6662(d). For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm

Vern

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