US tax law requires people with foreign financial accounts to report them to the US Treasury Department, even if the accounts don’t generate taxable income. While the requirement is often portrayed as something to fear (especially by people who’ve missed or skipped reporting their accounts), the reality is there are multiple options you can take to get back in compliance with IRS rules.
How to Report a Foreign Bank Account
Most Americans who live abroad know they must still file US tax returns. However, many often forget that, in some instances, they must also file a Foreign Bank Account Report, or FBAR.
The FBAR was created as a way for the Internal Revenue Service to uncover tax avoiders hiding money in offshore accounts. If you hold foreign bank accounts, keep these two critical points about your FBAR responsibilities in mind.
- Filing an FBAR does not mean you will be taxed on any account balances.
- Ignoring FBAR requirements can result in penalties and legal consequences.
FBAR filing requirements apply to any and all foreign bank accounts with a balance of $10,000 or more in which any US person, including non-citizens, holds an interest or signature authority. “Interest” is defined as someone who’s the owner of record or legal title; “signature authority” refers to anyone who has a level of control over asset disposition through direct communication with the financial institution.
It’s important to note that the FBAR filing threshold is an aggregate amount. So, if you have multiple accounts with individual balances below $10,000 but collectively total more than that amount, you must file.
When You Need to File an FBAR
FBARs must be filed by April 15 annually. If you miss the deadline, an automatic extension to October 15 is granted.
FBAR filing is different from filing a federal tax return. It’s also filed separately and is submitted to the Department of the Treasury, not the IRS. The process is fairly straightforward but does require gathering pertinent and specific account information. Many people choose to hire a third party, such as a CPA or certified tax preparer, to handle the FBAR process for them.
Along with reporting foreign account balances, information on your FBAR should include:
- Foreign stock or securities held in financial accounts at foreign financial institutions. You must report the accounts, but you don’t need to report any account’s contents separately.
- Financial accounts held at foreign branches of US banks.
- Foreign mutual funds.
- Foreign-issued life insurance or annuity contracts with cash values.
Common Issues With FBAR Forms
Meeting FBAR requirements can be challenging for many people, particularly those with accounts spread over various financial institutions and in multiple countries. The two most common FBAR filing errors are:
- Forgetting to include pension funds, life insurance policies, and inherited money.
- Believing the $10,000 stipulation applies to the total of all foreign accounts.
The good news is that if you’ve neglected to file previously required FBARs—or if you believe you might have misfiled them—you can still correct or file the forms.
Schedule a Consultation With Gurian CPA Firm
Millions of Americans have past due FBAR forms. Fortunately, the IRS has created two amnesty programs to help them catch up and come into compliance with US tax law. If you need assistance with foreign bank accounts or filing one or more FBARs, Gurian CPA Firm can help. We specialize in helping people file their US taxes on time.
Contact us online or call Gurian at 469-374-3150 to arrange a consultation. We look forward to giving you the peace of mind that comes with knowing your FBAR filings are 100% compliant and accurate.
