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Duration: 3:01

Contributor: Interactive Brokers

Level: Beginner

This lesson will discuss US tax reporting and forms 1042S and 8805.

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Study Notes:

• All funds withheld by custodians, such as brokers or bankers, are paid to the US Government.
• This is generally done on a weekly basis by the custodian.
• Once the funds are remitted the agent can only get refunds from the IRS under special
circumstances.
• Generally, reporting on investment income is due to both you, the owner, and to the US
government – the IRS on March 15th for the previous calendar year.
• Reporting for business income is due to you and the IRS on April 15th for the previous calendar
year.
• If you own an interest in a partnership or LLC – even one that is publicly traded on the stock
exchange you will likely receive multiple US tax reports.

Form 1042S is used to report several types of income to non – US persons.

• Interest
• Corporate Distributions (Dividends)
• Mutual Fund Distributions (L/T Capital gains)
• Rents
• Royalties
• Compensation for Services performed in the US assumes you are in the US less than 30 days as a
general rule – there are exceptions.
• Payments in lieu
• Gambling winnings
• Annuities
• Pension and deferred income
• Distributions attributable to dispositions of
• US real Property by Publicly traded trusts and Qualified Investment entities
• The reporting is complex in this area and pertains primarily to REITs and RICs

Not all income that is subject to reporting is subject to withholding. Earlier we discussed investment
interest. This is income that is reported but it is not subject to withholding. Form 8805 reports business
income.

It is likely that you will receive multiple forms 1042S annually. The form reports only one type of
income – and associated withholding if applicable – per form. Codes are used to indicate the type of
income.

Example Income Type Codes

• Interest – US obligators
• 06 Dividends
• 28 Gambling winnings
• 29 Deposit interest
• 33 Payments in lieu

The code for certain items like payments in lieu, is determined by the type of payment it is substituting
for.

Form 1042S reports all US tax withheld from the type of income being reported, if any tax was
refunded or withheld by another agent than the reporter.

Remember that once the 1042S – is filed and reported to the US government – in March – the withholding
agents cannot obtain refunds from the IRS.

Form 8805 reports operating income earned by a US trade or business that you may own directly such
as a partnership (not publicly traded). Income and any withholding is reported and these forms are
due April 15.

If you own an interest in a US passthrough entity, such as a partnership, S-Corporation or LLC, generally
you may receive both an 8805 and a K-1 Partnership/S-corp income reporting. This applies to publicly
traded partnerships as well as closely held partnerships. Depending on the income, withholding and
type of entity you may be required to file a US non-resident tax return for this income.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Supporting documentation for any claims and statistical information will be provided upon request.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Tax-Related Circular 230 Notice

The information in this presentation is provided for informational purposes only, and does not constitute tax advice and cannot be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local or other tax statutes or regulations, or to resolve any tax issue.

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