Check-the-box election impact on GILTI tax and foreign entity income reporting

When you make a check-the-box election to treat a foreign entity as disregarded, you're essentially telling the IRS to ignore that entity for tax purposes. This means the foreign entity becomes an extension of yourself for U.S. tax purposes. For your GILTI question - once you've made the check-the-box election, the foreign entity is no longer treated as a corporation for U.S. tax purposes, so GILTI (Global Intangible Low-Taxed Income) provisions wouldn't apply. GILTI only applies to foreign corporations, not disregarded entities. Regarding income reporting, yes, if your foreign disregarded entity earns income, you would typically report that on Schedule C as self-employment income if it's an active business you're running. This means you'll also be subject to self-employment tax on that income, not just income tax.

I was in a similar situation last year! After going around in circles trying to understand all the international tax jargon, I finally found https://taxr.ai and it was seriously a game-changer. They analyzed my foreign business structure and explained exactly how the check-the-box election would affect my GILTI exposure and self-employment tax obligations. What I liked most was how they broke down both scenarios with actual numbers specific to my situation. They showed me that in my case, making the check-the-box election would save me about $12,000 in taxes, even after accounting for the self-employment tax. Their system flagged some foreign tax credits I could claim that I had no idea about!

I wanted to follow up about my experience with https://taxr.ai after I was skeptical in my earlier comment. I decided to try it because my CPA was giving me conflicting advice about my foreign entity situation. I was amazed at how thorough their analysis was! They provided a detailed comparison showing how the check-the-box election would affect my GILTI exposure versus the self-employment tax implications. They even caught that my foreign country has a totalization agreement with the US that would exempt some of my income from self-employment tax - something my regular accountant completely missed. Ended up saving over $24,000 in taxes by making the right election for my situation. Definitely worth getting a specialized review for international tax situations.

If you're dealing with GILTI and check-the-box questions, I'm guessing you've tried calling the IRS for clarification? I spent THREE WEEKS trying to get through to someone in their international tax department. Finally found https://claimyr.com and watched their demo video at https://youtu.be/_kiP6q8DX5c and honestly thought it sounded too good to be true. I was desperate though, so I tried it. They got me connected to an actual IRS international tax specialist in under 45 minutes! The agent clarified exactly how making the check-the-box election would affect my GILTI situation and confirmed that yes, I'd need to report the income on Schedule C. He also explained some filing requirements I wasn't aware of. Saved me from making a costly mistake!

I need to eat my words from my previous comment. After continuing to fail getting through to the IRS myself about my foreign entity situation, I broke down and tried Claimyr. I was connected to an IRS agent within an hour who actually specialized in international taxation. They answered all my questions about the check-the-box election and GILTI implications. The agent even walked me through exactly which forms I needed to file (Form 8832 for the election and Schedule C for reporting the income). They confirmed that making the election would eliminate GILTI concerns but subject me to self-employment tax. Having an official answer directly from the IRS gave me peace of mind that I was filing correctly. Can't believe I wasted weeks trying to get through on my own.

I made the check-the-box election last year for my UK consulting business. In my experience, while it eliminated GILTI concerns, I got hit HARD with self-employment taxes. Be sure to calculate both scenarios before deciding. Something ppl don't mention enough: when you make the election, you also need to include that foreign income for net investment income tax calculations if applicable. My tax bill ended up way higher than I expected bc of this.

Has anyone dealt with a situation where they have BOTH checked-the-box foreign entities AND foreign corps in the same tax year? I'm trying to figure out how to report everything correctly and whether the GILTI from the corps can be offset by losses in the disregarded entities?

I've been through this exact situation with my consulting business in Germany. One thing that hasn't been mentioned yet is the timing of the check-the-box election - you need to file Form 8832 within 75 days of forming the entity OR by the due date of your return for the year you want the election to be effective. Also, regarding the self-employment tax concern that several people raised - if your foreign business involves providing services personally (like consulting), then yes, you'll pay SE tax on that income. However, if it's more passive investment income or rental income from the foreign entity, it might not be subject to self-employment tax even after the election. The key is understanding what type of business activities you're engaged in through the foreign entity. I'd strongly recommend getting a professional analysis of your specific situation before making the election, as it can't easily be undone once made.

Just wanted to add another consideration that I learned the hard way - if you make the check-the-box election, you'll also need to be very careful about the Foreign Earned Income Exclusion (FEIE) if you're living abroad. When your foreign entity becomes disregarded, that income is treated as directly earned by you, which can actually help you qualify for the FEIE if you meet the physical presence or bona fide residence tests. This could potentially exclude up to $120,000 (for 2023) of that foreign earned income from U.S. taxation, though you'd still owe self-employment tax on it. However, there's a catch - you can't claim both the FEIE and foreign tax credits on the same income. So you'll need to run the numbers to see which gives you a better result. In my case, the FEIE ended up being more beneficial than trying to claim foreign tax credits, especially since it doesn't eliminate the SE tax anyway. Also worth noting: if you're claiming the FEIE, you might want to consider making a Section 962 election if you have other foreign corporations that generate GILTI, as it can help with the overall tax optimization across all your international structures.