How to File Taxes as an Expat
Filing your taxes as a U.S expat living abroad? Find out how you can do it online with Taxfyle!
What Is FBAR Reporting?
The United States has a vested interest in ensuring that individuals aren’t hiding their money in offshore accounts. Otherwise, it would be easy for someone to circumvent the taxation and financial rules that keep the US running. Accordingly, certain individuals must report their foreign financial accounts on an annual basis, with a Foreign Bank and Financial Accounts Report (FBAR). But how exactly does FBAR reporting work, and how can you file a report for yourself?
An Overview of FBAR Reporting
The Bank Secrecy Act, originally passed in 1970, requires individuals to report certain types of foreign financial accounts. This allows the Treasury Department to maintain records of those accounts. Though primarily intended to dissuade shady offshore account moves, these requirements must also be followed by US expats living abroad. Fortunately, filing an FBAR is easy, and you’ll only need to submit an FBAR report once a year.
Who Must File an FBAR Report?
Every US person, including citizens, green card holders, and resident aliens, is required to file an FBAR report if they hold foreign accounts that total more than $10,000. This means regardless of whether you live in the United States or elsewhere, you’ll need to file an FBAR report if you have more than $10,000 in any combination of foreign accounts. This requirement applies to any point during a calendar year, so if your account peaks to $10,001 for only one day, then drops below $10,000 for the remainder of the year, you’ll still need to file. This also applies to distributed values; for example, if you have $4,000 in a savings account, $4,000 in a checking account, and $4,000 in a brokerage account, you’ll have $12,000—which requires you to file an FBAR report.
The exact specifications from the IRS state that the following are requirements 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.”
Any account at any financial institution is generally included in this definition. However, there are some exceptions. For example, you won’t need to report financial accounts that are:
Owned by a government-related entity
Owned by a financial institution of international status
Owned through a US military banking facility
Part of an individual retirement account (IRA) you own or are beneficiary of
Part of a retirement plan of which you’re a participant or beneficiary
Included a trust of which you’re a beneficiary, so long as some accountable US person for that account files an FBAR reporting these accounts.
If you jointly own reports with your spouse, and your spouse files an FBAR report, you will not need to also report those accounts.
When Should You File an FBAR Report?
The FBAR is an annual report, much like your federal income tax return. It is due April 15 of the year following the calendar year being reported. In other words, your 2019 FBAR will be due April 15, 2020, just like your federal income tax return. As an expat, you will be allowed an automatic extension to October 15 if you miss this deadline. You may also be granted an extension in certain extenuating circumstances, like if you’re negatively affected by a natural disaster.
FBAR and Form 8938
It’s important to note that all US expats are required to file an annual federal income tax return with the United States. You will need to complete Schedule B, Part III, as part of your tax return; this schedule will ask you about your current foreign accounts, including bank and securities account, and where those accounts are located. While similar in nature to the FBAR report, the FBAR is a completely separate requirement. Merely filling out Schedule B, Part III, does not constitute FBAR reporting.
Additionally, you may need to complete and attach Form 8938 to your tax return. If you meet certain account thresholds, you’ll need to complete this form. Again, this is separate from FBAR requirements.
How to File an FBAR
Let’s say you have more than $10,000 in your foreign-held accounts. In most cases, this will mean you’re required to complete and submit an FBAR report. How do you go about this?
For starters, you can use a preparation service like Taxfyle to electronically file your FBAR report. You may also be able to use the Financial Crimes Enforcement Networks (FinCEN) BSA e-filing service. Paper filings are no longer accepted.
For each account you currently hold, you’ll need to report several pieces of information, including:
Name(s) on the account.
The name and address of the financial institution.
Type of account (such as savings account, checking account, or brokerage/securities account).
Maximum value during the year.
You’ll need to attach a copy of a document that verifies these pieces of information. There are no guidelines that state exactly which documents are allowed; as long as you include one or more documents that confirm these pieces of information, your reporting requirements will be met. You will also be required to keep and maintain these documents for five years following the due date of the FBAR report.
What If I Don’t File an FBAR Report?
If you miss the first deadline for your FBAR report, you may be able to take advantage of the automatic extension; you have until October 15 to file in this scenario. You may also be able to file late or delinquent FBAR reports, occasionally without penalty, so long as the IRS hasn’t contacted you directly about the delinquent account. If this is the case, you’ll need to explain to the IRS why you were late; if you were simply unaware of the requirements, or if you didn’t realize the value of your accounts, you may be able to skate by with a timely follow-up.
That said, if you deliberately choose not to file, if you try to hide your accounts, or if you’re egregiously late with your FBAR report, you will be subject to civil monetary penalties and/or criminal penalties. These currently include:
A maximum penalty of $12,921 for “Foreign Financial Agency Transaction - Non-Willful Violation of Transaction.”
50 percent of the account amount, or $129,210, whichever is greater for “Foreign Financial Agency Transaction - Willful Violation of Transaction.”
A maximum of $1,118 for “Negligent Violation by Financial Institution or Non-Financial Trade or Business.”
A maximum of $86,976 for “Pattern of Negligent Activity by Financial Institution or Non-Financial Trade or Business.”
In addition to these monetary civil penalties, there’s a chance you could face criminal charges. These charges vary, depending on the nature of the accounts and the egregiousness of the crime.
Note that these penalties will all depend on your circumstances. If you make an innocent mistake and do everything in your power to fix it, you probably won’t have to worry about a six-figure fine and jail time. But if you have millions of dollars of unreported money and you’ve been deliberately avoiding the IRS for a decade, you can expect the IRS to catch up to you in time.
Getting Help With FBAR Reporting
FBAR reporting is just one of the many hoops you’ll have to jump through as a US expat, especially around tax season. If you need a bit of help making sure you’ve done everything correctly, consider working with Taxfyle. Start your taxes today, or check out our blog to learn more about taxes and financial requirements for expats.
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