Do you have a bank account in a foreign country - This is what you need to know
n today's globalization world, it is fairly common for U.S taxpayers to have one or more financial accounts located outside of the U.S. By definition, financial accounts are included checking & saving bank accounts, pension accounts, and investment accounts. But you might be surprised that you have to report your money in foreign bank accounts to the U.S. In addition, you have to file a special form with FinCEN, the U.S Treasury Department’s Financial Crimes and Enforcement Network. This special form is commonly called “FBAR” or FinCEN Form 114, Report of Foreign Bank and Financial Accounts.
In fact, not every U.S taxpayer with foreign financial accounts is requested to file the form FBAR. If you meet the requirement, then you have to follow the process to file the form FBAR on time. If you do not meet the requirement, then you are all set for now but still have to keep in mind that you might meet the requirement in the future.
We are going to look at who must file a form FBAR, what is the process, and what else you need to know.
Do you need to file an FBAR?
If you live in the U.S or aboard, every U.S. person (U.S. citizens, green card holders, resident aliens) is required to file an FBAR if they are an owner, nominee, or can control the distribution of the account's funds. If the combined balance of all your accounts is more than $10,000 at any point during the calendar year, you must file the form.
For example, suppose you are a U.S. citizen living in Norway and you have two checking accounts at a Norwegian bank that together held $15,000 during 2018. In this case, you must file an FBAR for 2018 even if each account only held $5,000.
When Is The FBAR Due?
The due date of the FBAR is the same as the due date for your tax return: April 15 2019 However, if you live abroad, your FBAR filing deadline will match the automatically extended deadline for your tax return, June 15, 2019. Furthermore, if you have the 6-month extension to October 15, 2019, your FBAR deadline is extended to that date as well.
What else do you need to know?
The FBAR is not filed with a federal tax return; rather, it is filed separately and directly with FinCEN. Importantly, if you are required to file an FBAR, you must file the form even if you are not required to file a U.S. return with the IRS.
In addition, U.S. citizens and resident aliens report all worldwide income, including income from foreign trusts and foreign bank and securities accounts, such as interest income. In most cases, these taxpayers need to complete and attach Schedule B (Form 1040) to their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and also requires U.S. citizens to report the country in which each account is located.
How do you file FBAR?
Your FBAR must be filed electronically through FinCEN's BSA E-Filing System or by utilizing a preparation service that has the ability to file the form. If you own the financial account with your spouse, then you can file one form of FBAR for both of you and your spouse. If either you or both own a separate foreign financial account, each spouse must file their own form FBAR.
Why should you file FBAR? What is the penalty if not filing on time?
Under the current FBAR rules, if you are required to file but either you do not file on time or if you do not correctly report your foreign accounts, you can be subject to a penalty of up to $10,000 per violation. This is true even if you did not know you were required to file. If you are aware of your requirement and do not file an accurate FBAR, or if you fail to file it on time, you could get hit with a $100,000 penalty per violation or an even higher penalty, depending on your account balances at the time of the violation.
Some people might afraid the U.S government will impose a tax on the money that U.S taxpayers own outside of the country. In fact, it is not true. The purpose of the form FBAR tries to prevent money laundry from country to country and financial crime. Therefore, there is no need to worry about paying additional taxes on the money that you have outside of the country and not to file the form FBAR.
If you have additional legal or tax issue with your foreign income and foreign financial accounts, talk to a professional legal and tax professional.