U.S. EXPAT TAX GUIDE – CHILE
What is Form 8858, and why should US expats in Chile care?
Form 8858 is an important tax document for US expats in Chile who own foreign businesses or earn rental income abroad. It reports activities of Foreign Disregarded Entities (FDEs) and foreign branches, ensuring compliance with IRS rules.
Table of contents
If you operate a sole proprietorship or own rental property in Chile, the IRS requires you to submit this form along with your annual tax return.
This form essentially links the income from your foreign business or property to your Form 1040. The IRS does not view FDEs or foreign branches as separate entities, so their income is taxed as part of your personal income.
When is Form 8858 required?
You need to file Form 8858 if you:
- Own a Foreign Disregarded Entity (FDE): An FDE is a foreign business that is not separate from its owner for tax purposes. For example, running a sole proprietorship in Chile makes you responsible for filing this form.
- Operate a foreign branch: This includes activities such as renting out property in Chile or managing another income-generating activity abroad.
Form 8858 must accompany your Form 1040 and Schedule C, and it provides detailed information about your foreign income, expenses, and financial statements.
How do US expats file Form 8858, and when is it due?
Form 8858 is filed as part of your annual Form 1040 tax return. The regular tax deadline is April 15, but US expats automatically get an extension to June 15. You can request a further extension to October 15 if needed.
How to File
- Attach Form 8858 to Your Tax Return: Include it with your Form 1040 when you file your taxes. If you’re also filing forms like Form 8865 (for partnerships) or Form 1065, Form 8858 should be submitted along with them.
Provide Financial Details: You’ll need to report income, expenses, and any changes due to foreign exchange rates.
What happens if Form 8858 is not filed?
Failure to file Form 8858 carries steep penalties. The IRS imposes a US$10,000 fine for failing to file or filing late. Repeated delays can lead to additional fines, making compliance critical.
Even if you report foreign income on Schedule C, you are still required to file Form 8858 if you have a foreign branch or FDE. Missing this form could result in audits, fines, or other legal consequences.
How can US expats correct missed filings of Form 8858?
If you missed filing Form 8858 in past years, the Streamlined Foreign Offshore Procedure offers a way to catch up without penalties. This program is specifically designed for expats who unintentionally failed to file required forms.
Steps to get back on track:
- File amended tax returns: Submit corrected returns for the last three years, including any missing Form 8858 filings.
- Complete FBARs: If your foreign bank accounts held over US$10,000 at any time in the last six years, you must file the Foreign Bank Account Report (FBAR).
- Provide a statement: Include a certification explaining why you missed the filings and affirm your intent to stay compliant in the future.
What information is required on Form 8858?
To complete Form 8858, you need to provide:
- Entity details: Name, country of operation, and tax identification number.
- Financial data: Balance sheets, income statements, and a breakdown of income and expenses.
- Activity description: A summary of the foreign branch or entity’s operations, such as managing rental properties or running a business.
Is Form 8858 only for business owners?
No, Form 8858 is not just for business owners. Expats earning rental income from property abroad must also file it. For example, owning an apartment in Chile that you rent out makes it a foreign branch under IRS rules.
Even if you don’t view yourself as a business owner, the IRS requires you to report this income through Form 8858.
Can the Streamlined Foreign Offshore Procedure help expats?
Yes, this program is an excellent solution for expats who have missed filing Form 8858 or other required forms. By participating, you can:
- Avoid penalties for late submissions.
- File the past three years of tax returns and six years of FBARs.
- Ensure full compliance with IRS regulations moving forward.
Why should US expats prioritize filing Form 8858?
Filing Form 8858 is essential for maintaining compliance with US tax laws. By accurately reporting foreign income and entity details, you avoid significant penalties and ensure transparency with the IRS.
Expats in Chile who own rental property or operate businesses must stay aware of these requirements to avoid unnecessary fines or legal complications. For those who have missed filings, the Streamlined Procedure offers a chance to catch up and move forward with peace of mind.
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 Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
