Accepted Answer

1. Should he paid as a W-2 from the foreign company or should the foreign company pay his Sub-S?

 

The Client should be on payroll with the foreign company. Since the payroll will be earned for services performed in a foreign country - the foreign earned income exclusion can be claimed provided other requirements are met.

 

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

• A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months

 

The Foreign company should not pay the Sub S as Sub S are not eligible for such exclusion.

 

2. Of course he wants the best tax advantage, and I explained the $87600 exclusion if he is paid on a W-2 as an employee of that foreign company.

Yes, that is correct. He can claim this exclusion on his US tax return as discussed above.

 

 

3. I am trying to research if the exclusion can be applied or deducted if the income is reported and paid to his corp. Or what is the best way for him to be paid.....W-2 from that foreign company or pay his Sub-S corp.

 

The best way to go is payroll from the foreign company. Since the laws of the foreign company may not recognize or follow the procedure to report the payroll on W-2 - they may report it on the forms as per their laws.

 

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

Expert:	RD
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Answered:	11/4/2009

Certified Public Accountant (CPA)

CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..