Table of contents:
Reporting self-employment
You are considered self-employed if you work as a freelancer or own a small business. This means that you are not an employee but work independently. Refer to the IRS definition of an Independent Contractor (Self-Employed). If you are unsure whether you should be classified as self-employed, please reach out to us, and we will assist you in determining your employment status.
To indicate that you are self-employed, you can select Yes for the Self-employed or Independent Contractor statement during the creation of your Tax Questionnaire (TQ) or by clicking the Configure Life & Income button if you have already created your TQ. This will automatically add a sub-section called Self-Employment under the Income section to your TQ:
Reporting income as a sole trader
Report it as self-employment income on the Income > Self-Employment tab and indicate your service.
Reporting earnings from own business when not involved in day-to-day operations
We will determine your earnings based on the corporate return if your business is incorporated. Follow the steps:
Click the Configure Life & Income button if you have already created your TQ and select Yes for the following statements in the Tax Questionnaire:
I have ownership in a corporation, partnership or trust
I have ownership in a non-US corporation or partnership
Provide information about your business on the Income > Corporation & Trust > Entity List tab.
Report earnings on the Income > Self-Employment tab and indicate your service.
Is investment held in trust reportable on FBAR?
The need to file FBAR by the beneficiary of the foreign trust depends on the trust rules for income distribution to the U.S. beneficiary. The decision on whether to report it is determined using the following logic:
If the trust is discretionary (i.e., trust distributions are made as the trustee's decision), it is not reported.
If the trust is not discretionary (i.e., the beneficiary has discretion regarding distributions), it must ONLY be reported if the beneficiary receives more than 50% of the trust's current Income.
Required forms to report income distributed to beneficiaries of a family trust
If you are the beneficiary of a non-U.S. trust and there are no other U.S. grantors/settlors (trust owners), then the IRS considers you a U.S. owner of the foreign grantor trust. You may be required to report trust ownership annually using Form 3520-A.
If you received distributions from a foreign trust over the past year, you must also file Form 3520.
If you are a beneficiary of a foreign trust, but the trust has another U.S. year, you receive distributions from the trust. Grantor/settlor, then only the grantor/settlor is obligated to file Form 3520-A. However, you must file Form 3520 each year you receive distributions from the trust.
If there are multiple U.S. beneficiaries, then only one copy of the form must be filed. However, each U.S. beneficiary is responsible for ensuring that Form 3520-A is filed on behalf of the trust. If you are not the person filing Form 3520-A, you should obtain a copy to ensure the form has been filed.
To report income, follow the steps below:
Click the Configure Life & Income button if you have already created your TQ and select Yes for the following statements in the Tax Questionnaire:
I have ownership in a corporation, partnership or trust
I have ownership in a non-US corporation or partnership
Provide information about the trust on the Income > Corporation & Trust > Entity List tab.
Changes in ownership of a foreign trust if children are removed as beneficiaries
If children are removed as beneficiaries of a foreign trust and are not grantors of the trust, they are no longer considered owners. However, they may still be deemed owners (even if they are not beneficiaries) if they have certain powers that allow them to vest the trust's corpus (assets) or income solely in themselves, or if they have transferred property to the trust that includes at least one U.S. beneficiary.
Reporting investment income: dividends, interest, capital gains, etc.
To report investment income, you can select Yes for the I have investments > I receive dividends and/or I earn interest statements during the creation of your Tax Questionnaire (TQ). If you have already created your TQ, you can click the Configure Life & Income button and make the necessary selections. This will automatically add sub-sections called Passive Income and Investments under the Income section to your TQ.
When reporting your investment income, navigate to the following tabs:
For dividends and interest, go to Income > Passive Income > Dividends, Interest.
For other investment income, go to Income > Investments.
Note: if you are filing jointly, the questions in these sections apply to both you AND your spouse.
Reporting owners' draw of dividends
Report it on the Income > Passive Income > Dividends tab. Depending on the type of dividends received, select the appropriate option:
If dividends are from a U.S. business, click Yes under Did you receive U.S. dividends?
If dividends are from a Controlled Foreign Corporation, click Yes under Did you receive non-U.S. dividends?
Reporting carried interest while working in private equity
Report it on Income > Investments, the question Did you sell any type of securities during the filing year? (Stocks, bonds, mutual funds, options, cryptocurrency (i.e., bitcoin, etc.)?)
Reporting the stock sale
Report it as instructed above.
Note: if you sold a stock and know the sale price but not the original purchase price, you have four options to report the cost basis of the transaction:
Look up the historical share price online if the share was issued by a publicly traded company (U.S. or foreign), and report the share price when you purchased the shares.
Contact the company directly if the share was sold by a private company, and request the historical price of the share.
If options 1 and 2 are not feasible (e.g., due to changes in ownership or name of the issuing company or inability to find the historical rate), report a cost basis of zero for the sale.
If options 1 and 2 are not feasible and you prefer not to report a cost basis of zero, you will be subject to a long-term capital gains tax of 10% to 20% (depending on your tax bracket) on the entire sale amount. Alternatively, you can estimate the initial price of the share but be prepared to explain to the IRS (if asked) how you arrived at this price.
Reporting a U.K. ISA/OEIC in stock
OEICS are collective investment schemes that are treated as PFICs in the U.S. Each trust or unit share must be reported on a separate PFIC Form 8621.
Reporting income from Schedule K-1 after investing in a master limited partnership (MLP)
Report it on Income > Other Income > the question Do you own a share (interest) in a Corporation or Partnership (whether U.S. or Foreign)? In the U.S., you would have received a K-1 Form for it.
Reporting performance-based shares that vested from an employer
Report it on Income > Wages > Income Outside of the U.S. tab, question Did you receive stock-based compensation from your employer? (Options, RSUs, etc.) and upload supporting documentation.
What is included in gross wages / gross income?
Gross wages mean the total amount earned before contributions or deductions are taken from that income. For example, it means income before working expenses AND before taxes.