# Sole trader tax forms



## bs0jdd (Jan 12, 2020)

Hi there,

Both my wife and I are joint US and UK citizens, reside in the UK with our 2 children (who are joint citizens by birth to US parents). As such, we file US taxes each year.

Last year (2019, my wife formed a new "company" as a sole trader, where she makes soft furnishings (like curtains). My understanding was that she would just fill out Schedule-C (as of 2019 you cannot file C-EZ it seems).

However, I have had someone suggest she also needs to file 8858, as a "Foreign Branch". I am really struggling with the language and terminology used and what the requirements are. She has made little money, works in her spare time when kids are at school, and doesn't employ anyone else. 

The instructions from IRS links to the definition of a Foreign Branch:
[my own emphasis added]

(g) Definition of foreign branch -

(1) In general. For purposes of this section, the term foreign branch means *an integral business operation carried on by a U.S. person outside the United States*. Whether the activities of a U.S. person outside the United States constitute a foreign branch operation must be determined under all the facts and circumstances. Evidence of the existence of a foreign branch includes, but is not limited to, *the existence of a separate set of books and records*, and the existence of an office or other fixed place of business used by employees or officers of the U.S. person in carrying out business activities outside the United States. Activities outside the United States shall be deemed to constitute a foreign branch for purposes of this section if the activities constitute a permanent establishment under the terms of a treaty between the United States and the country in which the activities are carried out. *Any U.S. person may be treated as having a foreign branch for purposes of this section*, whether that person is a corporation, partnership, trust, estate, *or individual*. 

As said, I am finding this all confusing and daunting and my wife has made little money from this personal venture this year, and is unlikely to make much money (i.e. what is the point if just to file appropriately we have to pay a fair amount of money for a US-UK expert tax preparer). Up until this point, I have learnt enough myself to prepare our joint returns.

Do those who understand this language and definitions better than me suggest that she should be filing 8858? This forms looks incredibly complex to me, given all she does is make a few curtains and works for herself. Any other forms than Schedule C as well?

Appreciate any help or advice, and thanks in advance.


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## Moulard (Feb 3, 2017)

The term foreign branch refers to the business operations of a US company in a foreign country. 

If you are operating as a sole trader and have not formed a limited company then I do not believe that that you need to worry about 8858.

If you do have a limited company and have decided to treat it as a disregarded entity (i.e. you treat it as personal income) then you do need to worry about 8858.

There have been a lot of changes in this area as a result of Tax Cuts and Jobs Act... so my understanding may be dated.


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## Nononymous (Jul 12, 2011)

You should always take the simplest possible approach, and give the IRS no information it can't find by other means. Don't fill out complicated paperwork and pretend this is a complicated business arrangement - whoever told you to file an 885 was an idiot, or wanted you to pay them to file it for you - simply declare it as regular earned income and wipe it out with the FEIE. Or don't declare it at all - the IRS isn't going to notice.

You may ultimately want to re-examine your decision to file anything at all, if your circumstances permit. If your children are dual nationals with non-US birthplace, definitely take steps to insulate them from the US tax system so that they don't feel the need to continue this particular family tradition as adults if they remain in the UK.


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## Bevdeforges (Nov 16, 2007)

Agree with Nononymous. If you're going to declare anything for the side business, just figure your "earnings" and declare it as salary income. Use the business name as the employer and take the FEIE to cover the "earned income." I did that for years, even with the address of the employer being the same as my home address and no question ever came up.


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## bs0jdd (Jan 12, 2020)

Thanks for the replies. I think I will stick with just the Schedule C. Unfortunately they have discontinued a number of the EZ forms this year as well. Also, I have used 1116 (FTCs) rather than 2555 (FEIE) for a few years as was advised it was more advantageous in the long run (can accrue tax credits as always pay higher taxes in UK which could be useful) and also it means I can claim the additional child tax credit. 

I think the rushed revisions and 8858 sound like a bit of a red herring that even tax advisors do not fully understand!


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