Tax Form 8858 for Owners of Foreign Disregarded Entities

Living as an expat overseas comes with enough tax issues, and they only get more complicated when you own a business. Different types of businesses and transactions come with different tax reporting requirements, and tax form 8858 is one form you’d file if you elected to have your business treated as a disregarded entity.

What is IRS Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities?

While this is one of the less common forms, it can still have a big impact on your tax situation. By default, if you set up a foreign equivalent LLC it would be treated as a foreign corporation and trigger the need for you to file Form 5471. There is an option for you on Form 8832 to elect to disregard the corporation status and have it treated as a foreign disregarded entity.

A foreign disregarded entity (FDE) is similar to a singular U.S. LLC in that it is not a separate entity from its owner. In laymen’s terms, that means you and your business are treated as one and the same. If applied properly, this election could—in specific situations—save you money on U.S. taxes.

After electing to have your business treated as an FDE, your business will be taxed as a self-employed business on Schedule C. It also triggers the need for informational filing on Form 8858.

Before making this election, we strongly advise you to seek the guidance of an expat Tax Advisor, so you completely understand all the tax implications. The consequences could make your tax situation better or worse depending on the country and what you’re trying to achieve.

Who files Form 8858?

You’d have to file this form if you checked the box on Form 8832 to treat your business as a disregarded entity.

Here’s an example. Let’s say you set up a U.K. private limited company by yourself to further your consulting business. When looking at the U.S. treatment of your business, you decide to make an election to disregard the company and report the earnings and expenses on Schedule C so you can avoid GILTI taxation and also be exempt from self-employment taxes (since the U.K. has a totalization agreement in effect with the U.S.). To do this, you’d timely file Form 8832 and then file the appropriate forms with your tax return (i.e. Sch. C and Form 8858).

Need to file tax Form 8858? We’re here to help.

Our mission at H&R Block is to provide you with absolute experts that will help make tax season stress-free. To do that, our international tax experts are standing by and ready to help guide you through your tax situation. Need help filing tax Form 8858? Start with H&R Block today and we’ll make sure your taxes are done right. No matter where in the world you are, we’ve got a tax solution for you — whether you want to DIY your expat taxes or file with help from an advisor.