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Why do I have to file IRS Tax Form 8858?

IRS Tax Form 8858 requires US persons who have transactions or own a disregarded entity or foreign branch, to report the financial and operational information of their foreign business activities.

Sound confusing? 

Here are the two main scenarios where US citizens and Green Card holders need to file Form 8858.


Scenario 1: Non-US Self-Employment Income

A significant trigger for filing Form 8858 is when a US person earns non-US self-employment income. This includes any side income, such as consulting or freelance work. For instance, if someone residing in the UAE earns consulting income, filing Form 8858 becomes mandatory.

Scenario 2: Rental Income from Non-US Property

Another common situation requiring Form 8858 is when an individual has rental income from a property outside the US For example, if a person owns property in Dubai and receives rental income, they must file Form 8858.

Do I have to pay US tax on non-US self-employment income?

You may have to pay US self-employment tax if the country you’re working in does not have a Totalization Agreement with the United States. A Totalization Agreement is separate from a tax treaty and covers other topics, such as Social Security.

Do I have to pay US tax on rental income from a non-US property?

It depends. If you’re not paying tax on the income to the country you’re living in, you may have to pay US tax. Additional factors need to be considered, such as other types of income.

Key Takeaways:

  • Rental Income: If you have rental income from a non-US property, report it on Form 8858.
  • Self-Employment Income: Any self-employment income sourced outside of the US also goes on Form 8858.

However, many are unaware of the late filing penalty associated with Form 8858. The penalty for not filing on time is a substantial US$10,000.

How do I avoid penalties?

  • Extension Coverage: If you have an extension for your US tax return, it also covers Form 8858.
  • Filing Deadlines: The initial tax return deadline is June 15. However, with an extension, you can file by October 15. A further extension to December 15 is possible, helping avoid late penalties.

Form 8858 has become a critical document for many, especially for long-term clients unfamiliar with this relatively new IRS requirement. This makes staying informed about IRS changes, like the requirement for Form 8858, crucial. Whether it’s rental income from abroad or non-US self-employment income, a tax professional can ensure timely and accurate filing of Form 8858.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in the UAE. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.

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