When Americans move to a different country, they typically have many questions, particularly regarding filing US taxes from overseas.
One requirement they should be aware of is filing a Foreign Bank Account Report (FBAR). Most people with savings or investments of more than $10,000 during the calendar year will have to share information about their finances with the federal government using FinCEN Form 114.
The purpose of FBARs is to detect hidden money and prevent people from using foreign bank accounts to avoid paying taxes rightfully owed to the United States. This type of tax evasion could also help officials discover other crimes, such as money laundering or terrorism.
FBAR are filed to the office of the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury separate from the Internal Revenue Service (IRS).
Ignorance of the rules can’t be used as an excuse for United States citizens who live outside their native country not to file a FBAR. Refusing to do so has severe consequences, including monetary and/or criminal penalties, so all expats should be aware of what foreign accounts have to be disclosed.
Let’s address some frequent questions about FBAR filing:
Q: I’m a student working part-time. Do I need to file an FBAR?
A: As long as you have a financial interest in or authority over either a single foreign financial account or multiple accounts with total balances of more than $10,000 at any time during the calendar year, you must file.
Q: I relocated my family to accept a job promotion. The extra cash flow made it possible for me to invest in my future with a brokerage account. Do I need to share these funds in my FBAR filing?
A: Yes. Standard bank accounts as well as brokerage accounts and mutual funds must be disclosed.
Q: After taking college French classes together, my friend decided to move to France for two years to immerse himself in the culture. He doesn’t make much money, so is an FBAR necessary?
A: Your friend should go back and track his bank and account statements. The $10,000 threshold can be reached at any time throughout the year by adding the total balances of multiple accounts held at various financial institutions together. This includes stock, assets in a foreign branch of a U.S. financial institution, foreign mutual funds, life insurance or annuities – and the onus is on him to gather this information and report it appropriately.
Q: Is the FBAR a tax document?
A: No. Confusion often occurs because the FBAR is due at the same time as taxes on April 15th (although there’s an automatic FBAR extension to October 15th). Keep in mind that this is a completely separate filing requirement and it should not be filed with federal tax returns, but rather submitted electronically using the Financial Crimes Enforcement Network’s BSA E-Filing System.