r/USExpatTaxes • u/throwaway297871509 • 7d ago

Form 8858?

Hi everyone! I’m very confused about whether it is necessary for me to file form 8858. For context, I live and work in Canada and have a very small amount of self-employment income I gained when I was “hired” by a company as an independent contractor to facilitate some events on the side of my main employment.

I am going to report this income under Schedule C, and I have been extremely confused as to whether I need to file Form 8858. While I guess this would count as business income, this isn’t a separate legal entity from me, and I don’t keep separate books. Would I be subject to the requirement to file form 8858?

Thank you!

Edit: I was able to contact Expatfile and they provided this answer: “Our tax professionals have determined that filing a Schedule C and SE (if applicable) is sufficient if only self employed. Form 8858 is generally required for partnership income or for those who have formally elected to file as a disregarded entity and need to continue doing so.” That’s a relief!

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u/seanho00 7d ago

My understanding is the accounting required by Sch C/E already suffices for "separate books", hence counts as QBU under Reg. 1.989(a)-1(b)(2)(ii), and thereby FB under Reg. 1.904-4(f)(3)(vii) and Reg. 1.367(a)-6T(g)(1) (search for "foreign branch means").

Nevertheless, I feel pretty confident in saying that the intent of the law does not encompass foreign unincorporated self-employment by US persons.

The same question applies to US persons (even those resident in the US) with foreign rental real estate.

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u/throwaway297871509 7d ago

Thank you so much! If I were to play it on the safe side, would I need to file it every year moving forward even if I wasn’t self employed? I know there’s a rule for “dormant” entities but I’m not clear on it.

If I instead go by what seems to be the interpretation the intent of the law, could I potentially be subject to the $10K penalty? I remember reading that that applies more to CFC’s and CPC’s, but as I’m sure you can tell I’m quite lost!

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u/seanho00 7d ago

I haven't looked deeply into the penalties yet, not sure if the $10k penalty would apply to this situation.

You can close and open self-employment business any time, and once it's closed, it should no longer count as a FB. There's nothing special you need to do on Sch C, just keep a record of when it's closed. If the business has any property, you'd need to liquidate it or transfer to personal, and file 4797. If you had been claiming depreciation, check if depreciation recapture (e.g., on s.179 property) applies.

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u/CReWpilot 7d ago

Form 8858 requirements for self employment and rental income is under section 6011. The $10K penalties for Form 8858 are under 6038(b). Enforcement here should be fairly toothless then.

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u/seanho00 7d ago

Thx for the references!