The U.S. requires citizens to pay taxes on money they earned, even if they are living overseas. This simple truth also applies to foreign assets, including foreign bank accounts. Learn when expats are responsible for reporting foreign bank accounts and other assets, foreign bank account reporting (FBAR) filing requirements, and how Expat CPA can help.
What Are Foreign Bank Account Reporting Requirements?
In addition to filing their income tax return, expats must file a second return showing their foreign bank account assets if they hold more than $10,000 in foreign accounts. This requirement is meant to cut down on the amount of money Americans living overseas are trying to hide in foreign tax shelters, such as offshore accounts.
Both accounts owned by the individual and accounts for which the individual is allowed to make transactions count toward the $10,000 amount. The $10,000 threshold includes accounts that rise above the $10,000 valuation for a fraction of the year, which means that expats can’t spend their money in an effort to get out of FBAR. If the account balance exceeds $10,000, even momentarily, the taxpayer is liable to report that income.
Eligible accounts to consider include:
- Checking accounts
- Savings accounts
- Money market accounts
- Investment accounts
- Mutual funds
- Retirement accounts
- Brokerage accounts
- Prepaid credit or debit cards
- Life insurance
Thus, if an individual has $5,000 in a savings account, $1,000 on a prepaid credit card, and $4,000 in brokerage accounts, he or she would meet the FBAR filing requirements.
Accounts that do not need to be reported include some retirement plans, trusts, military banking accounts, and accounts that are owned by a foreign bank or government. Employer accounts over which an individual has signatory authority must be reported.
While married couples may file a joint tax return, the FBAR financial requirement is per individual, thus a married couple would be allowed to hold $20,000 in foreign accounts. Married couples can opt to file a joint report detailing their foreign assets or each file separate FBAR reports.
U.S. taxpayers must report foreign bank accounts by April 15. However, there is an automatic FBAR extension until October 15 for individuals who are unable to file in time.
Get Help Before the FBAR Deadline
While FBAR reporting requirements are not new, the IRS is enforcing the regulations more strictly. Thus, whether you have fallen behind on foreign asset reporting or were recently made aware of this liability, it is beneficial to consult with a CPA who understands the landscape for tax filers living overseas. A qualified CPA can ask the right questions and dig through the data to assure you report only the eligible accounts — while making sure you receive the breadth of expat tax benefits to which you are entitled by living or working abroad.
While most expat taxpayers are forthright about tax liability, other people do not pay tax on foreign bank accounts because they do not know they are liable. Fortunately, the IRS allows taxpayers to catch up on back taxes penalty-free. Whether you just realized you owe money on foreign-held accounts; you need an FBAR extension because you won’t be able to meet the deadline; or you’d like to discuss your liability with a CPA with demonstrated experience with expat tax issues — enlist the help of Expat CPA.
We provide expat tax help for Americans who are living abroad. Let us assist with tax filing, FBAR tax, self-employment tax and consulting. Our CPAs understand the tax laws and reporting requirements that affect expats and can help you meet your tax requirements with ease. To learn more, or obtain a quote for services, please contact us.