You may know that filing US taxes is a task every American abroad needs to do once a year. But when it comes to reporting your foreign financial details to the IRS, some Americans may be unsure if they have to do that, too.
The truth is, knowing how much is in your foreign financial accounts is crucial in determining whether you need to file for the FBAR or Form 8938. These are two important forms, that if not filled out, could cost you unnecessary penalty fees.
The Foreign Bank Account Report (FBAR) is a required form every American abroad must fill out if all their foreign financial accounts total over $10,000 at any one time during the year. This also includes accounts you have signature authority over (ie: your child’s overseas bank account, etc). The Department of Treasury needs to know no off-shore money laundering is happening!
To fill out the FBAR, you need to use the FinCen Form 114 electronically. Or, to make things easier, you can use the MyExpatTaxes software which is a more user-friendly, simple-to-understand process. The FBAR is typically due on April 15th, but Americans abroad get an automatic extension to October 15th. Keep in mind though, the FBAR is an additional form you have to fill out separately to the regular federal tax return form - Form 1040. It is sent to the US Treasury, not the IRS.
Form 8938 is important to fill out if your foreign financial assets (ie: bank accounts, investment accounts, and mutual funds) go over one of the following limits:
Single or Married Filing Separately while living abroad as an American:
Your total foreign holdings worth $200,000 or more on the last day of the US tax year (April 15th) OR were more than $300,000 at any time during the tax year,
Married Filing Jointly while living abroad as an American:
If your total foreign holdings are worth $400,000 or more on the last day of the US tax year (April 15th) or were more than $600,000 at any time during the tax year.
Since 2015, foreign banks under the authorization of the IRS must report to the IRS Americans’ income within their bank accounts. This is why it’s important to file the FBAR and FATCA (Form 8938) correctly.
Additionally, the FATCA (Foreign Account Tax Compliance Act) is a US federal law that aims to stop money laundering overseas. In reality, it affects almost all Americans Abroad. Financial institutions worldwide must report the data of their US clients back to the US government annually, and US citizens must also self-report this information if they pass certain financial thresholds discussed below.
Yes, this is the law, and is the reason why you are required to sign authorization forms at your Austrian Bank and give them your US social security number.
— Nathalie Goldstein, CEO of MyExpatTaxes and Enrolled Agent (IRS)
Please note: Democrats Abroad does not endorse companies or service providers. DA Austria reached out to a few tax companies for contributions for both this article and the talk on March 31st at the Republikanischer Club. Only MyExpatTaxes responded. They have also offered Democrats Abroad members a 10% discount to try out the MyExpatTaxes software with code: DemocratsAustria. DAA would like to thank them for sharing their expertise with our members.