Hi and welcome to Just Answer!
If your business is profitable - using S-corporation as a business structure might provide you some saving.
A single member LLC is disregarded entity - for federal tax purposes all income and expenses are reported on the owner's individual tax return - schedule C - as for solo proprietorship.
The LLC wit several members is generally treated as a partnership - while a partnership is filing a tax returns - all taxable income is passed through to members and also taxes on individual tax returns.
In both situations - the income is a subject of self-employment taxes.
In case of S-corporation - shareholders are employees and receive wages - the IRS required that reasonable wages are paid.
The remaining income is distributed as dividends - without self-employment of FICA taxes - that is a main advantage of having S-corporation.
However - you might expect additional overhead for filing S-corporation tax return and employment tax returns - so your business income should be more than additional overhead to enjoy the tax saving.
In most situation - if you net income is $40,000 or more - S-corporation is preferable.
For tax purposes, people living in Japan are classified into following categories:
-- Non-Resident - is a person who has lived in Japan for less than one year and does not have his primary base of living in Japan. Non-residents pay taxes only on income from sources in Japan, but not on income from abroad.-- Non-Permanent Resident - is a person who has lived in Japan for less than five years, but has no intention of living in Japan permanently. Non-permanent residents pay taxes on all income except on income from abroad that does not get sent to Japan. -- Permanent Resident - is a person who has either lived in Japan for at least five years or has the intention of staying in Japan permanently. Permanent residents pay taxes on all income from Japan and abroad.
Note that there is a tax treaty between Japan and the USA which take precedence over the tax law. Here is the tax treaty document - www.irs.gov/pub/irs-trty/japan.pdf
You might qualify for the foreign earned income exclusion - because you worked and resided outside the United States for at least 330 days during the year - thus you may exclude up to $91,500 (2010 in foreign wages -- plus housing allowances
To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.
Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable - income from wages and self-employment. For instance - dividends, investment income, rental income, pensions, etc - are not excludable.
Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit.
In additional - if the same income is taxable in Japan and in US - you may claim a credit for taxes paid - so the same income would not be taxed twice. Use the form 1116.
Let me know if you need any help.
The income exclusion you mentioned up to $91,500, does that mean up to $91,500 tax fees can be excluded?
Foreign earned income exclusion is fro US federal taxes. If is simply exclude part of the income. The tax liability is calculated based on the remaining taxable income.
That is not the same as a tax credit which is deducted from the tax liability.
if for example I made $100,000 a year, I'm of course assuming taxes wouldn't go over $91,500, so in other words I'd end up paying no income tax under that exclusion?
The amount of foreign income exclusion is 2012: $95,100 ; 2011: $92,900 If you have an earned income $100,000 in 2011 and qualify for the full exclusion - your taxable income is $100,000 - $92,900 = $7,100 - your tax liability will be determined based on that amount.
Also is this an exclusion that the Japanese government provides on money earned in Japan according to their deal with the US?
That is a foreign earned income exclusion under the US tax law. It is not related to the US-Japan tax treaty.
So if I'm a US citizen but am in Japan for example then I might quality for that exclusion?
For the person to qualify for the foreign earned income exclusion - he/she should: -- Work and reside outside the United States for at least 330 days during the year(Physical Presence test), or -- Meet the Bona Fide test.
For general information are you aware how much taxes are in Japan or any process I'd need to go through to register my foreign company here, or do I just need to show-up and pay the taxes when they're due? The following table shows Japan individual income tax rates for 2011:
The deadline for filing a tax return in Japan for self-employed persona is March 15 of following year.
Here you will find official documents (some are available in English) - http://www.nta.go.jp/
For Japan, you've given me the individual income tax rate and not rate for corporations.
Please see for reference - http://www.worldwide-tax.com/japan/japan_tax.asp
If I register a S-Corp by myself no employees etc in Delaware, am I considered a self employed individual and be charged that way?
You will not be self-employed - but will be an employee of S-corporation. S-corporation pays you wages as if you work at a regular work.
To make my question simpler, I need to know if Japan sees an S-Corp with only me (1 person) as a self employed individual, or as a corporation (which one I would be taxed as).
S-corporation will be treated in Japan as a corporation - a separate legal and taxing entity - not as a self-employed individual.
A single member LLC is disregarded entity - it is not a separate entity for tax purposes - all income and expenses are passed to the owner and are reported on owner's individual tax return.
The owner is treated as self-employed (or solo proprietorship).Enterprise Tax (so-called prefectural tax) are due by self-employed individuals in Japan based on net business income.
Enterprise Tax includes two parts income tax and self-employment tax - so - you will pay both.See for reference
As a self-employed person - you must file a tax return at the local tax office (zeimusho) for 2011 between February 16 and March 15, 2012.
Appreciate for accepting the answer.
Prefectural Enterprise Tax is an equivalent of FICA or self-employment taxes in the US - the purposes of that tax to fund social security system.The income tax - are in additional to that - and will go to the general revenue fund.When you file your tax return - both taxes are calculated - but in different basis.
Prefectural Enterprise Tax is based on net business income;
and income taxes are based on taxable income = net business income - plus other taxable income - minus a basic exemption and all other allowable deductions.