It is essential as a US expat that you understand The Foreign Account Tax Compliance Act, commonly known as the FATCA. It’s 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.
Form 8938: Include it with your annual return
U.S. taxpayers with foreign accounts and assets may need to file Form 8938. You attach it when submitting the annual tax return. The deadlines for both your annual return and Form 8938 are the same. In fact, you can’t submit this form separately. On the form, you will list all accounts to which you are named. Additionally, you need to list non-account assets, such and contractual investments and business or trust ownership.
Be aware that filing Form 8938 does not relieve you of the FinCEN filing requirements of Form 114, often referred to as FBAR.
So, what do you need to do? Easy, complete the form honestly and accurately listing any and all foreign financial assets that you have an interest in. Be sure to include assets regardless of their impact on your tax liability for the year. Include your completed Form 8938 with your annual return. Your annual return may include the following forms, 1040, 1041, 1065, 1120, or others.
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.
A summary of FATCA for US expats
If you are a US citizen or green card holder living abroad there is a strong likelihood that you need to report accounts to the U.S. Government. Either on Form 8938, FinCEN Form 114 or both. This is an informational form, submitted along with your annual tax return, that contains a simple list of your foreign accounts and their balances. FATCA, although it reports information similar to the FBAR requirements, is a separate provision. And in most cases, a U.S. expat needs to submit FBAR as well if he qualifies for FATCA too. Simply because the FBAR threshold is much lower than FATCA. If you need to file Form 8938, you need to submit FinCEN Form 114 too.
The 2018 deadline for FATCA reporting for US expats is April 18th, 2018 as Form 8938 must be submitted along with your annual return. The U.S. citizens living abroad get an automatic extension until June 15, 2018. We can help with FACTA reporting. Contact us now and receive a free consultation.