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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22696
Experience:  Taxes, Immigration, Labor Relations
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Hi,I am an usa citizenCompany I work for in usa established

Customer Question

Hi, I am an usa citizen Company I work for in usa established an joint venture with an Chinese company in china. I was offered an position to stay in china for 5 years and work in china. What would be the best outcome for the type of employment I should request? 1) Stay as an employee of the usa company and pay taxes thru the usa company and keep all the benefits ( soc. Security, medicare) and use foreign tax credit to deduct 95000$ from the taxes paid to IRS. position offered to me is 130,000 US $ 2) With the above condition of employment and staying in china more than 330 days per year do I qualify for the foreign tax credit of 95000$ 3) What happens to taxes in China which is required by Chinese government? Who pays them, who pays the income tax in china as I will be shown as the employee of the joint venture located in china. 4) Is there any further details that I should be carefull of?


5) what happens if they tell me i can only be employed by thejoint venture in china?


Thank you XXXXX:(NNN) NNN-NNNN/p>

Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

Hi and welcome to Just Answer!

Several issues...

1.

If you are US person - you are require do report all your worldwide income - regardless if it was earned in the US or abroad..

Regardless if you are paid in the US or in China - as long as your compensation is earned for work you perform abroad - that is foreign earned income and that income may qualify for the foreign earned income exclusion .

If you qualify - there are additional foreign housing exclusion.

2.

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 either the Bona Fide test.
If the person qualifies, he/she may exclude up to $92,900 (2011) in foreign wages. The amount of foreign earned income exclusion for 2012 is $95,100.

3.

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.

4.

That is two steps process to determine exclusion - please consider following as illustration. Assume that you move the foreign country in Jule 2012.

Step 1 - determine your eligibility.

Specifically for 2012 - you will use 12 months qualification period from Jule 2012 to Jule 2013. If you work and reside outside the United States for at least 330 days during that period - you qualify for exclusion,

Step 2 - determine the maximum amount of exclusion.

You will determine the amount of maximum exclusion as $95,100 * 180 (days spent in the foreign country during 2011) / 365 = $46898 - that is the maximum amount you may exclude.

5.

If you claim a foreign earned income exclusion - and that amount is taxed in a foreign country - you may not deduct or claim a credit for the foreign taxes. That is because your income is already excluded from US taxation.

However - if the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 - http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

6.

Following are your options:
- claim a foreign earned include exclusion - up to the maximum amount and claim a foreign tax credit on the amount above.

- do not claim a foreign earned include exclusion -but only claim a foreign tax credit on the full amount.

You will need to prepare your tax return both ways and compare which is more beneficial.

 

Let me know if you need any help.

Be sure to ask if you need any clarification.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22696
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

thank you for the clear reply


 


what happenes if i am emplyed by the jointventure in china only.


 


than i loose all my social securith and medicare bnefits for the time i spent in china right?


also pay taxes to chinese government


also i wouldnt pay taxes to us government cause chinese tax is higher than usa tax

Expert:  Lev replied 2 years ago.

what happens if i am employed by the joint venture in china only.

To receive social security and Medicare benefits in the US - you need to have 40 credits - generally - that is an equivalent of 10 years of employment.

If you will work in a foreign country and do not pay social security and Medicare taxes on your earnings - that earning will not be counted toward your social security and Medicare benefits.

 

also i wouldn't pay taxes to us government cause Chinese tax is higher than usa tax.

If you will pay income taxes in China that are higher that income taxes in the US on the same income - you may claim a credit for foreign taxes - means - if tax liability abroad is higher - there will not be US taxes on that income. That will eliminate double taxation of the same income.

 

Let me know if you need any help.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22696
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Hi, my employment offer is given to me today in my office in USA

Company offers to pay the 130,000 us$ in USA and keep my position and it's benefits as they are right now in USA.

Additional amount of 30,000 to be paid separately as living cost expenses.

In this scenario I am planning to ask them all taxes to be handled in USA for this position for me.

And any and all taxes and government charges in china for this position is to be paid by the joint venture in china 100% and I would not have any obligations to Chinese government.

What is your advice regarding this approach. Thank you

Erhan Duvarci
XXXXX@XXXXXX.XXX
Cell: XXXXXXXXXX

Expert:  Lev replied 1 year ago.
All your compensation - including $130,000 in wages and $30,000 in reimbursements for additional living expenses - will be treated as wages - and reported as such.
You will be able to claim a foreign earned income exclusion - $95,100 in 2012 prorated by the number of days you will be in a foreign country.
In additional you may claim a foreign housing exclusion - also on the form 2555 - whatever your actual living expenses that you will pay.
Thus most likely - the total income may be excluded.
The alternative would be - not to claim a foreign earned income exclusion - but instead - to claim a foreign tax credit.
All taxes paid on your behalf in China - will be treated as your income.
Most likely - there will not be much difference - but you will be able to file both ways and compare.

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