Business structure for foreign income and low expenses

[PorknBeanz]

Hi!
I was an employee of a company in California and was a California resident. In July 2012 I moved to Virginia and the company allowed me to telecommute. In October 2012, the company decided to relocate to Taiwan. I signed an independent contractor agreement. I bill them for my work and expenses, and they wire funds from Taiwan into my personal checking account. They don't give me a 1099 or any other documentation. I have one other client (US), but they only account for about 1% of my income. They provide a 1099. I sit in front of a computer all day and my primary client covers all my expenses.

For 2012 I included my contractor income on a Schedule C. I pay a lot in taxes with this set up (income is about $15k/mo). I think an s-corp would allow me to keep more of my income. Any advice? If I do an s-corp, is there any advantage to incorporating in a low tax/fee state like Nevada or Wyoming instead of my residence state of Virginia? Thanks for your help.

[Freelancier]

An S-corp passes all profits directly to the shareholder's 1040. You can't get out of paying taxes that way. You are also responsible for state taxes on that money, along with other self-employment taxes. You get no state taxes in places like Florida and Texas, but other taxes can hit just as badly, because they need the money just like the other states (those with state income taxes) do.

My advice would be: (1) Open and fund a SEP-IRA to the maximum you can; (2) buy a home to get a mortgage interest deduction. Those are going to be your two biggest potential deductions available.