U.S. EXPAT TAX GUIDE – GERMANY
When is Form 8858 required?
You need to file Form 8858 if you have self-employment income or rental income from properties located outside the United States. This form is critical for transparently reporting international income to the IRS.
Due to the complexities involved and the severe penalties for incorrect filing, it’s highly recommended to work with a tax professional who can ensure you’re not only compliant but also taking advantage of beneficial tax strategies.
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How should I report my self-employment income from Germany on my US tax return?
To report self-employment income from Germany, you’ll typically use two key forms:
- Schedule C: Here, you’ll detail your business’s total gross revenue and deductible expenses, which helps determine your net profit or loss.
- Form 8858: Required for reporting income from foreign entities.
Filing these forms correctly is crucial to correctly assess your tax obligations and potential deductions on your overall tax return.
What is the process for reporting income from a rental property in Germany on my US tax return?
To report income from a German rental property on your US tax return, you should treat the rental activity as a business:
- Declare all rental income: Include every amount received as rent.
- Deduct associated expenses: These might include repairs, property management fees, mortgage interest, property taxes, and depreciation.
To calculate your taxable income from the property, subtract allowable expenses from your total rental income. Use Schedule E (Supplemental Income and Loss) to detail this information, which is then attached to your Form 1040.
If taxes are paid in Germany on this income, you can use the Foreign Tax Credit (FTC) to avoid double taxation by offsetting German taxes against your US tax liability.
What are the consequences of failing to file Form 8858 by 2024?
Not filing Form 8858 can lead to a steep penalty of $10,000 for each year the form is not submitted. Additionally, if this oversight results in underreported income and an underpayment of tax, you could face a further penalty amounting to 20% of the underpayment related to the reporting error.
Due to these potential financial consequences, it’s crucial to stay diligent with your filings and perhaps seek professional advice to navigate these requirements efficiently.
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.
