Understanding tax code alone is already an intimidating task, add being a US Expat in the mix, and it becomes even more complex and confusing. To avoid committing mistakes or missing deadlines and forms to file, follow our series of blogs where we discuss important things expats should keep in mind!
Missed Part 1 and 2? Here are the links to it: Things You Should Know About US Expat Taxes Part 1 and Things You Should Know About US Expat Taxes Part 2
Know If You Must Report Foreign Bank and Financial Accounts
Every year, under the law known as the Bank Secrecy Act, you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. You report the accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114.
A United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report:
- a financial interest in or signature or other authority over at least one financial account located outside the United States if
- the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
There are exceptions, so be sure to check those out.
The FBAR Deadline Falls on Tax Day
The last blog had fully explained if you need to report your Foreign Bank and Financial Accounts (FBAR). Keep in mind that FBAR is an annual report, due April 15 following the calendar year reported.
You’re allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You don’t need to request an extension to file the FBAR.
If you are affected by a natural disaster, the government may further extend your FBAR due date.
You May Need to File FATCA Form 8938
Foreign Account Tax Compliance Act (FATCA) is similar to FBAR in that it is intended to prevent US taxpayers from hiding money in offshore accounts and assets.
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS generally using Form 8938, Statement of Specified Foreign Financial Assets. This form must be must be attached to the taxpayer’s annual tax return.
If you are required to file Form 8938, you must report your financial accounts maintained by a foreign financial institution. Examples of financial accounts include: Savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer.
Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000. Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent. Criminal penalties may also apply.
If you are an expat and need help with your taxes, our Enrolled Agent can help you! Contact us today at firstname.lastname@example.org or at 713-855-8035.