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Old 28-07-2009, 20:12   #1
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Work 6 Months, Sail 6 Months - S-Corp

My wife and I want to work 6 months and sail 6 months. I am incorporated as an S-Corp and work as an IT consultant specializing in Data and Voice communications (Cisco). My wife is a SAS programmer who works in the Pharmaceutical industry. Can anyone shed some light on the possibilities of making this happen. I know we can both work via telecommuting (Especially my wife). My main question is... Being an S- Corp allows me to work easily in the US since any Corporation simply pays me without the need for taking out taxes etc. Would this same scenario apply for other countries, could I work in other places while sailing more easily as an S-Corp?

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Old 28-07-2009, 20:33   #2
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Can anyone shed some light on the possibilities of making this happen.
Sure just do it. I'm a C Corp and can deduct more than you can. Anyone can be an S Corp. It costs you nothing at all. Being an S Corp won't give you a work Visa in any country that matters. Being an S Corp means all income passes to you directly and so the corporation owes no taxes. You however, owe US taxes anyplace in the world you make any money because you are and will always be a US citizen. They may not catch you would be the only possible up side. In which case not being incorporated may be an advantage since you don't have to pretend any more. It's just harder to get paid in cash. If they catch you they take your boat because they know you will come up with the back taxes and penalties else live on the streets.

That really isn't that bad. The only serious issue is you need to make make money to owe taxes. Not working would save the most taxes. Paying taxes is easier than finding work in places that don't have money.

If you need to make money then stash the boat and come back. Making money in the middle of no where with one hand tied behind your back is not easy. People do it. In IT everything you know is worthless in 7 years. The runway ends at some point and then who knows you?
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Old 28-07-2009, 21:32   #3
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Being incorporated, whether LLC, S-Corp, C-Corp, or entity based in a non-U.S. jurisdiction will likely be better than an individual, sole-proprietorship, et cetera in most cases. Government officials and individuals alike have treated me much more favorably when I've approached them as a business rather than an individual. Government officials tended to look at me as a potential investor, and individuals looked at me as more serious when going the business route. Ultimately, as Paul said, this isn't the same as a fast-track to a work Visa.

Your mileage will no doubt vary by country and by person within each country. In general, professionals with a skill that's not easily found locally may find that employment regulations aren't followed to the letter.

Once you decide on an itinerary, you'll probably be able to get better info on a country by country basis.
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Old 29-07-2009, 04:20   #4
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Your business status in the USA has almost nothing to do with your personal ability to work in any other country or in the ability of your business to do business in another country.

You pesonally will need to have appropriate visas as required for each country.

The rules for doing business in each country are as varied as the visa rules.

Just because you are a registered business in the USA does not nmean you can conduct that business in Singapore for example.

However, if your entire client base is US and you simply are plugged into the net in Singapore to service those clients I don't see how anyone would know about it.

The game changes when you start soliciting Singapore clients.
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Old 29-07-2009, 09:42   #5
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Originally Posted by Jcody2121 View Post
Being an S- Corp allows me to work easily in the US since any Corporation simply pays me without the need for taking out taxes etc.
Thanks
Technically this is not correct. Your S-Corp can not "PAY" you as in a salary, with out paying the requires taxes such as SS and others. It CAN allow you / make Draw to you with out paying these taxes since a Draw is not a salary.

Depending on your age you do need to be careful about not paying into SS. If your over about 55 it would probably be a bad idea as it could significantly lower your benefits once you start to draw them. If under 55, SS benefits probably will not be around when you retire so it may not matter.

You question would be best answered by where your clients are. If you are a US S-Corp and your working with a US client located in the US and all your work is telecommunication rather than physical... you probably do not have any tax obligations at your physical address on the boat. However if your working with a local in a Non US area, you probably do have a tax liability from and to that local area. Having a US S-Corp would not have any significant effect and you may need a local license and even a Work Permit to do business in your non US location when working with locals.

While it would be difficult for local governments to have knowledge of you work, the grabber is if you start to advertise your work or get much of a client base, you stand a really good chance of some competitor or a dissatisfied client turning you in. I know of a guy doing Air Conditioning work on some boats that had a similar occurance as he was attempting to boost his cruising kitty and it cost him big time.
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Old 10-09-2009, 18:14   #6
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Quote:
Originally Posted by Jcody2121
Being an S- Corp allows me to work easily in the US since any Corporation simply pays me without the need for taking out taxes etc.
Thanks

Technically this is not correct. Your S-Corp can not "PAY" you as in a salary, with out paying the requires taxes such as SS and others. It CAN allow you / make Draw to you with out paying these taxes since a Draw is not a salary.

Reality Check is right, but the news is even worse than that. If you do any work for your S corporation, the tax laws require that your S corporation pay you a reasonable salary - essentially you are required to pay yourself a salary in the same amount that you would pay someone else to do whatever you do for the corporation.

In other words, if you do any work for your corporation, you have to treat yourself like an employee of your corporation which includes paying yourself a reasonable salary and paying employment taxes such as social security, medicare, unemployment and so on. Anything left over after the corporation pays its expenses (including your salary) flows though to you as the shareholder and is not subject to employment tax since you receive the income as a shareholder rather than as an employee.

The goal of course is minimize employment taxes by paying yourself the lowest possible salary so that most of the income flows through to you as a shareholder rather than as salary. It is very difficult to say what a reasonable salary is. There is lots of litigation over this issue (these are called "reasonable compensation" cases by tax lawyers).

A lot of people incorporate their business to avoid paying self employment taxes (a 15% tax levied on income from self employment that takes the place of social security tax). They incorporate their business (usually as an S corp) and do not pay themselves and salary at all. Instead, all of the income flows through to them as shareholders and they incur no employment taxes (and avoid paying the self employment taxes that they would be liable for if they were not incorporated). The IRS takes a dim view of this practice. If you were audited and the IRS picked up on this issue, you might end up owing back taxes, penalties, and interest (ouch!).
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Old 10-09-2009, 18:40   #7
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They incorporate their business (usually as an S corp) and do not pay themselves and salary at all. Instead, all of the income flows through to them as shareholders and they incur no employment taxes (and avoid paying the self employment taxes that they would be liable for if they were not incorporated).
Not true I was an S corp for a good while. You owe it. All income flows to you personally. The "draw" is a red flag - always. I'm now a C corp and can deduct all medical costs that I could not as an S corp as well as added retirement benefits. The down side is the paperwork costs a lot more than an S corp. With the C corp the down side is if you liquidate, then all the assets are taxed twice. Once when sold and second when you get the money. It's like using the home office deduction. In the end you get screwed.

No way to get out of self employment taxes - period. It's the added paperwork vs the added deductions. It worked for us for a few years especially when we had some big medical bills to pay. The C corp pays anything medical related 100% pre tax. If you can make a lot then you can do a nice retirement package too. You have unemployment taxes to pay as well as a C corp. That is a state thing so it may be high or lower.

Taking a draw in an S corp really has VERY limited ability to pass the IRS smell test.
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Old 10-09-2009, 18:55   #8
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Pblais-I agree with you: you cannot avoid paying self employment tax in some amount (not legally anyway). Maybe I did a poor job of explaining it.

What I said in the last paragraph of my previous post was an example of what people do to try to avoid paying self employment tax. What I should have said was "A lot of people incorporate their business to attempt to avoid paying self employment taxes." The problem is that it is not legal. Like I said at the end of my previous post, if anyone trying to do this gets caught, they could end up owing a large tax bill.
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Old 10-09-2009, 20:30   #9
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In my S-corp, I'm paid a salary which should be commensurate with my position. All other income in the company is considered profit which is taxed at your personal tax rate, say around 38%. Even if you don't take the money out, you pay the tax. That's the key difference between an S and C, C's pay a lower initial tax, then you have to pay an additional tax when you take a dividend. In my S-corp, when I finally take a distribution, it's already been taxed.

What you do save by lower direct pay is medicaid tax, or 3% - that's it.

Your biggest benefit of having a corp, no matter what kind, is what you can write off. You should be able to write off all your communication equipment and expenses. It's harder to deduct portions of your "home" as an office now, but if you have an "office" on the boat, you can get creative. I'd really look at every expense and ask yourself it it is needed to do business and if so, deduct it.
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Old 10-09-2009, 20:45   #10
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If your salary from the S Corp is less than $106,800 (for 2009) and your S Corp has a profit after paying you a salary, you also save on social security tax (or self employment tax).
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Old 10-09-2009, 23:31   #11
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Your looking at this all wrong...

My goal is to pay 100K in taxes every year.............so far I have failed miserably..
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Old 12-09-2009, 07:18   #12
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- - I was a S-corp for 25 years and almost all of what said above is true, especially Pblais - but there are some glaring errors. There is no un-employment tax unless you have employees. Self-employment tax is Social Security tax. Instead of your employer and you paying a share, you pay it all at a lower rate. All the earnings of an S-Corp pass directly through to the owner(s). Retained earnings have to be accounted for and if necessary, taxed. Get a free IRS Publication 17 (I think) for Small Business and also the specific Publications for S-Corp and all the other aspects. There is a lot of bookkeeping attached to a S-Corp that does not exist for a Sole Proprietorship operation. S-Corp is tricky and a lot of accounting is necessary. Less than a C-Corp but still everything has to be in the proper "slot" and accounted for to the Fed's.
- - As to the original questions which inferred working outside the USA. In other threads I have posted on this subject. If you work for compensation "on land" you need a local work permit. If you are totally "inside your boat, at anchor" and have no customers in the country, you do not need a local work permit. The local countries want you to visit and spend money to make jobs for their citizens. But they do not want you "taking" jobs from their citizens unless you have a valid work permit.
- - The most common way people cruise and make money is the 6 month cruising; 6 month back in your home country working. This meshes well with the yearly storm seasons, plus it is just hotter than Hades down here in the Caribbean in the summer. So many boats do the 6-on; 6-off that the boatyards are full up by early spring and empty during the winter months. Of course you will need a place to stay for the 6-months back on land.
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Old 12-09-2009, 07:29   #13
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Your looking at this all wrong...

My goal is to pay 100K in taxes every year.............so far I have failed miserably..
I have done that for a number of years and it is an absolute way to inspire you to sail off into the sunset as soon as possible. Watching that amount of money going to pay the salaries of idiots and un-educated bureaucrats you must deal with really torques your mind something fierce.
Even retired, you can never fully escape the bureaucrats. Currently I am in a dispute with such a USA IRS bureaucrat who rejected a filing I made because it was notarized in Puerto Rico. The bureaucrat rejected the filing for the reason that Puerto Rico is a "foreign country" and you need to get a different form of notarization. This is so stupid that you don't know whether to cry or laugh. I have had IRS auditors tell me that "depletion" is "depreciation" and I put the entry in the wrong box. The monumental stupidity and lack of basic education is daunting. And it is a colossal waste of my time to have to give elementary school education to these people. You can laugh if the situation does not directly affect you or your finances - if it does, you just sit down and cry.
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Old 15-09-2009, 13:12   #14
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Osiris,

I have done a lot of laughing and when I start to cry I remember to take a look at where my boat is anchored - helps a lot!

Fair Winds - see you in about 2 months!
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Old 16-09-2009, 05:46   #15
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As a corporation you can invoice for your work and the client would pay it without withholding taxes just as they would pay other invoices.

That does not relieve you of the tax liability.

The down side of this is getting business. While you are gone for 6 months, what are you doing to cultivate business for the 6 months you are home? Having had an S corp and doing consulting, it is hard to keep the pipeline full. It will be harder still when you are absent 1/2 the year.

George
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