Form 8858 and What Self-Employed US Expats Need to Know

If you're a self-employed US citizen living abroad and running your business through a foreign LLC or similar structure, Form 8858 is likely a requirement you can't ignore. This guide cuts through the complexity to show you exactly when and how this form applies to your situation.

What We'll Cover

Quick Check: Do You Need Form 8858?

Answer these questions:

Are you a US citizen or green card holder?
Do you own a foreign LLC, company, or similar entity by yourself (no other owners)?
Is your entity treated as "disregarded" for US tax purposes (or did you make a check-the-box election)?

If you answered yes to all three, you need to file Form 8858.

Why This Form Matters for Your Business

As a self-employed expat, you likely formed a foreign entity for legitimate reasons: liability protection, local business credibility, or regulatory requirements. The IRS doesn't care about these reasons—they want transparency about your foreign business activities.

Form 8858 is how you provide that transparency. It tells the IRS about your foreign entity's finances, operations, and transactions. Think of it as an annual report card for your foreign business structure.

What Makes an Entity "Disregarded"?

A disregarded entity is one that exists legally but is ignored for US tax purposes. For self-employed expats, this typically means:

Single-member LLCs formed outside the US
Foreign entities where you're the sole owner
Entities you've elected to treat as disregarded via Form 8832 (check-the-box election)

The key point: even though it's "disregarded" for tax calculation purposes, it's NOT disregarded for reporting purposes.

Real Scenarios: When You Must File

Scenario 1: The Digital Nomad Consultant

Your situation: You're a US citizen living in Portugal, running your consulting business through a Portuguese Unipessoal LLC.

Form 8858 requirement: Yes, you must file annually. Report all income and expenses, converted to USD using proper exchange rates.

Scenario 2: The Expat with Rental Properties

Your situation: You own Spanish rental properties through individual Spanish SLs (limited companies).

Form 8858 requirement: Yes, one form for each SL. You'll need to calculate depreciation using US methods and report rental income/expenses.

Scenario 3: The E-commerce Entrepreneur

Your situation: You run an Amazon FBA business through a UK Ltd company where you're the sole shareholder.

Form 8858 requirement: Yes, if the UK Ltd is treated as disregarded (default for single-member entities or via check-the-box election).

Scenario 4: The Freelancer with a Local Entity

Your situation: You formed a German UG (mini-GmbH) to invoice local clients as a freelance developer.

Form 8858 requirement: Yes, even if you only have a few clients and modest income.

Common Mistakes: "My foreign accountant handles everything" or "I pay taxes locally" doesn't exempt you from US reporting requirements. Form 8858 is separate from your local tax obligations.

What You'll Need to Report

Form 8858 requires detailed financial information about your foreign entity. Here's what you'll need to gather:

Essential Information

Required Item	What This Means for You	Where to Find It
Income Statement	All revenue and expenses for the year	Your local accounting records or P&L statement
Balance Sheet	Assets, liabilities, and equity at year-end	Year-end financial statements
Currency Conversion	Everything must be in USD	IRS yearly average rates or daily rates
Related Party Transactions	Any dealings between you and the entity	Bank statements, loan agreements, invoices
Foreign Taxes Paid	Income taxes paid to foreign governments	Local tax returns and payment receipts

Schedule M: Transactions Between You and Your Entity

This is particularly important for self-employed expats. You must report:

Money you put into the business (capital contributions)
Money you took out (distributions or loans)
Services you provided to the entity
Any property transfers between you and the entity
Rent or royalties paid either direction

Pro Tip: Keep a simple spreadsheet throughout the year tracking every transaction between you and your foreign entity. This makes Schedule M much easier to complete and ensures you don't miss anything.

How to Avoid the $10,000+ Penalties

The IRS takes Form 8858 seriously, with steep penalties for non-compliance:

Penalty Structure

Initial penalty: $10,000 per form, per year
Continuation penalty: Additional $10,000 for every 30 days after IRS notice (max $50,000)
Criminal penalties: Possible for willful non-compliance

What Triggers Penalties

Not filing at all (most common)
Filing late without reasonable cause
Filing with incomplete or substantially incorrect information
Not responding to IRS notices about the form

Reducing Penalty Risk

The best defense is proper compliance, but if you've fallen behind:

File before the IRS contacts you - Voluntary disclosure often results in reduced or waived penalties
Document reasonable cause - If you have a legitimate reason for late filing
Consider the Streamlined Procedures - For non-willful failures to file
Get professional help - Complex situations benefit from expert guidance

Practical Steps to Get Compliant

Step 1: Determine Your Filing Requirement

Confirm that your foreign entity is truly disregarded for US tax purposes. If unsure, consult the entity's organizing documents and any elections you've made.

Step 2: Gather Your Records

Collect:

Local financial statements
Bank statements for all entity accounts
Documentation of all transfers between you and the entity
Local tax returns and payment records

Step 3: Convert to USD

Use the IRS-published exchange rates. For income/expenses, typically use the yearly average rate. For balance sheet items, use the year-end rate.

Step 4: Complete the Form

Form 8858 attaches to your personal tax return (Form 1040). Key sections for self-employed expats:

Page 1: Basic entity information
Schedule C: Income statement
Schedule F: Balance sheet
Schedule M: Related party transactions (crucial for self-employed)

Step 5: File with Your Tax Return

Include Form 8858 with your annual Form 1040. If you're already using Form 2555 (Foreign Earned Income Exclusion) or Form 1116 (Foreign Tax Credit), Form 8858 adds to these international reporting requirements.

Note: Form 8858 is in addition to other requirements like:

FBAR (FinCEN Form 114) if entity accounts exceed $10,000
Form 8938 if you meet the filing thresholds
Form 5471 if your entity is treated as a Foreign Corporation
Form 8865 if your entity is treated as a Foreign Partnership

What If You Haven't Been Filing?

If you've discovered you should have been filing Form 8858 but haven't:

Don't panic - Many expats discover this requirement late
Assess the situation - How many years are missing? Was it willful or non-willful?
Consider your options:
- Streamlined Foreign Offshore Procedures (for non-willful)
- Delinquent information return submission procedures
- Amended returns if within statute of limitations
Act quickly - The IRS is more lenient with voluntary disclosure

Final Thoughts: Form 8858 might seem like another hurdle, but it's a critical compliance requirement for self-employed US expats with foreign entities. The key is understanding what's required and staying organized throughout the year. When in doubt, the cost of professional help is minimal compared to potential penalties.

Need Professional Help?

If you're dealing with Form 8858 for the first time, have multiple entities, or need to catch up on past filings, professional guidance can save you time, money, and stress. American Expat CPA is familiar with these complex issues and can ensure you're compliant while maximizing your tax efficiency. Schedule a free consultation with us today to get the expert help you need.

Disclaimer: The information in this page is provided for general reference only and should not be considered professional tax advice. Before making any decisions or taking action based on this information, you should seek appropriate professional guidance. While efforts have been made to ensure accuracy and completeness, no guarantee is provided, and we accept no responsibility or liability for any outcomes resulting from reliance on the information provided on this page.

Your foreign business has a required U.S. tax form