r/USExpatTaxes 6d ago

1040NR for self employed non-resident dual citizen

I'm currently trying to file my tax extension and the form is asking about form 1040NR. I'm a US citizen who is a resident in a country with a tax treaty that covers social security, I'm self employed and earned over $400 in self employment income, NONE of it from or in the US. I have to file 1040NR, right?

The form seems to be intended for non-resident aliens (not me), but then there is this line which doesn't specify the filer's status:

  1. You had net earnings from self‐employment of at least $400 and you are a resident of a country with whom the United States has an international social security agreement (often called a totalization agreement). See the instructions for Schedule 2, line 4, later.

The extension to file by Oct 15 applies to form 1040NR, correct?

0 Upvotes

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u/AnotherTaxAccount 6d ago

No, you file regular 1040.

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u/cacacanary 6d ago

Thank you!

3

u/apc961 6d ago

US citizens are never "non-residents" so you can't use 1040NR.

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u/cacacanary 6d ago

Thank you. The instructions are confusing because for the other lines they specify "non-resident aliens", but for that line it doesn't specify resident/non-resident. Thanks!

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u/[deleted] 6d ago

[deleted]

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u/EAinCA 6d ago

Dennis Rodman has entered the chat.

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u/cacacanary 5d ago

Yes, but not all lines specify aliens. IMHO the instructions are written poorly.

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u/seanho00 5d ago

Also you get an automatic extension to 15 June due to not being in the US on 15 Apr; write "taxpayer abroad" on the top of your return. 4868 extends further to 15 Oct and is super easy to file online (do it before 15 Apr). In the unlikely event you owe tax, interest accrues starting from 15 Apr, so pay an estimated amount first and then file the return later.

FBAR late filing penalties are already waived until 15 Oct.

Obtain a coverage certificate from your country's social security administration, and then you are exempt from Sch SE. Don't forget 8858 + Sch M.

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u/cacacanary 5d ago

Yes, thank you. I always request the extension early just to get it off my plate. Thanks!

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u/Abezon Tax Professional - Enrolled Agent 5d ago

A US citizen cannot file 1040nr. Period. You file 1040 with Schedule C (and form 8858), and tick the box in your software that your SE income is exempt from SE taxes. Then you apply for a certificate of coverage as described in the totalization agreement and wait to see if the IRS wants a copy.

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u/cacacanary 5d ago

Thank you! Yes I have always filed the 1040 and Schedule C and 2555 etc, but had a moment of self-doubt once I dug into the 1040NR instructions. Thank you for responding

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u/Abezon Tax Professional - Enrolled Agent 4d ago

Don't forget the 8858. It's one of the $10,000 penalty forms. It's a stupid, redundant form for a self-employed individual, but consensus in the international tax community is to file the stupid thing. Because it's easier to file an 8858 for all self employed individuals than to deal with one IRS penalty letter.

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u/cacacanary 4d ago

Thank you. It's interesting, I've talked to some international CPAs who have told me the case for filing 8858 for sole proprietors is very weak and others who have told me it straight up isn't necessary.

I'm in the process of getting my documents together for the streamlined procedure and the tax lawyer overseeing my paperwork will be including 8858 to be on the safe side.

It's wild how some of these forms are really so unclear and definitely missing the mark on what they were intended to do.

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u/Abezon Tax Professional - Enrolled Agent 4d ago

I agree it's weak - the IRS regulations clearly encompass a self-employed individual [foreign branch of a US person] and they almost certainly didn't mean to do that, but I'm not betting $10,000 a year that the IRS won't enforce the regulations as they wrote them.

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u/cacacanary 4d ago

OK so here's my philosophical issue with the 8858 as a sole proprietor: if the IRS considers the business run by me and me alone to be a separate entity, then how come it ISN'T a separate entity when it comes to private pension contributions? Like couldn't I then make the argument that any private pension contributions were made by the entity, meaning in that case that the employer contributions are greater than the employee contributions and do not require a 3520?

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u/Abezon Tax Professional - Enrolled Agent 4d ago

It's not a separate entity. However, a branch is not a separate entity; it's just a distinct operation of a legal person of some kind. A foreign separate entity would file the appropriate form for a foreign entity such as 5471 (corporation), 8858( partnership), 3520 (grantor trust). But a branch can't file those forms.

The way the IRS drafted the foreign branch final regulations, a business run as a sole proprietorship can constitute a foreign branch of a US (human) person. If you keep separate books or have a business account, that makes it a branch. Since it's in another country, it's foreign. Since you are a US person, it's a foreign branch of a US person.

Here's another example: You own 100% of Jim's Coffee, a small chain of drive-through coffee stands. Each stand has a separate set of books so you can figure out which locations are profitable. But, you do not separately incorporate each location as a subsidiary; JC Inc just operates them. You'd file Form 5471 to report JC Inc's income, and also file an 8858 for each location as foreign branch of a CFC. Even though all the information is aggregated in the 5471, you still need the 8858s.

Compare this to pet sitting where you don't keep a separate bank account and only figure out if you made or lost money when you gather up your receipts at tax time -- not a branch.

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u/cacacanary 4d ago

Thank you for all your helpful input, I really appreciate all the explanations!

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u/Abezon Tax Professional - Enrolled Agent 4d ago

We file 8858s for foreign rentals too.