Hello,

To start with, I sincerely appreciate any advice that anyone on this board will be able to offer me. I do have a CPA whom I trust but instead of constantly pestering him with questions, I thought I would try to understand a bit of this myself so that I can in turn go to him with educated questions as opposed to asking the same things over and over. Additionally, I am not trying to avoid paying taxes or doing anything remotely illegal and or unethical. I prefer to have my taxes in order with as much paid in advance as to not cause any problems. It has come to the point when I speak with co-workers that they always say that I am paying too much in tax every month and that my CPA doesn't know what he is doing.

I am a contractor working in Iraq. In March of 2010, I established an S-corp where I am the president and only shareholder. I use paychex.com to run payroll every month and I pay myself what I feel is a "reasonable salary" for services preformed.

Individual taxes are paid monthly at:

Federal Withholding = 26.34%
Social Security / Medicare = 7.65%
State Withholding = 7.28%

Corporate taxes are paid monthly at:

Social Security / Medicare = 7.65%
Federal Unemployment = .26%

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Things I am not clear on:

1.) Regarding the Form 941. I punched in the numbers from this quarter and it appears that exactly enough taxes were deposited by my payroll company to cover what is owed for Q2. Does a 941 still need to be filed or will the receipt from paychex.com showing that the monies were deposited be enough?

2.) Regarding distributions. Like I mentioned above, I am paying myself what I feel is a reasonable salary for work that is being preformed that is consistent with the standard going rate for overseas defense contractors. However, I am planning on getting married in February and buying a home in April of 2011 and I am unsure on what the best / most practical time to take a distribution will be. How do I go about actually taking the distribution and how to I pay the taxes on it? Should I take it before the end of the 2010 tax year or wait until 2011 and take it then?

3.) Regarding business expenses / write offs. My S-Corp was established in March of 2010 and I immediately started purchasing "business related" items with my corporate checking account. However, from January - March, prior to the formation of the S-corp, there were some purchases made on my personal account that were directly related to the now established business but would be under the amount of the standard deduction. Will there be anyway to include these items on my personal or business taxes when I file my 2010 return or am I out of luck as far as a deduction goes?

4.) Regarding the Foreign Earned Income Exclusion. This year I am confident that I will meet the requirements for the FEIE. I have been out of the US since May and I plan to stay out of the US until April of next year. I understand a fair amount about the FEIE and I know that the 330 days do not have to be satisfied in a calendar year but on a 12 month "sliding scale". That being said, I estimate that I will have around 240 days out of the US during 2010 and will fulfill the remainder in 2011. Being that this portion would be pro-rated, I can assume that the $91,500 (amount able to exclude for 2010) / 365 X 240 = $60,164.38 (pro-rated amount for 2010) will be tax free for the 2010 tax year. Correct?

5.) FEIE for state taxes. Are any states subject to the FEIE if the federal requirements are met?

I think that is all I have for now. Again, if anybody could offer some advice I would really appreciate it.

Thanks,

Sean