Disregarded Entity Status for Foreign-Owned Delaware LLC Investing in US Stocks - Reporting Requirements?

Thanks for the detailed info! I'm in a similar situation but wasn't aware of Form 1042. Does the foreign owner need to file a personal US tax return (1040NR) as well, or is the LLC filing enough? Also, would using an investment platform like Interactive Brokers vs a US bank account make any difference in terms of reporting?

The owner generally doesn't need to file Form 1040NR unless they have effectively connected income from US sources or are otherwise required to file a US personal return. The LLC filings (pro-forma 1120 and 5472) satisfy the entity reporting requirements, while Form 1042 addresses the withholding obligations. The choice of investment platform doesn't fundamentally change your reporting obligations, but it may affect how withholding is handled. Both Interactive Brokers and US banks will typically require a W-8BEN or W-8BEN-E to establish your tax status and treaty benefits. What matters more is keeping clean records of all transactions and ensuring you're properly documenting your claim to treaty benefits.

How does taxr.ai handle the treaty provisions? I'm from Germany and our treaty has specific clauses about dividend withholding that confused my accountant. Can it really interpret treaty specifics correctly?

Did you have to provide bank statements or other financial docs? My situation sounds similar but I'm concerned about sharing sensitive financial info with online services. How detailed did you need to get with your investment info?

The system handles treaty provisions by analyzing the specific treaty between your country and the US. For Germany specifically, it correctly identified the reduced withholding rates for dividends (generally 15% instead of 30%) and walked through the documentation requirements to claim those benefits. It was more accurate than my previous accountant on those details. You do need to provide some financial information, but not full bank statements. It asks for summary information about income types and sources. I provided total dividend amounts and interest income, but didn't need to upload actual statements. You can be somewhat general about investment amounts while still getting accurate guidance on form requirements.

How long did it take to actually get through to someone? I've been trying for months about my Singapore-US situation and literally can't get past the automated system. Did they connect you with someone who actually understood international tax issues?

This sounds too good to be true. The IRS international line is notoriously impossible to reach. Why would this service work when calling directly fails? Seems sketchy that they claim to get priority access somehow.

I got through to an actual IRS representative in about 27 minutes. The crazy part is I'd already spent hours across multiple days trying on my own without success. The person I spoke with definitely understood international issues - they specifically discussed the US-Sweden treaty provisions applicable to my situation. The service works because they use technology to navigate the IRS phone tree and hold systems. They're not claiming "priority access" - they're just using a system that continually redials and navigates the phone tree until it gets through, then connects you when a human answers. It's basically doing the frustrating part automatically instead of you wasting hours on hold. It's not some secret backdoor - just automation of the painful calling process.

Thanks for bringing up the state-level considerations! I hadn't thought about potential economic nexus in other states based on investment sources. Do you know if there's a general threshold for this? Like would a few thousand in dividend income from a California-based company trigger filing requirements there? And yes, I'm keeping my registered agent current in Delaware and paying the annual franchise tax. Just want to make sure I don't accidentally create tax obligations in multiple states.

The thresholds vary by state, but most states have minimum amounts before economic nexus kicks in. For California specifically, the threshold is pretty high - typically $500,000 in sales into the state. Dividend income specifically is usually sourced to your place of residence rather than where the company is headquartered, so a few thousand in dividends from California companies likely wouldn't trigger filing requirements. The bigger concern would be if your software activities were somehow directed at customers in specific states. That's much more likely to trigger economic nexus than passive investment income. Just keep good records of where your income is coming from, and if the investment income grows substantially, it might be worth consulting with a state tax specialist.

Can you explain more about FDII? I thought that only applied to C-corps, not disregarded entities. Would the foreign owner need to make an election to be treated as a corporation for this to apply?

You're absolutely right - FDII only applies to C-corps. I was getting ahead of myself thinking about potential future elections. For a disregarded entity, the FDII provisions wouldn't currently apply unless the owner made an election to treat the LLC as a corporation for tax purposes. The main point about separating business and investment activities in the operating agreement still stands though. Even for a disregarded entity, clear documentation helps if there are ever questions about whether investment income should be treated as effectively connected income versus passive income, which affects withholding and reporting requirements. Thanks for catching that - don't want to confuse anyone about current vs potential future tax elections!