The Report of Foreign Bank and Financial Accounts (FBAR) is an important Treasury Department document for Americans living overseas or with money in foreign financial accounts. Failing to file or filing late can result in unwanted penalties from the IRS.
As such, it is critical to understand foreign financial account reporting and the differences between FBAR and other foreign account reporting forms, like IRS Form 8938.
This guide will help you learn more about FBAR and its filing requirements.
What is FBAR?
The Report of Foreign Bank and Financial Accounts is how the IRS and Treasury Department keep track of money in overseas financial accounts. FBAR covers bank accounts, brokerage accounts, mutual funds, and more. Having money in these accounts renders you liable for reporting foreign financial account balances. This reporting requirement applies to all Americans who have money in foreign accounts.
Reporting these funds helps combat tax evasion and is something U.S. citizens with money in non-U.S. accounts must do. Foreign account holders submit FBAR to FinCEN instead of the IRS. FinCEN is the Treasury’s Financial Crimes and Enforcement Network. This network is responsible for handling Form 114 (the FBAR form).
What are Filing Requirements to Report Foreign Money Accounts?
Any U.S. citizens, Green Card holders, and resident aliens with foreign financial accounts that have a balance exceeding $10,000 need to file FBAR. If you are the owner of a foreign account or have a level of control over assets, you are required to report these accounts via FBAR.
If you hold several foreign money accounts with a combined total of $10,000 or more, you are also required to file FBAR, even if an individual account never exceeds $10,000.
Do You Need to File FBAR for Accounts Less Than $10,000?
FBAR applies to taxpayers with foreign financial accounts holding a balance of $10,000 or more. However, it is essential to realize that the threshold is aggregate.
If you have several accounts that exceed $10,000 when combined, you must file FBAR. Therefore, you may have several accounts with a balance of less than $10,000 and still be liable for FBAR reporting.
The length of time your balance exceeds $10,000 is irrelevant because as soon as you reach the threshold, FBAR filing is required.
When is the FBAR Deadline?
Foreign financial account holders should file FBAR annually on April 15th, or the first non-holiday weekday if the 15th falls on a weekend. Failure to file FBAR on time can result in fines. Taxpayers unaware of their foreign account filing responsibility can get fined $10,000 per violation.
Whereas taxpayers who decide to purposely avoid filing can expect a fine of $100,000 or 50% of the balances of their foreign accounts — the higher of these two figures will be the amount fined.
Although the FBAR deadline is April 15th, FinCEN provides an automatic extension to October 15th.
How is FBAR Different from IRS Form 8938?
IRS Form 8938 has different reporting criteria than the FBAR. 8938 is for Individuals and entities with an interest in foreign financial assets, including foreign partnership interests and foreign stock not held in a brokerage account. Filing an 8938 form with the IRS does not change FBAR filing requirements, so it is important to conduct due diligence and ensure you file the appropriate foreign financial account documents.
Does the IRS Tax Foreign Account Balances When You File FBAR?
In most situations, you must pay taxes on foreign income. If you are simply holding money in foreign accounts that you already reported as income to the IRS, then FBAR is solely for reporting purposes, and the IRS does not tax your foreign account balances.
Keep in mind that even if you paid taxes on foreign income, you are still always required to declare funds in foreign accounts and failure to do so can result in substantial penalties.
Simple FBAR Filing Instructions
The annual filing date for the FBAR is April 15th and you can e-file with FinCEN’s BSA E-Filing System. For each foreign financial account, you will file name on account, account number, financial institution address, account type, and highest balance during the year.
If you prefer to mail your FBAR form instead of submitting it electronically, you will need to request an e-filing exemption from FinCEN in advance. Don’t worry if the April deadline passes and you haven’t filed as FinCEN grants an automatic extension until October 15th.
It is also important to note that you do not submit FBAR with your tax return even though foreign account reporting and tax filing often share the same deadline.
How Can Wiztax Help?
Call us today at (866) 568-4593 to learn more about how we can help. Or start here to take our free online evaluation.
6 Simple Questions. Free Evaluation.
Join our Newsletter
Enter your email address to join our free newsletter. Get all the latest news and updates.