How do I avoid paying income taxes on the sale of my business abroad?

Question

I'm a US resident (not citizen) with a successful website abroad (where I am citizen, but no resident) selling services. The earnings are collected by a befriended company in that country abroad. Once in a while I send them an invoice to get these earnings into my US based single-member LLC (filing a joint tax return). I'm paying taxes on that income in US. I'm living in a US state without income taxes.

Now I'm planning on selling the business and will be moving to another state with income taxes very soon. Because of negotiations and due diligence selling the business will take a while (let's say a year).

What would be the best strategy to avoid paying income taxes on the sale after I move to another US state?

Because the company abroad is befriended, I have control over when (and e.g. in how many chunks) the earnings of the sale flow into my LLC. So I can plan where I live when that money hits my US account.

Answer 1

What would be the best strategy to avoid paying income taxes on the sale after I move to another US state?

Leaving the US and terminating your US residency before the sale closes. Otherwise consider checking your home country's tax treaty with the US.

In any case, for proper tax planning you should employ a licensed tax adviser - an EA, CPA or an attorney licensed in your State (the one you'd be when the sale closes). No-one else is legally allowed to provide you tax advice on the matter.

Because the company abroad is befriended, I have control over when (and e.g. in how many chunks) the earnings of the sale flow into my LLC. So I can plan where I live when that money hits my US account.

I'm not familiar with the term "befriended" in this context, but form what I understand your description - its a shell corporation under your own control. This means that the transfer of money between the corporation and your LLC is of no consequence, you constructively received the money when the corporation got it, not the LLC.

Your fundamental misunderstanding is that there's importance to when the money hits your US bank account. This is irrelevant. The US taxes your worldwide income, so it is taxed when you earn it, not when you transfer it into the country (as opposed to some other countries, for example India or the UK).

As such, in your current scheme, it seems to me that you're breaking the US tax law. This is my personal impression, of course, get a professional advice from a licensed tax professional as I defined earlier.