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i am US citisen having a SCorporation,i want creat busness overseas, what is the best way? have a branche to company or report the foreing income from overseas to my personal income in usa. what is the IRS forms that i should use in two cases to report my income
I have some research to do to appropriatly answer your question. I will revert as soon as I can, should be within 24 hours.
Hello, sorry for the delay and thanks for your patience.
There are numerous factors to consider here, of which I can only give you advice on the tax matters. You should consult an attorney regarding the legal matters (such as liability, who can sue you, etc.)
There are potentially three methods for you to do business in Egypt, each with their own respective advantages and disadvantages:
1. Business conducted through an Egyptian Corporation ("Egypt Co") owned by the U.S. S-Corporation: Income is not reported on the S-Corporations books. When the Egyptian corporation pays a dividend to US S-Corp this is when you recognize income. Dividends will be eligible for qualified dividend treatment if the S-Corp holds Egypt Co stock for greater than 60 days. (i.e. 15% tax rate). Egyptian taxes paid by Egypt Co remain in company and do not pass to S-Corp shareholders. Upon disposition of Egypt Co stock you may have a long term capital gain/loss which will be taxed at 15% rates.
2. Business conducted through an Egyptian disregarded entity owned by the U.S. S-Corporation: Income is reported on the S-Corporations books. (i.e. no dividends to S-Corporation). Egyptian taxes paid by Egypt Co will pass to S-Corp shareholders and shareholders will then be able to use these taxes to offset U.S. tax on Egypt Co income, via the foreign tax credit. There are no special forms to use other than Form 1116. The 1120S K1 will report the U.S. Shareholders share of income/expenses/taxes from the Egypt Co.
3. Business is conducted yourself in Egypt via sole proprietorship: If you intend to live in Egypt and can establish bona fide residence or physical presence you may be able to exclude up to 90K of income (180K if Married filing join) from said Egypt Co. Foreign taxes paid by Egypt Co will not be available for foreign tax credit on the income excluded. Income and deductions are reported on Schedule C of your Form 1040. This would be considered a sole proprietorship and thus no gain or loss on disposition of company.
I believe the best strategy would be #2. File Form 8832 to elect disregarded entity status on the Egypt Co. The S-Corp will also have an annuall requirement to file Form 8858 and may also have a Form TDF 90-22.1 (Report of Foreign bank accounts) filing requirement.
It may be wise to engage a CPA to really work out the details and make a plan for this business venture. It could save you thousands of dollars.
Hopefully this answers your questions.