u.s. expat tax guide – chile
What is Form 8858, and why should US expats in Chile care?
US citizens living in Chile who own foreign businesses or rental properties may need to file Form 8858 with their US tax return. This form is used by the IRS to track Foreign Disregarded Entities (FDEs) and foreign branches to ensure tax compliance.
If you operate a sole proprietorship or rent out property in Chile, this requirement applies to you.
Failing to file could result in penalties and additional scrutiny from the IRS.
What does Form 8858 include?
- Schedule C: Reports income and deductions from the FDE.
- Schedule J: Tracks accumulated earnings and taxes paid.
- Schedule M: Reports transactions between related parties.
Who needs to file Form 8858?
You must file Form 8858 if you:
- Own a Foreign Disregarded Entity (FDE), such as a sole proprietorship in Chile.
- Operate a foreign branch, including rental properties or other income-producing activities.
- Have an ownership interest in a foreign corporation or partnership that holds an FDE.
Even if you already report your foreign income on Schedule C, filing Form 8858 is still necessary to meet IRS reporting obligations.
When and how to File Form 8858?
Form 8858 is submitted with your annual Form 1040 tax return.
- Standard deadline: April 15.
- Automatic expat extension: June 15.
- Extended deadline (if requested): October 15.
Filing Steps:
- Attach Form 8858 to your tax return (Form 1040).
- Report your income and expenses in US dollars using IRS-approved exchange rates.
- Include the form with other required filings, such as Form 8865 (for partnerships) or Form 1065 (for foreign-owned businesses).
What happens if you don’t file?
Not filing Form 8858 when required can result in:
- A US$10,000 penalty for late or missing forms.
- Additional US$10,000 monthly fines after 90 days of noncompliance.
- Higher chances of an IRS audit and legal consequences.
Even if you report your foreign income on other tax forms, Form 8858 is still required for foreign branches and FDEs. Since the IRS enforces strict reporting rules, it’s important to stay compliant.
How do you fix missing Form 8858 filings?
If you missed filing Form 8858 in past years, the Streamlined Foreign Offshore Procedure may allow you to catch up without penalties.
- File amended tax returns for the last three years, including missing Form 8858 filings.
- Submit FBARs if your foreign accounts held over US$10,000 at any time in the past six years.
- Provide a written explanation to the IRS about why you missed the filings and confirm future compliance.
If you don’t qualify for the Streamlined Procedure, the IRS may require voluntary disclosure to minimize penalties. Working with a tax professional is highly recommended in these cases.
What information must be reported on Form 8858?
- Business details: Name, country of operation, and tax identification number.
- Financial statements: Balance sheets, income reports, and expense breakdowns.
- Income description: A summary of business activities, rental income, or other foreign earnings.
- Currency conversions: If your income is in Chilean pesos, it must be converted to US dollars using IRS-approved exchange rates.
Organizing this information in advance can make tax filing easier and reduce the risk of mistakes.
What is the Streamlined Filing Compliance Procedure?
The Streamlined Filing Compliance Procedures allow US expats to catch up on overdue tax filings without penalties. This IRS program is designed for taxpayers who failed to file required tax returns or foreign financial account reports due to unintentional noncompliance.
Who qualifies for it?
- Expats who haven’t filed US taxes but are not willfully avoiding taxes.
- Those who meet the non-residency requirements for the streamlined program.
How does it work?
- File the last three years of tax returns and six years of FBARs (if applicable).
- Submit Form 14653, certifying that noncompliance was not intentional.
- Pay any taxes owed, but no penalties will be applied.
Do property owners need to file Form 8858?
Yes. If you rent out property in Chile, the IRS may classify your rental activities as a foreign branch, requiring you to file Form 8858.
Even if you don’t see yourself as a business owner, the IRS still expects reporting of rental income through the proper tax forms. Additionally, expats who co-own property or participate in real estate partnerships abroad may have extra reporting requirements.
What are Foreign Disregarded Entities?
A Foreign Disregarded Entity (FDE) is a business owned by a US taxpayer that is ignored for US tax purposes. This means all income and expenses are reported on the owner’s personal tax return instead of a separate business return.
Unlike a foreign corporation, which has separate tax filings, an FDE’s profits and losses flow directly to the owner’s Form 1040. Owners must still comply with IRS reporting rules.
- Form 8858: Reports financial details of the FDE.
- FBAR (FinCEN 114): Required if foreign accounts exceed $10,000.
How can expats catch up on late filings?
The Streamlined Foreign Offshore Procedure is the best option for expats who missed past tax filings. It allows you to:
- Submit past due tax returns and FBARs without penalties.
- Correct past mistakes while avoiding heavy fines.
- Ensure full compliance with IRS rules moving forward.
Why should US expats file Form 8858?
Filing Form 8858 is an essential step in complying with US tax laws while living in Chile. By submitting the correct forms, expats can:
- Avoid steep IRS penalties for noncompliance.
- Ensure transparency with US tax authorities.
- Qualify for tax benefits, such as deductions and credits that reduce tax liability.
