Olivier Wagner | TaxConnections

21 Jul 2023

FBAR Deadline 2023 Extension: Key Information For Taxpayers

In this article, we will provide key information for taxpayers regarding the FBAR (Foreign Bank Account Report) deadline extension for the year 2023. The FBAR is an important requirement for U.S. taxpayers who have financial accounts outside of the United States. It is crucial to understand the deadline extension and the necessary steps to comply with the regulations. Let’s dive into the details and ensure you have all the information you need to meet your FBAR obligations.

FBAR DEADLINE 2023 EXTENSION: KEY INFORMATION FOR TAXPAYERS

The FBAR deadline extension for the year 2023 is automatic for taxpayers who reside overseas. They get an additional 6 months to fulfill their reporting obligations. This extension gives individuals who need to file FBAR more time to gather the required information and complete the necessary forms accurately. It is important to note that the extended deadline applies specifically to the FBAR filing and not to other tax-related deadlines.

The US expat deadline for the FBAR filing is October 15, 2023. Taxpayers must ensure that their FBAR reports are submitted on or before this date to avoid penalties and potential legal consequences.

WHO NEEDS TO FILE FBAR?

FBAR filing is mandatory for U.S. taxpayers who meet the reporting threshold set by the IRS. If the total value of your foreign financial accounts exceeds $10,000 at any point during the year, you are required to file an FBAR. This includes individuals with personal accounts as well as those with financial interests in foreign entities.
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Written by Olivier Wagner | Posted in 1040 Abroad • TaxConnections

11 Jul 2023

Affordable Renunciation: Power Of Recovery Rebate Credit

Are you concerned about the costs involved in renouncing your US citizenship or becoming tax-compliant? We have great news that can make this process more affordable. In this blog, we will explore the remarkable opportunity presented by unclaimed stimulus checks issued by the IRS during the COVID-19 pandemic. Learn how these checks have significantly alleviated the financial burden for many, making renunciation and compliance more accessible than ever before.

At our firm, we have witnessed firsthand the positive impact of unclaimed stimulus checks. Many individuals who were initially worried about the costs found relief when they discovered that they were eligible to claim up to $3,200 through these checks.

UNDERSTANDING THE EXPENSES OF RENOUNCING US CITIZENSHIP

A. GOVERNMENT RENUNCIATION FEE

Renouncing US citizenship comes with a government fee of $2,350, making it one of the most expensive renunciations among other countries. The fee includes administrative costs and the review process conducted by lawyers in Washington, DC. The US government considers the fee necessary for proper case review and approval. There have been discussions about potentially lowering the fee to $400, but it seems unlikely to happen in the near future.

B. COMPLIANCE COSTS
Before renouncing their citizenship, expats must become tax-compliant. This means meeting certain requirements, including filing tax returns for the prior 5 years and 6 years of Foreign Bank Account Reports (FBARs). Achieving tax compliance is crucial, and failure to do so may result in penalties or other consequences.

Related: Being an Accidental American: A Tax Perspective

Our firm offers a comprehensive renunciation package designed to assist expats in becoming tax-compliant. For those who have failed to file tax returns due to a lack of awareness, we recommend taking advantage of the Streamlined Foreign Offshore Program. This amnesty program offered by the IRS waives penalties for those who were unaware of their tax obligations to the US.

THE WINDOW OF OPPORTUNITY: CLAIMING STIMULUS CHECKS
Stimulus checks, issued by the IRS during the COVID-19 pandemic, have provided essential economic relief. Every American has the right to claim these checks, which can be done as a recovery rebate credit on their 2020 and 2021 tax returns. It’s important to note that the amount you receive is subject to limitations, particularly for high-income earners who may receive a partial amount.
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Written by Olivier Wagner | Posted in Affordable Renunciation • TaxConnections

05 Jul 2023

Nonresident Alien Vs. Resident Alien: Understanding The Difference

WHAT IS A NONRESIDENT ALIEN?
A nonresident alien is an individual who does not meet the criteria for being classified as a resident alien for tax purposes in the United States. According to the Internal Revenue Code, nonresident aliens are generally only subject to U.S. income tax on their U.S.-sourced income. For example, if a nonresident alien works in the U.S. for six months and earns income from a U.S. employer, that income would be subject to U.S. income tax.

Nonresident aliens are required to file a tax return if they have U.S.-sourced income and want to claim a refund of any taxes withheld. They may also need to report any income from sources outside the U.S. if it is effectively connected with a U.S. trade or business. Nonresident aliens are not eligible for certain tax deductions and credits that are available to resident aliens and U.S. citizens.

WHAT IS A RESIDENT ALIEN?
A Resident Alien is an individual who meets the substantial presence test, which is based on their physical presence in the United States over a three-year period or meets the Green Card test. This means that they have been present in the U.S. for at least 31 days in the current year and 183 days in total over the past three years.

Resident aliens are treated similarly to U.S. citizens for tax purposes and are required to report their worldwide income on their tax returns. They are eligible for the same tax deductions and credits as U.S. citizens and are fully subject to U.S. income taxes. They may also have certain reporting requirements, such as reporting their foreign bank accounts if the total value exceeds a certain threshold.

Related: FBAR and FATCA: Reporting foreign accounts as US Expat
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Written by Olivier Wagner | Posted in Non Resident Alien • Resident Alien

20 Jun 2023

FEIE vs. Foreign Tax Credit: Which One To Choose?

When it comes to navigating the complexities of international taxation, understanding the distinctions between the Foreign Earned Income Exclusion (FEIE) and the foreign tax credit is crucial. These two mechanisms offer expatriates different options for minimizing their tax liabilities. In this article, we aim to provide you with essential information about FEIE and the foreign tax credit, helping you make an informed decision on which approach may be more suitable for your unique circumstances. Let’s delve into the key factors you need to know when considering FEIE and the foreign tax credit.

OVERVIEW OF FEIE AND FOREIGN TAX CREDIT

US Expats earning income overseas may be responsible for paying taxes in both their country of residence and the U.S. To alleviate double taxation, two options exist: the Foreign Earned Income Exclusion and the Foreign Tax Credit. This article will offer an explanation of each option to assist in determining the appropriate choice for one’s tax circumstances.

FEIE allows qualifying individuals to exclude a certain amount of their foreign income from their U.S. taxable income. On the other hand, FTC allows individuals to claim a dollar-for-dollar credit for foreign income taxes paid on their foreign-sourced income.

This credit can be claimed on Form 1116 and applied against U.S. tax liability. Unlike FEIE, there are no restrictions on the amount of foreign income that can be used to claim FTC. However, if the foreign tax rate is lower than the U.S. tax rate, individuals might benefit more from using FEIE.
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Written by Olivier Wagner | Posted in FEIE vs. Foreign Tax Credit • Foreign Tax Credit

23 May 2023

Relief For Expats Owning Foreign Corporations In U.S. Tax Court

For US expats who own businesses in foreign countries and need to file Form 5471, the recent Farhy v. Commissioner decision by the US Tax Court may be of interest. On April 3, 2023, the U.S. Tax Court made a decision in Farhy v. Commissioner regarding penalties for failure to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. This decision has implications for U.S. expats who own businesses in foreign countries and need to file this complicated form.

In the case, Alon Farhy owned two Belize corporations from 2003 to 2010, but did not file Forms 5471 for either corporation, despite being required to do so. In November 2018, the IRS assessed penalties of $10,000 per failure to file, per year, and a continuation penalty of $50,000 for each year. However, the U.S. Tax Court ruled that the Internal Revenue Code does not authorize the IRS to assess these penalties, and therefore the IRS cannot collect them via levy.

While this ruling may lead some taxpayers to consider filing refund claims for penalties previously assessed and paid under Section 6038(b), it is unclear whether this case creates a right to a refund. Additionally, it is important to note that the case does not relieve the obligation to file Form 5471 or any other required form. Failure to file certain international information returns, such as Forms 5471 and 5472, may impact the limitations period on a taxpayer’s return, and this case does not change that rule. U.S. expats who own businesses in foreign countries should be aware of the requirements for filing Form 5471 and consult with a tax professional to ensure compliance with all applicable tax laws.

Need help with US expat taxes? Our expert tax professionals provide free email advice. Contact us for answers to your questions about double taxation and reducing your tax liability. We’re here to help you navigate international tax laws. Have a question? Contact Olivier Wagner, 1040 Abroad.

Written by Olivier Wagner | Posted in Expats Owning Foreign Corporations • TaxConnections

18 May 2023

Receiving A Tax Refund Abroad: Many Expats Are Unaware They Have Refunds Due

We receive a lot of inquiries about tax refunds for U.S. citizens who live abroad. If you live in the U.S., your refund would be directly deposited to your account. Once you move overseas, receiving a refund becomes more complicated as many U.S. Expats no longer keep their U.S. bank account.

Since the refunds cannot be deposited to a foreign bank account, taxpayers living overseas receive a check instead. However, these can take months to arrive. There are few things you can do to ensure you receive your refund faster.

RECEIVING A TAX REFUND FOR U.S. CITIZENS ABROAD
Receiving a tax refund is surely the best thing about filing your U.S. Expat Tax Return. You cannot imagine how much joy it brings us to inform our clients they’re now not only compliant, but they are actually due a refund. Many taxpayers are simply not aware of the credits they are eligible for. The additional child tax credit is the most common example of a tax credit U.S. expats don’t know about.

Although many expats receive refunds every year, there are ways to speed up processing of your refund. Most U.S. citizens abroad receive their refund in a mail, often waiting even months for their checks. In this blog post we’ll discuss the ways to ensure your refund isn’t delayed.

ARE YOU ENTITLED FOR A TAX REFUND WHEN YOU LIVE ABROAD?
Surprisingly, even if you didn’t file tax returns in years, or if you have a child (US citizen with SSN), the answer is most likely yes.

RECOVERY REBATE CREDIT (AKA COVID 19 STIMULUS CHECKS)
The covid 19 stimulus checks were issued based on the 2019 (and later 2020) federal tax return, as such, if the IRS didn’t have such a return on file, they couldn’t issue a check.

Many taxpayers who were not in compliance (didn’t file their tax returns) can now request them as a refundable tax credit on their 2020 & 2021 tax returns. For single filers with no dependents who earn less than 75,000 USD, the refund would be 1,800 USD on the 2020 tax return and 1,400 USD on the 2021 tax return.

This applies to others who didn’t receive the original checks for various reasons.

If you haven’t file a tax return in year, there hasn’t been a better time to become compliant. You now can claim all the stimulus checks by filing your delinquent returns.

ADDITIONAL CHILD TAX CREDIT
For those living outside the US, a taxpayer can still request the 2,000 USD child tax credit, 1,400 USD of which is refundable.

Starting in 2021, those who spent over 6 months in the year in the U.S. are entitled to a higher child tax credit.

The additional child tax credit is not compatible with the Foreign Earned Income Exclusion, so the Foreign Tax Credit would have to be used. Your US citizen child would also need to have a US Social Security Number for the tax year in question.

Important: The Foreign Tax Credit is not a refundable credit. Learn more about the Foreign Tax Credit here.

WAYS TO GET YOUR REFUND FASTER
E-FILE AND FILE EARLYTHE FASTEST WAY TO RECEIVE YOUR REFUND IS TO FILE EARLY. THE SOONER THE IRS CAN PROCESS YOUR RETURN, THE SOONEST YOU CAN ENJOY YOUR REFUND.
IF YOU FILE YOUR RETURN ELECTRONICALLY, THE IRS CAN PROCESS THE RETURNS RIGHT AWAY. AS SUCH, IF YOU CAN, YOU SHOULD E-FILE YOUR TAX RETURN OR YOUR TAX PREPARER CAN E-FILE THE RETURN ON YOUR BEHALF.

IF YOU FILE YOUR RETURN ELECTRONICALLY, YOUR REFUND SHOULD BE ISSUED IN LESS THAN THREE WEEKS, EVEN FASTER WHEN YOU CHOOSE DIRECT DEPOSIT.

HOWEVER, IN SOME CIRCUMSTANCES, THE RETURN CANNOT BE ELECTRONICALLY FILED FOR EXAMPLE, IF YOUR SPOUSE IS A NON RESIDENT ALIEN (NRA) AND DOESN’T HAVE A SSN. THE SOFTWARE WOULD IDENTIFY AN ERROR AND THE RETURN COULDN’T BE ELECTRONICALLY FILED.

FOR RETURNS FILED ON PAPER YOUR REFUND SHOULD BE ISSUED IN ABOUT SIX TO EIGHT WEEKS FROM THE DATE IRS RECEIVES YOUR RETURN.

MONITOR YOUR REFUND. WHERE IS MY REFUND?
You can now check the status of your refund on theIRS’ website as well as on your mobile device using the IRS2go app. You will need your SSN, your filing status and your exact refund amount to login to your account.

You can check the status of your refund 24h after e-filing your tax return or 4 weeks after mailing your paper return.

The IRS account will provide you with the data your return has been processed, when the refund was approved and how and when you’ll receive it.

CAN THE IRS DEPOSIT THE CHECK TO A FOREIGN BANK ACCOUNT?
No, the IRS will only deposit refunds to U.S. bank accounts. If you live overseas and no longer have a US bank account, you will receive a check instead of a direct deposit.

Important: Ensure correct mailing address and be patient. It can take up to several months for the checks to arrive.

There is another workaround where you can open US bank details as a US citizen living abroad using smart fintech companies that give you access to international bank details no matter where you are in the world. Read on to find out more.

HOW TO CASH US CHECKS OVERSEAS?
I already discussed it in my previous post on Stimulus Checks and you can read it here.

In a nutshell, if you do have a US bank account, but for some reason you did not provide your account details on your tax return and received a check, you can use the bank’s mobile app to take a picture of the check and deposit the amount to your account.

DIRECT DEPOSIT
If you don’t have a U.S. bank account, it might still be worthwhile to request a direct deposit. Not only will it be faster, but you will save the bank fees associated with depositing a US check into a foreign bank account.

Using direct deposit is not only fast, but it doesn’t make you reliant on postal services. This would be an additional incentive for people who live in countries in which the postal system is less reliable.

OPENING A U.S. BANK ACCOUNT AS A NON-RESIDENT
Most US banks will require you to appear personally in their branch (in the US) in order to open a bank account.

SDFCU (the Department of State credit union) is one of the rare options which allow you to open a bank account remotely. You would need to have an affiliated membership, which would normally mean that you would pay 70 USD for an ACA membership.
You would have to go through a bank opening process which can take a week or two. And you would have to wait to get that bank account open in order to be able to enter the ACH and bank account numbers on your tax return, delaying the process.
With that being said, SDFCU does provide full service banking. As such, you would have a checkbook and other traditional functionalities.
Wise (formerly Transferwise) are a global technology platform that makes it cheaper, easier and more convenient to send, receive and spend money overseas. Wise offers multi-currency accounts. For these accounts (aside from less mainstream currencies), you get local account details eg. account number and routing number for that country. As such, a USD account will have a US based bank account number and ACH number, which can be used to request a direct deposit from the IRS.
A huge benefit of Wise is that you can open these international account details online in minutes from anywhere in the world. Just go to their website and after a few minutes of filling out their registration form you’ll get access to your account number and ACH immediately. Another advantage of Wise is they have one of the most competitive / lowest fees for international wire transfers on the market. This is because they always convert your money at the mid-market rate and add no mark ups. You can easily access your international funds, hold over 50 currencies and spend money abroad using their Wise debit account. You can manage your money via their app or desktop and keep on track of all your transfers and spending. For these reasons I would recommend using Wise over other options. Get your cha ching faster.
Reposted From Previously Popular Blog By Olivier Wagner, 1040Abroad

Written by Olivier Wagner | Posted in Expat Tax Refunds

16 May 2023

FEIE For Digital Nomads And Remote Workers

Greetings, digital nomads! You’re living the life, working remotely, and exploring the world one Wi-Fi signal at a time. But there’s a specter that haunts your paradise: taxes. Never fear, we’ve got you covered with the exciting tale of FEIE for digital nomads. Buckle up; we’re about to embark on a journey as thrilling as your last Instagram story.

THE LATEST TREND IN GLOBAL WORKFORCE MOBILITY
A rising number of professionals are leveraging technology to work from virtually anywhere in the world. They are the digital nomads, the modern-day wanderers who carry their livelihood in their backpacks. And countries around the globe are catching on, offering unique visas to attract this mobile workforce. These are the Digital Nomad Visas (DNVs), the latest trend in global workforce mobility.

But what does this mean for U.S. expats who are digital nomads? How does it impact their tax situation? Let’s delve in.

The beauty of DNVs is their flexibility. Traditionally, work visas are tied to a specific job or employer within a host country. In contrast, DNVs allow the holder to continue working for foreign employers or clients while residing in the host country. This means you can enjoy the local cuisine, culture, and lifestyle without needing to secure local employment.

For U.S. expats who are digital nomads, DNVs open up new horizons. They provide an opportunity to reside in countries with a lower cost of living, allowing for a potentially better quality of life. Moreover, these visas often come with added perks like access to coworking spaces, networking events, and even local health insurance.

THE TAX IMPLICATIONS OF DIGITAL NOMAD VISAS
However, with great freedom comes great responsibility – specifically, tax responsibility. Acquiring a DNV does not absolve U.S. expats of their U.S. tax obligations. Regardless of where they earn their income, U.S. citizens and green card holders are required to report their worldwide income to Uncle Sam.

The good news is that U.S. expats may qualify for certain provisions like the Foreign Earned Income Exclusion (FEIE), Foreign Housing Exclusion or Deduction, and Foreign Tax Credit to mitigate the risk of double taxation. However, these provisions come with specific requirements and are not automatically granted.

While DNVs offer an enticing opportunity, they also bring some complications. The host country’s tax laws come into play. Some countries may consider income earned while residing there as taxable, regardless of where the employer or client is based. This could potentially lead to a situation where digital nomads face tax liabilities in both their home country and the host country.
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Written by Olivier Wagner | Posted in FEIE - Foreign Earned Income Inclusion

05 May 2023

Exit Tax Explained: A US Expats’ Guide To Expatriation Tax

I often encounter US expats who express concern about the potential exit tax they may face upon renouncing their US citizenship. However, the reality is that most expats will never pay this tax. In this comprehensive article, I’ll explain the intricacies of the…

DO I HAVE TO PAY EXIT TAX IF I RENOUNCE MY CITIZENSHIP?
Not every individual who renounces their US citizenship will have to pay exit tax. The exit tax applies primarily to “covered expatriates,” a category that includes people who meet certain thresholds regarding their net worth, taxable income, and tax compliance. If you do not fall under the covered expatriate definition, you will not be subject to the exit tax.

Moreover, even if you are a covered expatriate, you may not owe exit tax thanks to the $767,000 exemption on capital gains. As a US expat, it’s important to consider your types of property and types of assets in relation to the exit tax. For instance, deemed dispositions of personal property and primary residence may be subject to capital gains tax, while certain financial accounts and interests in non-grantor trusts have special tax treatment.

WHAT IS DEEMED DISPOSITION?
A deemed disposition is a tax concept that treats certain assets as if they have been sold, even though no actual sale has occurred. This notion is used in various tax jurisdictions to establish a taxable event, triggering the calculation of capital gains or losses for tax purposes.

Written by Olivier Wagner | Posted in US Expats’ Guide To Expatriation Tax

02 May 2023

US Expats Abroad: Understanding Your State Tax Obligations

Moving overseas can be both exciting and challenging, particularly when it comes to understanding state tax obligations as a US expat. This article will clarify what you need to know about state and federal taxes and what to do to avoid them.

DO EXPATS NEED TO FILE STATE TAX RETURNS?
US expats’ need to file state tax returns depends on their residency status and income earned, including self-employment income, dividend income, and other forms of income while living abroad. Domicile-based or statutory state residency rules apply. Green card holders may also have to report worldwide income. Some states offer exclusions or tax credits for foreign taxes paid to avoid double taxation.

Establishing non-residency typically exempts expats from filing state tax returns, except for those with income from that state. States without an income tax, such as Florida, Texas, and Nevada, don’t require state tax filings. Moving abroad or returning to the US during the tax year may require expats to file a part-year resident tax return.

STATE RESIDENCY RULES FOR TAX PURPOSES
Each state has its own set of rules to determine residency for tax purposes. Understanding these distinctions can help you navigate your state tax responsibilities and ensure compliance with relevant laws and regulations.
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Written by Olivier Wagner | Posted in Expatriate Taxes

18 Apr 2023

FEIE Rules And Eligibility Criteria For U.S. Expatriates

If you’re a US expat earning income abroad, it’s important to understand the Foreign Earned Income Exclusion (FEIE) rules and eligibility criteria. The FEIE allows eligible expats to exclude a portion of their foreign earned income from US federal taxation. However, failing to meet the eligibility criteria or violating the FEIE rules can result in hefty penalties and additional taxes owed. In this article, we’ll provide a comprehensive overview of FEIE rules and eligibility criteria for US expats, including information on how to apply, common mistakes to avoid, and additional considerations to keep in mind.

HOW MUCH INCOME CAN A US EXPAT EXCLUDE?
As of the tax year 2022, a US expat can exclude up to $112,000 of their foreign earned income from US federal income tax under the Foreign Earned Income Exclusion (FEIE).

WHO QUALIFIES FOR THE FOREIGN EARNED INCOME EXCLUSION?
To qualify for FEIE, US expats must meet certain eligibility criteria. The two main tests used to determine eligibility are the physical presence test and the bona fide residence test.

WHAT IS THE PHYSICAL PRESENCE TEST FOR FOREIGN-EARNED INCOME EXCLUSION?
The Physical Presence Test requires the taxpayer to be physically present in a foreign country or countries for at least 330 full days during a 12-month period. The 330 days do not need to be consecutive and can be spread out over the 12-month period.

If the taxpayer meets the Physical Presence Test, they may be able to exclude up to $112,000 of foreign earned income for the tax year 2022 from their US federal income tax return.

HOW MANY DAYS CAN AN EXPAT BE IN THE US?
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Written by Olivier Wagner | Posted in Expatriate Taxpayers • FEIE Rules And Eligibility

23 Mar 2023

GILTI Tax For U.S. Expatriates: What You Need To Know

In this blog post, we will provide a comprehensive overview of the GILTI tax, who is subject to it, and how it affects multinational corporations. We will also discuss the tax rates for GILTI income, and how to comply with GILTI tax regulations. We understand that GILTI tax can be a complex topic, which is why we encourage readers to consult with a tax professional to ensure compliance with the law and to determine their specific tax liability.

WHAT IS THE GILTI TAX?
GILTI tax is a provision of the U.S. tax code that applies to U.S. taxpayers who own at least 10% of the shares of a controlled foreign corporation (CFC). The purpose of GILTI tax is to discourage profit shifting to low-tax countries by taxing the U.S. shareholder’s share of the CFC’s global intangible low-taxed income (GILTI). GILTI income is the CFC’s income from intangible assets, such as patents, trademarks, and copyrights, that is subject to a low rate of foreign tax.

HOW IS THE GILTI TAX CALCULATED?
The GILTI tax is calculated by taking the taxpayer’s net CFC tested income (which is the CFC’s gross income minus certain deductions) and reducing it by a deemed return on the CFC’s tangible assets. This deemed return is calculated as 10% of the CFC’s qualified business asset investment (QBAI), which is the CFC’s average aggregate adjusted bases in its tangible property used in its trade or business. The resulting amount is then multiplied by the GILTI tax rate, which is currently 10.5%.

It is important to note that the GILTI tax is a separate tax from the regular income tax and is calculated and reported on a taxpayer’s Form 8992 (Part of the IRS form 5471).

HOW TO AVOID PAYING THE GILTI TAX?
If the taxpayer takes the money out of the corporation as wages or dividends or if their corporate income tax rate is more than 18.9%, they may not have to pay GILTI tax.
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Written by Olivier Wagner | Posted in GILTI Tax • U.S. Expatriates

14 Mar 2023

IRS Form 8858 Instructions: Foreign Disregarded Entity

Are you an expat who owns a foreign business? Filing taxes can already be complicated, but adding a business to the mix can make it even more challenging. If you own a foreign business, you may be required to file Form 8858, the Information Return of US Persons With Respect to Foreign Disregarded Entities and Foreign Branches. But what exactly is a foreign disregarded entity? And what happens if you fail to file? In this article, we’ll cover everything you need to know about Form 8858, address some of the common questions, and help you avoid potential penalties.

What Is IRS Form 8858?
Form 8858 (Information Return of US Persons with Respect to Foreign Disregarded Entities and Foreign Branches) is an informational tax form that certain US citizens and green card holders need to file to disclose if they own a Foreign Disregarded Entity (FDE) or a Foreign Branch (FB), and provide the US with financial information about them.

If you’re scratching your head wondering what that even means, don’t worry – we’ve got you covered. Owning a foreign entity simply means that you own or operate a company in a foreign country. That’s why we will be using the terms entity and company interchangeably.

Form 8858 only serves to provide information to the IRS and does not trigger any additional taxes. However, failure to file may result in substantial penalties, making it all the more important to understand your reporting requirements and take steps to become compliant.

What Is A Foreign Disregarded Entity?
A Foreign Disregarded Entity is an entity that is not established or organized in the United States and is disregarded as an entity separate from its owner for US income tax purposes under Regulations sections 301.7701-2 and 301.7701-3. To be disregarded as a separate entity simply means that your company is not being taxed as a corporation.

So an FDE is a company formed outside of the US that is not being taxed as a foreign corporation. Instead, the owner and the company are treated as a single entity under US law. In other words – the income generated by your FDE is viewed as your own taxable income.

Example: Let’s say that you are a US citizen who owns a small business based in Canada that operates as a single-member LLC. Since the Canadian single-member LLC is not taxed as a corporation, it qualifies as an FDE.
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Written by Olivier Wagner | Posted in Foreign Disregarded Entity • IRS Form 8858