Webinar: Sole Proprietors & Rental Income Recipients May Have More Filing Requirements in 2023. Recording and Q&A Transcript
We held a webinar on January 12, 2023, about the increased filing requirements for sole proprietors and rental income recipients in 2023, which included a live Q&A session with our tax experts. The recording is available for viewing and the Q&A has been transcribed.
Also read. More U.S. Persons Must File the Form 8858
General questions regarding Form 8858
Q: Is Form 8858 a new requirement? I don't have to worry about previous years.
A: We currently do not recommend proactive amendment; we recommend filing Form 8858 going forward.
Q: What year does this change affect, 2022 or 2023?
A: We would recommend filing this now, for 2022.
Q: Is the deadline of 15 June to file the same deadline to pay the federal tax for residents abroad? Thanks
A: Yes, but you'll incur interest if not paid by April. Please see - Expat Tax Due Dates and Deadlines [Update for 2023]
The tax deadline of June is approaching.
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Q: What does filing do to tax liability? Does it go up?
A: Form 8858 is informational, with no change to tax liability as a result of filing.
Q: Does 8858 make you pay more tax? Is it much more additional cost for you to complete the form?
A: No, form 8858 is an informational reporting form. You would not pay any more tax than you normally would by reporting income on form 8858 in addition to reporting the income on form 1040. We charge a fee of $300 for preparing form 8858.
Q: If my spouse teaches yoga classes in Germany, earning a couple of thousand euros in 2022, would that expose her to this form?
A: Unfortunately, yes.
Rental property related questions
Q: I have a rental property in London (where I live). We pay UK taxes on this income. What tax liability might I have in the States?
A: You'll be able to claim a foreign tax credit in the US for income taxes you pay to the UK on the rental income. Tax liability, we don't know precisely until the return is prepared, but we can guarantee you won't be double taxed.
Q: The UK tax year is different from the US. The tax on my 2022 rental income in London will not be paid in the UK until the end of 2023. How is the credit identified?
A: That's okay! The US will allow you to take a credit based on taxes you owed for 2022, as long as those taxes are subsequently paid in the future (but not too distant) tax year.
Q: Question regarding rental properties - would it be one form 8858 per property or one aggregate 8858 for all rentals?
A: Each property would require its own form 8858 to report its separate activity.
Q: Is a foreign rental property definitely a QBU / foreign branch? Not just passive income?
A: Yes, if you are the direct owner of the property. i.e., property is not titled to a corporation or other entity.
Q: We have a rental apartment in the same house we live in here in Germany. I have always added this to my yearly questionnaire, but I haven’t had to submit this form yet. Will this be new for 2022, or should it have been submitted in previous years?
A: Yes, you’d file Form 8858 for the rental property. This is the unintended consequence of the FB addition; your rental property is considered a QBU, and filing is required. Once you submit your TQ, we’ll review and issue an engagement letter specifically for your case.
Q: I have an additional apartment here in Italy, which my daughter is currently paying the mortgage on. Is that considered a rental?
A: It’s a rental if you earn income from it. So if your daughter is living there without paying rent, then no.
Q: Regarding the apartment I just inherited from my Mom in Turkey, is that considered a sole property that I need to report on the form?
A: If you earn income on it, then yes. If you don’t, then it’s not rental income.
Q: Is this for Foreign entities, not the normal US citizen with rental properties?
A: It depends on where the rental property is. If the rental is outside of the U.S, regardless of where you live, Form 8858 should be filed in addition to other forms. Once you complete your tax questionnaire, we’ll review and issue an engagement letter specifically for your unique case.
Q: Am I understanding correctly that if the rental property (and income) is in the U.S and the taxpayer/US citizen is living abroad, 8858 does not apply?
A: Correct. It's not a foreign branch.
Q: If there’s no tax requirement in the foreign country for short-term rental property and form 8858 is filed, would there be any taxes due in the US?
A: Form 8858 does not affect your US tax liability.
Q: The September 2021 instructions to Form 8858 do not provide that taxpayers with rental income from properties outside the US have to file Form 8858 when they do not have a foreign disregarded entity. What authority provides this new requirement?
A: They don't have a foreign disregarded entity. They have a foreign branch by virtue of the qualified business unit.
Q: I have a 1/3 ownership in an investment property where I live overseas. Will I need to file the form for my partial ownership? I’m in a country with a tax treaty.
A: Yes, you will need to file Form 8858.
Sole proprietorship-related questions
Q: For my son, lives full-time in Dublin, writes for a USA-based website, and gets paid in the USA (maximum of $7,000). Does he have to file the 8858 if that is the only income he has?
A: We'll need more information, but if he is a freelancer, the requirement will most likely apply to him. If he signs up for our tax preparation services, we can advise him on what his filing requirements are in detail.
Q: So royalties from graphic design work wouldn’t count as a business, but if I do remote language tutoring, it would?
A: That is active work - instead of passive royalties.
Q: Does income from social media count towards this form?
A: Depends on your business structure; in general, it sounds like freelance work, which you would report on schedule C - then yes, it would also require form 8858 if you are abroad.
Q: Not clear if living abroad and being a sole proprietor have to file.
A: In general, yes. Once you complete your tax questionnaire, we’ll review and issue an engagement letter specifically for your unique case.
Q: What constitutes a “sole proprietorship”? Is any freelance work, no matter how small a sole proprietorship?
A: Yes, effectively. A business can be structured as a corporation, partnership, or unincorporated.
Q: I am wondering if I have a corporation in Russia similar to S-Corporation here, how should I report the income from this corp on the US tax return?
A: Generally, that would be reported on Form 5471. Once you complete your tax questionnaire, we'll review your specific case and prepare an engagement letter outlining specifically the services you need, ensuring compliance.
Q: I have a company, a single-person company in Brazil. I am the only employee and owner. The customers are outside the US. What if the customers are in the US? The company is a consulting company, so almost all income is profit. Does FDE 8858 make sense? Or form 5471? Or do I need both? Is there some rule?
A: Once we review your documents, we’ll review them and let you know precisely what you need to file. Please complete your tax questionnaire in your TFX portal. You may need to file both if the entity has an FDE or FB.
Q: To find out if my firm is best to file with 5471 or 8858, do I need to schedule a phone call for 250$, or would you do the calculation as part of the normal package to file income tax?
A: We'll figure out what you need to file after you complete the tax questionnaire. If you have planning questions, you can schedule the consult, but we don't view this as necessary to ascertain your US filing requirements in this case.
Q: Which form is filed for a ‘look through’ company - e.g., a limited liability that doesn’t have corporate status?
A: It depends on if it's foreign or US organized. Limited liability is granted by many organizational types in many different countries. Once you complete your tax questionnaire, we’ll review and issue an engagement letter specifically for your unique case.
TFX Service
Q: Hi. Do you also help individuals who are not US residents? Foreigners with US income. Inbound investments.
A: Yes, we do help non-resident aliens.
Q: I think I am currently not compliant. How do I get started? I am both employed and have a business.
A: Sign up and complete the questionnaire and let us know if you have any questions as you go through it.
Other questions
Q: I did not make an election on form 8832, what are my options? report it on Schedule C subject to SE tax?
A: We’ll handle everything for you during tax prep. Once you complete your tax questionnaire, we’ll review and issue an engagement letter specifically for your unique case.
Q: Are Schedule C and Schedule E the same as before?
A: No change to Schedule C and Schedule E.
Q: If a US citizen lives overseas all year, does he have to file 2555 also?
A: We’ll take care of filing all forms you need, depending on your case, including 2555.
Q: A simple question: if I have neither an FB nor an FDE, does this new form impact me?
A: It does not. But you might be surprised by what's considered an FB.
Q: Yes, I see. Income from teaching would count, it seems. Is this form included in the premium package?
A: Form 8858 is a separate form, not included in the premier package. The form is $300 (we have reduced the price from $600 previously, taking into account the increased scope of required forms)