Long term lurker, first time poster here.
I am a US citizen living in California, and plan to remain in California until 2030. I plan to start developing some software in 2022 or 2023 in my spare time. No revenues are expected from the sale of the software before 2030. But I might use the software to do in person consulting a couple of months a year in California from 2025 until 2030. The odds are at about 90% that the software will never generate any revenue, and at 10% that it will generate $100k+ a year AFTER 2030 (no in between: high ticket item in a highly competitive market).
Here are the problems I am trying to solve ("Problem 1"):
11) If I develop the software without any offshore corporate structure (not even an LLC), if the software becomes successful and I don't transfer it to a foreign corporation or LLC at that time, I will not be able to avoid most of the self employment tax. I will only be able to avoid part of it through a US S Corporation. Under current law, that's $10k to $15k a year to Uncle Sam. Under the much more likely more socialistic government at that time, it will probably be between $15k and $20k a year. Plus taxes for whatever profit (before my salary) above $150k the company will generate at whatever rate the more socialistic government will decide. I am assuming 40%. Plus having to do the bookkeeping for US structure forever once I no longer run the business in my own name, even if I renounce US citizenship.
12) If I wait until the protoype is developed and I get a first customer order in 2030 before I create an offshore structure and transfer the software to it, not only will I pay taxes for the value of the software under section 367 of the US tax code, but I will create an open invitation for the IRS to constantly rummage through my business revenue, question my valuation, re-assess it, and charge me higher taxes, interest and penalties.
13) I think, but I am not sure, that the following might work: I could create an offshore company (OC) before I start developing the software. I will fund it with a promissory note that calls for me depositing $20k into OC for 15 years. I will write a contract where, for $10k a year, I will assign OC the software that I will develop in my spare time. OC will then pay me a $10k a year salary, and use the other $10k for other expenses, including paying a virtual assistant living in Algeria using Paypal (the only method that worked when time came to pay him for work he has done for me). This method will cost me about $5k dollars a year in FATCA compliance, and the value of my time, self employment taxes and California franchise taxes. Then, if and when the software is successful, run the business from Chile for 6 years, Portugal for 10 years, then the UAE (assuming no change in tax laws of any country)
Right now, I am leaning towards Solution #11: foregoing any offshore structure or bank, developing the software in my own name, then, if and when it's successful, either keep it in my own name or put it in a US structure, and run the business from Chile for 6 years, Portugal for 10 years, then the UAE, paying the $15k to $20 self employment tax, plus taxes on any profit before my salary that is above $150k, and only taking advantage of Foreign Earn Income Exclusion. But my decision has not been made yet. I have at least two years to decide. If I decide to go with Solution 13, what offshore jurisdiction and bank (or at least the country in which the bank is located) would you recommend for the 2020s years, while the revenue from the software itself is 0? Based on my limited offshore knowledge, I believe the following structures:
13.a) A Bulgarian company (BC - to be "taxed"by the IRS as a corporation), and US bank account (I believe that's possible once I register BC to do business in California).
13.b) A Nevis company (NC - to be "taxed"by the IRS as a corporation), and US bank account.
13.c) An Ajman company (NC - to be "taxed"by the IRS as a corporation), and US bank account.
What I like most about 13.b) and 13.c) is the ability to eventually renounce the US citizenship and never have to do bookkeeping again. Not even having to keep records and communicating with a bookkeeper. What I dislike most about 13) is the prospects of having to go to the effort and expense required, then, if the software fails, close down the structure after having spent $50k over 10 years in FATCA compliance and California Franchise taxes.
Besides specific recommendations for Solution 3), I would also appreciate recommendations for Solutions 14, 15, 16, etc. .... Things that I haven't though about before.
Here is a related problem I am trying to solve ("Problem 2"):
Occasionally, I run into web based businesses with a proven track record of generating income (so, no more 90% chance of never generating anything) that are for sale at a good price. That happens when the owner files for bankruptcy. Note that's it's not the web based business itself that went bankrupt, but the owner. I could buy those businesses in my own name and never forming an offshore structure (that's solution 21), buy them in my own name and later transfer them to an offshore structure (Solution 22), or, first forming a dormant offshore company, and buying the business directly through the offshore company (Solution 23). Solutions 21, 22 and 23 parallel the solutions 11, 12 and 13. The main two differences are that, on the positive side, there is no question that there will be income and, on the downside, because of my limited funds, I can only buy a website that generates between $10k and $50 a year). What solution would you recommend for Problem 2?
I am a US citizen living in California, and plan to remain in California until 2030. I plan to start developing some software in 2022 or 2023 in my spare time. No revenues are expected from the sale of the software before 2030. But I might use the software to do in person consulting a couple of months a year in California from 2025 until 2030. The odds are at about 90% that the software will never generate any revenue, and at 10% that it will generate $100k+ a year AFTER 2030 (no in between: high ticket item in a highly competitive market).
Here are the problems I am trying to solve ("Problem 1"):
11) If I develop the software without any offshore corporate structure (not even an LLC), if the software becomes successful and I don't transfer it to a foreign corporation or LLC at that time, I will not be able to avoid most of the self employment tax. I will only be able to avoid part of it through a US S Corporation. Under current law, that's $10k to $15k a year to Uncle Sam. Under the much more likely more socialistic government at that time, it will probably be between $15k and $20k a year. Plus taxes for whatever profit (before my salary) above $150k the company will generate at whatever rate the more socialistic government will decide. I am assuming 40%. Plus having to do the bookkeeping for US structure forever once I no longer run the business in my own name, even if I renounce US citizenship.
12) If I wait until the protoype is developed and I get a first customer order in 2030 before I create an offshore structure and transfer the software to it, not only will I pay taxes for the value of the software under section 367 of the US tax code, but I will create an open invitation for the IRS to constantly rummage through my business revenue, question my valuation, re-assess it, and charge me higher taxes, interest and penalties.
13) I think, but I am not sure, that the following might work: I could create an offshore company (OC) before I start developing the software. I will fund it with a promissory note that calls for me depositing $20k into OC for 15 years. I will write a contract where, for $10k a year, I will assign OC the software that I will develop in my spare time. OC will then pay me a $10k a year salary, and use the other $10k for other expenses, including paying a virtual assistant living in Algeria using Paypal (the only method that worked when time came to pay him for work he has done for me). This method will cost me about $5k dollars a year in FATCA compliance, and the value of my time, self employment taxes and California franchise taxes. Then, if and when the software is successful, run the business from Chile for 6 years, Portugal for 10 years, then the UAE (assuming no change in tax laws of any country)
Right now, I am leaning towards Solution #11: foregoing any offshore structure or bank, developing the software in my own name, then, if and when it's successful, either keep it in my own name or put it in a US structure, and run the business from Chile for 6 years, Portugal for 10 years, then the UAE, paying the $15k to $20 self employment tax, plus taxes on any profit before my salary that is above $150k, and only taking advantage of Foreign Earn Income Exclusion. But my decision has not been made yet. I have at least two years to decide. If I decide to go with Solution 13, what offshore jurisdiction and bank (or at least the country in which the bank is located) would you recommend for the 2020s years, while the revenue from the software itself is 0? Based on my limited offshore knowledge, I believe the following structures:
13.a) A Bulgarian company (BC - to be "taxed"by the IRS as a corporation), and US bank account (I believe that's possible once I register BC to do business in California).
13.b) A Nevis company (NC - to be "taxed"by the IRS as a corporation), and US bank account.
13.c) An Ajman company (NC - to be "taxed"by the IRS as a corporation), and US bank account.
What I like most about 13.b) and 13.c) is the ability to eventually renounce the US citizenship and never have to do bookkeeping again. Not even having to keep records and communicating with a bookkeeper. What I dislike most about 13) is the prospects of having to go to the effort and expense required, then, if the software fails, close down the structure after having spent $50k over 10 years in FATCA compliance and California Franchise taxes.
Besides specific recommendations for Solution 3), I would also appreciate recommendations for Solutions 14, 15, 16, etc. .... Things that I haven't though about before.
Here is a related problem I am trying to solve ("Problem 2"):
Occasionally, I run into web based businesses with a proven track record of generating income (so, no more 90% chance of never generating anything) that are for sale at a good price. That happens when the owner files for bankruptcy. Note that's it's not the web based business itself that went bankrupt, but the owner. I could buy those businesses in my own name and never forming an offshore structure (that's solution 21), buy them in my own name and later transfer them to an offshore structure (Solution 22), or, first forming a dormant offshore company, and buying the business directly through the offshore company (Solution 23). Solutions 21, 22 and 23 parallel the solutions 11, 12 and 13. The main two differences are that, on the positive side, there is no question that there will be income and, on the downside, because of my limited funds, I can only buy a website that generates between $10k and $50 a year). What solution would you recommend for Problem 2?
