When it comes to taxes, everything should be accounted for–from income to investments. If you own foreign financial assets, it is important that you declare your accounts on your taxes. Under the tax code, financial assets include any financial account that you have maintained by a foreign financial institution. It can be a stock, securities, or any financial tools that are not from the United States.
Why Should You Declare Your Foreign Accounts?
According to IRS, it is important to declare and file a report on your foreign accounts because offshore financial institutions are not subjected to the same reporting requirements as the domestic banks, for example. Thus, declaring your foreign accounts will help the federal government identify those who are using these foreign financial accounts in evading US tax law.
You need to file the Form TD F 90-22.1 or the Report of Foreign Bank and Financial Accounts (FBAR) to declare your foreign accounts on your taxes. By doing so, you are helping the federal government to identify or trace funds that are used for illegal purposes. It is also used to identify unreported income that is generated overseas.
The IRS states that all US citizens are required to complete and file a report if an individual has a financial interest or is a signatory of at least one foreign account. Moreover, the total value of the foreign account should exceed more than $10,000 at any time when the accounts are reported. Otherwise, you are not required to file and declare your foreign account. While this law is true for individual taxpayers, this is also applicable to entities (such as corporations or limited liabilities companies) and estates formed under US laws.
Are There Exceptions?
While everyone is subjected to this lax law, there are certain cases and scenarios that are exempted from filing the FBAR. These include IRA owners and beneficiaries, foreign financial accounts owned by an international financial institution, individuals who have signatory authority but no financial interests in a foreign account, foreign accounts maintained by a US military banking facility, and trust beneficiaries to name a few.
How do you File A Report?
To file a report to declare your foreign accounts on your taxes, you need to file Form TD F 90-22.1. As of 2013, all FBAR should be submitted electronically through the BSA E-filing System of the Financial Crimes Enforcement Network (FinCEN).
Take note that this FBAR form is not a tax return, so you don’t need to attach it to your 1040 Form. It must be separately filed and submitted. The deadline is every 30th of June. Failure to file and declare your foreign account on the specified date will lead to severe consequences such as additional taxes, fines, interests, and even imprisonment especially if IRS discovers your unreported income.
While filing for your tax return can be a daunting task, it is equally daunting for you to declare your foreign accounts. This is the reason why you need to seek help.
At MKS&H, we can help you with any tax-related problems. We provide representation and negotiation with the IRS so that you will not encounter any problem with the law. Our team of experienced accountants will help you understand how you can maximize your finances as well as know your rights.