What is FBAR filing and who needs to report it?
You may have heard of FBAR filing yet still have a vague understanding of it and whether it’s something you need to do. FBAR means Foreign Bank Account Report and it refers to FinCEN Form 114, Report of Foreign Bank and Financial Account. Requirements of FBAR 2021 filing are quite simple. If you’re wondering “Do I need to file FBAR 2021” or looking for FBAR filing help, this article is for you.
Here are the applicability criteria:
- You are a U.S. person for tax purposes hence U.S. citizen, dual citizen, or Green Card holder living abroad;
- You have individually or jointly owned a foreign financial account or a signature or other authority over one or more accounts;
- And the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.
Besides the eligibility criteria mentioned above for who needs to file FBAR, it would be worthwhile to know at the outset that FBAR 2021 must be filed electronically.
How does a U.S. expat report FBAR on FinCEN Form 114?
On FinCEN Form 114 – the FBAR filing form – a taxpayer needs to report foreign financial assets according to the certain requirements. They include but not limited to bank, securities, and financial instruments accounts; mutual funds and you, as the account holder, have an equity interest in the fund; brokerage account, trust, and insurance policies or annuity contracts with a cash value etc.
Filing an FBAR 2021 is required if the total (aggregate) value of all of your financial assets is over $10,000 on any day in the tax year. It is can be a quite confusing situation for taxpayers who they aren’t the main holder of a financial account. Americans abroad mistakenly think they don’t need to disclose the foreign account on FBAR in this case. Well, you need to know that even the nominee must still file the form if the threshold was met.
Example – FBAR filing for US Expats: A U.S. person abroad has 2 different overseas financial accounts. He has $3,400 in one and $6,600 in another; he must report both accounts on Form 114.
What you do not need to claim on the FBAR 2021: domestic mutual funds that invest in foreign stocks and personal property held directly. Americans in Canada, check out this blog post about tax traps for you.
By when must an American overseas file an FBAR?
The deadline for FBAR 2021 is April 15th, 2021. Moreover May 17, 2021, the extension of the due dates for the filing of federal income tax and other taxes does not apply to the 2021 FBAR deadline. However if you’ve failed to fail an FBAR until now, don’t panic!
FinCEN has granted everyone an automatic extension to October 15th, 2021. So you don’t even have to make a request to be granted the extension. Hurry up and sort out your Foreign Bank Account Report before the last due date!
How to file an FBAR?
Important 2021 FBAR filing info – The FBAR 2021 is filed electronically through FinCEN’s BSA E-Filing System and it’s filed separately from a federal tax return. Even if you’re filing FBAR for a previous year or an amended form, nevertheless it’s mandatory to use the official FinCEN website.
Should I file more than one FBAR or can I file it jointly with my spouse?
You are able to file a single FBAR:
- If you have joint accounts together with your spouse,
- And none of you or only one has a separate account.
Otherwise, each spouse must file their own FBAR.
A taxpayer who holds a foreign financial account can still meet the reporting obligation even when it doesn’t produce taxable income! It happens by answering questions on a tax return about foreign accounts (Schedule B Form 1040). And additionally, you need to file an FBAR too.
Are you a U.S. citizen living in the United Kingdom? Check out this article about tax obligations for Americans in the UK!
Are there any FBAR penalties for failing to report?
Penalties for failure to file an FBAR – Under the current FBAR rules, if you non-willfully fail to report FBAR, there is a penalty of up to $10,000. Willful violations lead to a penalty of up to $100,000, or 50% of account balances. Criminal penalties may also apply. Over the last decade after introducing the FBAR penalties, the filings have skyrocketed from 280,000 FBAR in 2005 to 1 million in 2015.
To catch up on late FBARs, you may use Delinquent FBAR. It applies in situations when you don’t need to use the IRS tax amnesty programs:
- Haven’t filed a required FBAR/FinCEN Form 114;
- Are not under a civil examination or a criminal investigation by the IRS
- The IRS hasn’t contacted you about the delinquent FBARs.
You will need to file the late FBAR on FinCEN website and include a statement of why you are filing the FBARs late.
What is Form 8938 and do I need to file it?
It’s a separate form, which doesn’t replace nor affect your U.S. expat’s obligation to file FinCEN Form 114. You need to check the requirements and relevant reporting thresholds of each form to determine if you need to file Form 8938, Statement of Specified Foreign Financial Assets.
A U.S. citizen, a GreenCard holder, or a dual citizen living abroad has to file Form 8938 if they meet the following requirements. If a single individual (or a married person who is filing separately):
- holds assets, with a total value of more than $200,000 on the last day of the tax year
- OR assets exceed $300,000 at any time during the year
If a married person is filing jointly:
- the total value of their assets has to be more than $400,000 on the last day of the tax year
- OR assets exceed more than $600,000 at any time during the year.
You need to file and attach Form 8938 to your annual federal tax return and due on the date of the latter, including applicable extensions.
The penalty for Form 8938 is up to $10,000. And then an additional amount of $10,000 is required for every 30 days after an IRS notice/letter. The potential maximum penalty is $60,000 and criminal penalties may also apply.
What does FATCA have to do with FBAR?
FATCA, or the Foreign Account Tax Compliance Act, is different from FBAR. Form 8938 is a part of FATCA laws and it’s filed with your federal tax return and submitted to the IRS. You file an FBAR with the US Treasury Department, and the threshold is much lower. Remember, it is $10,000 for FBAR filing vs. min $200,000 needed for Form 8938.
You are most likely not be affected by FATCA unless you have at least $200,000 as an interest in foreign financial assets.
According to the IRS, having an interest in an account or assets means “if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return”.
If you need help with your FBAR 2021 filing, contact us today and we will get back to you within 24 hours.