If you are an American citizen with financial holdings in foreign accounts, you must know how to file a Foreign Bank Account Report every year that you are eligible without fail.
You may or may not be living abroad, but if you have any money involved in financial accounts such as bank accounts, pension accounts, mutual funds, or more, you have the responsibility to report those overseas accounts to the US Treasury Department.
No need to be overwhelmed with all the technical terms. Here is a detailed guide on how to file a foreign bank account report and more information regarding it.
What Is A Foreign Bank Account Report?
FBAR or Foreign Bank Account Report is simply giving an account of all your money held in global accounts. This reporting of foreign financial accounts is necessary to avoid tax evasion. The obligation to report does not only fall on account holders but on signature authority as well.
You have to fill the FinCEN Form 114, under the Bank Secrecy Act, to file for FBAR if your total earnings in all or any global accounts reach or cross the sum of $10k at any point of a calendar year. All information, including the bank name, country name, account number, balance, and more, needs to be reported.
An account with multiple holders, such as in a business, requires all the persons involved to report the foreign account earnings. In case you fail to come forward and report your global income, you will have to face serious penalties.
Income Threshold For Reporting A Foreign Account
The reporting threshold for foreign account holdings varies. It is higher for married couples who report jointly and American citizens living abroad as ex-pats. Generally, the threshold starts at combined foreign account balances of $50,000 on the ending day of a calendar year or $75,000 at any point during the year for the purpose of Form 8938.
In the other case, if the total balance of all your foreign accounts exceeds or is equal to $10,000 in a year, you have to report it.
Types Of Accounts To Be Reported
Bank accounts are not the only financial accounts to be reported in FBAR. You need to report balances in all the following:
- Foreign Bank Accounts
- Financial accounts in foreign branches of US-headquartered banks
- Foreign stocks or securities in a financial account
- Mutual Funds
- Retirement funds
- Pension funds
- Investment accounts
- Brokerage accounts
- Life insurance
- Credit or debit card account
- Annuities with cash value
How To File A Foreign Bank Account Report (FBAR)?
Filing FBAR is not the same as filing for taxes. The FBAR file goes towards the US Treasury department while taxes are filed with the IRS.
FinCEN form 114 usually needs to be filed through their official website. First, you can download the FBAR Form 114 from the FBAR E-filing page of the Financial Crimes Enforcement Networks. The form needs to be filled with all information and submitted to the BSA E-filing site. Financial Crimes Enforcement Network is a part of the US Treasury Department, and FBAR reports are filed with them.
The process is simple and straightforward, with everything done online. You can also hire a third-party service such as certified financial experts to file the FBAR for you. As an individual, you don’t even need to register with the site, but an institution including CPAs and attorneys must register and get a user ID and password for filing.
All the overseas currencies need to be converted to USD on paper. If it is not a whole number, round it off to the nearest dollar amount.
Information You Need To File FBAR
You need the following information to fill out your FinCEN form 114 for foreign account reporting properly.
- Name, Social security number or ITIN, address
- Name, social security number, and address of all joint account holders
- Name and address of the foreign bank
- Type of financial account such as securities, bank account, etc.
- Foreign bank account number of all accounts
- Maximum balance of the foreign account with conversion into USD.
Reporting A Joint Foreign Account
Any foreign accounts held jointly by both you and your spouse can be reported with a joint form, but there must be a signature of your spouse on the form allowing you to file on their behalf.
In case a spouse also has an individual foreign account, other than the joint account, that spouse needs to file a separate FBAR Form 114 and add the details of the joint account along with their separate account on their form.
Joint account holders other than spouses need to file for FBAR separately.
The deadline to file the FBAR is April 15th of every year, and if the original deadline is missed, you can submit it by October 15th. The extended deadline is especially given to American citizens living abroad.
Who Needs To File The FBAR Form 114?
If you are a US citizen in any way with a foreign account balance of more than $10k, you are eligible for filing the form. You can be a US citizen residing in the US or outside the country, a US green card holder, a US resident, or any other US person. You are not exempted from filing based on age or circumstances.
A joint account held either by spouses or any other persons needs to be filed for. Children with foreign accounts under their names are not exempted from filling the form. If a child is underage, the guardian needs to take care of reporting.
If there is an overseas account that is not in your name, but you have signature authority over it, you still need to report it. Any financial interest in any account abroad needs to be filed for even if it is not directly named under you. Indirect financial interests need to be displayed as well.
All US companies and institutes are also obligated to file Form 114.
Persons Exempted From Filing
There are certain exceptions that do not need to be in the FBAR form.
Financial accounts in US branches of foreign accounts are exempted, and so are foreign securities or stocks not held in any financial accounts. Retirement plans or pensions given by a foreign employer do not need to be reported.
Personal property such as jewelry, real estate, etc., is also exempted from reports. Investments in foreign stocks, securities, hedge funds, and equities by a domestic mutual fund do not need any reporting for FBAR.
Some citizens try to avoid paying taxes by stashing away their earnings in foreign bank accounts. If your foreign funds go unreported, you could face penalties of as high as $50,0000 or even a few years in jail.
It is cleaner, simpler, and better if you fill out a simple online form and fulfil your responsibility as an American citizen.