FATCA for U.S. expats

Jul 23, 2017

Since the introduction of FATCA in 2010, it’s been a game-changing law for all U.S. persons abroad. Find out what FATCA is about, why you need to file it and what happens if you fail to do so in our weekly infographics.

For 5 years our tax experts have helped U.S. expats with FATCA reporting and we would be glad to help you too.

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What is FATCA?

The FATCA is an ongoing effort of the US government to combat offshore tax evasion. This law has filing requirements that affect American expats of all income levels.

The law requires financial institutions in those countries to report information about accounts held by U.S. people to the US government. It’s in addition to self-reporting by U.S. residents, citizens, and green card holders residing in other countries, This is why banks have been asking you about your ties to the U.S. when opening foreign accounts in recent years.

Need a quick overview? Check out this funny video about FATCA

Many expats would prefer to have a tax professional help prepare their filings, just to be sure that all their I’s are dotted and T’s crossed. We can help with FACTA reporting!

Pro Tip 1: Avoid penalties by self-reporting all overseas accounts that you are listed on. Given the steep fines imposed on the financial institutions around the world by the US government, you can be sure that they will be reporting your accounts even if you don’t.

What filing requirements do I need to be aware of?

When you are preparing your annual taxes, those with foreign accounts should complete Form 8938 and submit it with their annual return. This would also be a great time to complete your FBAR filing while you have the information handy.

Pro Tip 2: The FATCA for US expats contains information that is redundant on the FBAR. Save yourself from completing the same work twice and complete both at the same time.

Do I need to worry about FBAR or Form 8938?

There is no need to worry. Just be aware of FBAR filing requirements. FBAR reporting applies to all U.S. persons who have combined foreign account balances amounting to over $10,000. Does this apply to you? Generally, a U.S. citizen or green card holder living abroad who are using foreign accounts for everyday activities will need to report. Basically, you need to look at the total (all accounts) to see if it exceeds $10,000 on any day of the year. 

In addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) you must submit a Form 8938 if you have more than $200,000 of specified foreign financial assets at the end of the year and you live abroad; or more than $50,000, if you live in the United States.

This applies to those who are married filing a joint income tax return:

  • and the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year
  • OR more than $600,000 at any time during the year.

These accounts can include; bank and stock accounts that have an account number, private pension accounts, investment accounts, foreign mutual funds and ETF accounts, along with foreign life insurance that has a surrender value. Additionally, if you have a beneficial interest in a foreign trust or a foreign estate, an interest in a social security, social insurance, or another similar program of a foreign government they must be disclosed.

Still, have questions about FBAR? Click here to review the blog post dedicated to FBAR filing and some frequently asked questions and our answers.

Is the form complicated?

Not at all! It is a simple form where you just name of the institution, its address, and the maximum balance. The FBAR is submitted directly to the Department of Treasury and is considered one of the most common IRS international tax forms. If you hold less than 25 accounts then you would report all the accounts on the FBAR. Be sure to include accounts with a zero balance and those that are dormant. Basically, if the account is open and you are listed it must be reported.

Remember, the FBAR is only an informational document. No additional tax will be levied. You should file your FBAR separately from your tax return – online.

Pro Tip 3: Expats living abroad all year, or those who move back to the U.S. during the year, have an increased reporting threshold. You don’t need to complete this form unless your foreign assets are valued in excess of either:

$200,000 – $400,000 if married filing jointly – at the end of the year
$300,000 -$600,000 if married filing jointly – at any time during the year

How should you handle exchange rates?

Filers do not need to use any specific exchange rate. However, the one you choose has to be reasonable for the year at issue. Check to see if there is a U.S. Treasury Bureau of the Fiscal Service exchange rate available for the currency in question and if so, use that. If not, use a publicly available foreign currency exchange rate for purchasing U.S. dollars. You will need to state the rate used on the form.

The deadline for FBAR is April 18th, tax day. However, there is an automatic six-month extension to October 16th available.

U.S. Taxes For American Expats E-book

FREE U.S. Tax Guide for Americans Abroad

The only e-book about U.S. Expat Taxes you need to read! Covers

1. Foreign Tax Credit vs. Foreign Earned Income Exclusion

2. The Additional Child Tax Credit. Get a $1,400 refund!

3.  What happens if I don't file?

and more...

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