Introduction:
If you are a US citizen or resident living abroad, you may have heard of the term FBAR and wondered what it means and how it affects your taxes. FBAR stands for Foreign Bank Account Report, and it is a form that you may need to file with the US Department of Treasury if you have foreign financial accounts that exceed a certain threshold. In this blog post, we will explain what FBAR is, who needs to file it, when to file it, and what are the tax implications of having foreign accounts.
What is FBAR?
FBAR is a form that reports your foreign financial accounts to the US government. It is also known as FinCEN Form 114, and it is filed electronically through the Financial Crimes Enforcement Network (FinCEN) website. FBAR is not a tax form, and it does not affect your income tax liability. However, it is a requirement under the Bank Secrecy Act, which aims to prevent money laundering and other financial crimes.
Who needs to file FBAR?
You need to file FBAR if you are a US person and you have a financial interest in or signature or other authority over one or more foreign financial accounts that have an aggregate value of more than $10,000 at any time during the calendar year. A US person includes a citizen, resident, corporation, partnership, limited liability company, trust, or estate. A foreign financial account includes any bank account, brokerage account, mutual fund, trust, or other type of financial account located outside the US. However, there are some exceptions to the FBAR reporting requirement, such as:
Accounts owned by a governmental entity or an international financial institution
Accounts maintained on a US military banking facility
Accounts held in an individual retirement account (IRA) or a retirement plan
Accounts that are part of a trust of which you are a beneficiary, if a US person files an FBAR for these accounts
How to determine if you need to file FBAR?
To determine if you need to file FBAR, you need to check the balance of your foreign financial accounts periodically throughout the year and convert them to US dollars using the exchange rate on the last day of the year. If the total value of all your foreign accounts exceeds $10,000 at any point during the year, you need to file FBAR. Even if you only exceeded the threshold for one day or part of one day, you still need to file FBAR. It does not matter if your accounts did not generate any income or if you did not access them during the year.
When to file FBAR?
The deadline for filing FBAR is April 15 following the calendar year reported. However, you can get an automatic extension until October 15 if you fail to meet the April 15 deadline. You do not need to request an extension to file FBAR. You just need to file it by October 15. If you are affected by a natural disaster, the government may grant you further relief and extend your FBAR due date. You should check the relevant notices for more information.
What are the tax implications of having foreign accounts?
As mentioned earlier, filing FBAR does not affect your income tax liability. However, having foreign accounts may have other tax implications that you should be aware of. For example:
You may need to report your foreign income on your US tax return and pay taxes on it. This includes interest, dividends, capital gains, rental income, wages, pensions, etc. However, you may be able to claim certain exclusions or credits to reduce or eliminate your US tax on foreign income.
You may need to file other forms besides FBAR to report your foreign assets or activities. For example, Form 8938 (Statement of Specified Foreign Financial Assets), Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts), Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner), Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations), Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), etc.
You may be subject to additional reporting requirements and penalties if you have any involvement with certain foreign entities or transactions that are considered abusive or harmful by the US government. For example, foreign trusts, foreign corporations with passive income, foreign partnerships with related parties, etc.
How can I get help with filing FBAR and other forms?
Filing FBAR and other forms related to your foreign accounts can be complicated and time-consuming. If you are not sure how to do it correctly or if you need assistance with your US taxes as an expat, you can contact us at anshul@kkca.io. We are a team of experts who specialize in expat tax preparation and compliance. We can help you file your FBAR and other forms online, quickly and easily. We can also help you claim the benefits and deductions that you are entitled to as an expat, such as the Foreign Earned Income Exclusion, the Foreign Tax Credit, the Foreign Housing Exclusion or Deduction, etc. We can also help you with any tax issues that you may have, such as delinquent filings, audits, penalties, etc.
Don’t hesitate to seek expert guidance. Navigating the world of international tax can be daunting, but you don’t have to go through it alone. Our dedicated team is here to provide clarity and direction, ensuring you make informed decisions. Email at anshul@kkca.io or call at +1 323 522 5584