With constant changes and requirements, expatriate taxes can be confusing to say the least. What forms do you file? Who has to file? When do you file? Navigating these crazy waters requires time, energy and lots of knowledge.
There are even forms that must be filed separately from your tax returns, like the Foreign Bank Account Reporting Form (FBAR), required if you have foreign bank accounts. Didn’t know about it? Want to know what you have to do if you have foreign accounts? Here are the top ten things you need to know about reporting your foreign bank accounts.
The definition of FBAR
It is a tax form used to collect basic information on financial accounts overseas where American citizens or residents have control over them. The definition of a financial account includes a bank account, brokerage account, mutual fund, unit trust, or other types of monetary accounts.
Who has to file an FBAR
If you are an American citizen, resident alien, trust, estate or domestic entity and have 10,000 USD or more (USD equivalents included) in a foreign bank or financial account at any point during the calendar year, you are required to file Form 90-22.1. This means that if you have a checking account in a country outside of the United States with a balance of 9,950 USD but the account contains an extra 50 USD for a day, you will still be required to report that account on the FBAR, in addition to any other foreign accounts in your name.
Even if your money is spread out over several smaller accounts, you have to file a FBAR
The IRS requirements state that even if your total, or aggregate, balance is spread over several accounts, you have to file the FBAR. What about if you have several accounts with smaller dollar amounts? If they equal 10,000 USD, file away.
Even if you are just a signature authority, you must file an FBAR
According to the IRS, “Signature authority” means that you have some level of control over the disposition of assets through direct communication with the institution.
Deadlines are non-negotiable!
You must file by 30 June, no exceptions. In this case, “file” means that the IRS must receive your FBAR by that date, rather than allowing it as the postage date.
Penalties are steep!
The penalty for failing to file a FBAR is 10,000 USD for each non-willful violation. If willful, the penalty is the greater of 100,000 USD or 50 percent of the amount in the account for each violation. Each year you didn’t file is a separate violation. Ouch!
If you file the FBAR, you may still have to file Form 8938
Form 8938 is a completely different form with different requirements and doesn’t replace the FBAR. Plus, the FACTA (Foreign Account Tax Compliance Act) requires that foreign financial institutions report information directly to the IRS regarding the financial accounts held by US taxpayers, so if you meet the criteria, filing is critical.
If you haven’t filed FBAR for numerous years, it’s not too late to come clean
The IRS offers an amnesty program called the Offshore Voluntary Disclosure Program. You file all amended tax returns and pay back taxes and you will receive reduced penalties for previous non-compliance.
This is just a peek into the world of FBAR and 8938. Clear as mud? Don’t hesitate to seek advice from an expat tax professional, such as Greenback Expat Tax Services, for the most up-to-date requirements, forms and information.
