Tax strategy vs fraud also depends a lot on which software you use to file. Some tax programs actually warn you when something might cross the line or create audit risk. I use TurboTax and it flagged when I was getting too aggressive with home office deductions and explained why it might be considered fraudulent.

The distinction I've always used: Strategy is what you discuss openly with your tax preparer and would be willing to explain to an IRS agent. Fraud is what you hide or would be embarrassed to admit to during an audit. If you're worried about whether something crosses the line, that gut feeling is usually worth listening to. The tax code has plenty of legitimate ways to minimize taxes without venturing into shady territory.

Speaking as someone with background in corporate finance, there's another issue nobody's mentioned yet. Selling new stock isn't a tax-free event for the company the way you're describing. When a company issues new shares at above par value (which is typically pennies per share), the excess amount received is recorded as "additional paid-in capital," but it's not tax-free income. Companies don't pay income tax on true equity investments because those aren't considered revenue - they're capital contributions. But if the IRS determines you're artificially inflating the stock price to disguise what's basically product revenue, they'll reclassify it. Also, regular buybacks of stock from customers at below the issue price creates a whole host of securities problems around market manipulation. The SEC wouldn't look kindly on a system designed to issue overpriced shares with the expectation customers will take a loss selling them back.

I'm not a tax expert but I think everyone's missing the critical flaw here - who would actually buy stock at $195 that's publicly known to be worth $30? Even with a "free" product, customers would recognize they're effectively paying $165 for the product and taking on the hassle of owning and then selling stock. Most customers would simply prefer to pay directly for the product rather than jumping through these hoops, especially when they realize they're effectively paying the same amount either way. Plus, if you're publicly acknowledging the stock is worth $30 in your marketing materials (which you'd need to do for securities compliance), the whole scheme becomes transparent and pointless.

One important consideration that hasn't been mentioned yet - even if your Wyoming/Delaware LLC doesn't owe US federal income tax because you have no US clients or operations, you WILL most likely need to file: 1. Form 5472 (Information Return of a 25% Foreign-Owned US Corporation) 2. Form 1120 (even if it's a zero return) or potentially 8832 + Schedule C on your personal return depending on election Failing to file these, especially Form 5472, results in a $25,000 penalty PER FORM. I learned this the hard way. And the IRS is getting much stricter about foreign-owned LLCs because too many people were forming them without proper compliance.

Has anyone considered using a pass-through structure with an offshore holding company instead? My team (all non-US residents) formed a BVI company that owns our Wyoming LLC. This way: 1. The LLC is treated as a disregarded entity 2. We file minimal US paperwork (still need Form 5472) 3. Banking is managed through the Wyoming entity 4. Tax obligations remain primarily in our home countries This creates an additional layer of separation while maintaining the benefits of a US business presence for payment processing.

Your roommate should look into the Annual Filing Season Program which is voluntary but gives limited representation rights. Also, tell her to join a professional organization like the National Association of Tax Professionals (NATP) or the National Association of Enrolled Agents (NAEA) - the networking and continuing education is invaluable. I've been in tax prep for 7 years and these organizations have been essential for staying current with tax law changes.

If your roommate is serious, she should also get professional liability insurance before taking on any clients! I know someone who started preparing taxes with minimal qualifications and made a mistake that cost their client thousands. The client sued, and without insurance, it was financially devastating. Even with all the proper certifications, mistakes happen.

I was in the exact same situation last year (self-employed, Head of Household, income below standard deduction). Just want to share a couple things that helped me. 1) File for the Earned Income Credit!! With one child and income around $10k, you could get back around $3,700 which would more than cover your self-employment taxes. 2) If you use your home for business AT ALL, claim the simplified home office deduction. It's $5 per square foot up to 300 sq ft, so potentially $1,500 of deductions with zero documentation needed. 3) Track ALL your business mileage. Even short trips add up with the 65.5 cents per mile deduction. Don't be ashamed of your income level. The tax system is actually designed to help people in your exact situation, especially with a dependent.

I'm seeing some confusion in these comments so I want to clarify: being under the standard deduction doesn't affect your filing STATUS, but it does affect your tax LIABILITY. With $10,500 in self-employment income, you: 1) Can still file as Head of Household 2) Likely won't owe INCOME tax (because under standard deduction) 3) WILL owe SELF-EMPLOYMENT tax (15.3% of 92.35% of your self-employment income) 4) Can still get REFUNDABLE credits like EITC and Child Tax Credit The self-employment tax would be about: $10,500 × 92.35% × 15.3% = $1,479 But your EITC with one child at that income level could be $3,000-3,500 So you'd likely get money BACK overall, not owe money!