Unfortunately, US expatriate tax return reporting requirements baffle even the most seasoned taxpayers. The requirements are constantly changing and in recent years, new asset reporting forms such as the Report of Foreign Bank and Financial Accounts (FBAR) and the Statement of Foreign Financial Assets (Form 8938) have been added to the reporting requirements, making it even harder to figure out what needs to be filed and when. This article will explain what you as a U.S. Expat taxpayer need to know to stay compliant with your foreign bank account reporting requirements.
FBAR: What Is It and Who Needs to File?
FBAR is a filing requirement in addition to your U.S. income tax return. It is a separate filing obligation and it is used to report all of your foreign bank and financial accounts and account balances. The FBAR is required for all U.S. taxpayers whose foreign bank account balances exceed $10,000 (or its foreign equivalent) at any point during the calendar year. FBAR filing requirements apply both to single accounts with balances above $10,000 and to multiple accounts if the total balance of the combined accounts is greater than $10,000. This means that if you have 5 bank accounts and each contains $2,000 or more, you will still be required to file the FBAR if the combined balance is more than $10,000.
Many expats are often unsure about what type of accounts must be reported. Generally speaking, if an expat’s name is on an account, he or she will probably be required to report it.
FBAR: How And When Do I File?
Unlike federal tax returns that get filed with the IRS, the FBAR must be filed directly with the U.S. Department of the Treasury using Form TD F 90-22.1. The FBAR deadline is June 30th every year and no extensions are available. The FBAR must be delivered, not postmarked, by the June 30th deadline.
Harsh penalties can apply for failing to file the FBAR. Fortunately, our experience is that the IRS is more than willing to work with delinquent expats as long as they are willing to come forward and catch up.
Form 8938: What Is It And Who Needs to File?
Much like FBAR, Form 8938 (Statement of Foreign Financial Assets) is another tool in the IRS’s arsenal to find and prosecute individuals hiding assets overseas. Unlike FBAR, Form 8938 has different tiers for individuals living abroad, which are much higher than those for individuals living in the U.S.
Filing requirements for Form 8938 depend on the filing status on your tax return, your residency status both in the United States and your host country, and your balances in bank or financial accounts overseas. The chart below summarizes the value of “Specified Foreign Financial Assets” that trigger the reporting requirement for each filing status:
If the total value on the last day of the tax year is above:
If the total value at any time during the tax year is above:
Unmarried - living in the USA
Married filing jointly - living in the USA
Married filing separate - living in the USA
Unmarried - living abroad
Married filing jointly - living abroad
Married filing separately - living abroad
Note: If you are not required to file a US tax return, then you are not required to file Form 8938 even if you are over the asset limit.
The “specified foreign financial assets” to include on Form 8938 are generally your financial accounts maintained by a foreign financial institution and other foreign financial assets held for investment. Some exceptions apply such as assets held by foreign branches of U.S. financial institutions.
Form 8938: How And When Do I File?
Form 8938 is filed with the IRS as part of your expat tax return on or before the due date of your tax return. So, if you have an extension on your US expat tax return, you also have an extension for filing Form 8938.
This article was written by David McKeegan, President, Greenback Expat Tax Services. All information is correct as of the time this article was written as of May 22 2012. However, due to the complexity of the US tax and foreign bank account reporting requirements, we always recommend you consult with a tax professional about your particular situation before making any decisions.
Confused? Need More Help?
Greenback Expat Tax Services specializes in preparation of U.S. tax returns for Americans living abroad. Greenback offers flat-fee pricing, a simple process, and experienced licensed tax professionals. As part of our tax preparation services, we can also help Americans living abroad to file form 8938 and the FBAR. For more information and to download a free guide to US expat taxes, visit www.greenbacktaxservices.com