Accountant for Foreign Financial Account Reporting
If you are a U.S. citizen or resident with accounts based outside of the United States, it’s likely that you are required to report them to the IRS. Most accounts that have been opened at a financial institution outside of the United States must be reported; this includes bank accounts, mutual funds, and brokerage accounts. This may be applicable if you live in a country besides the U.S. or if only your account is located abroad. You can report your financial accounts by filing a Foreign Bank Account Report (FBAR).
If you earn income while living outside of the United States, not only will you have to report it to the IRS, but you will have to pay taxes on it just as you would with income made in the country. US Tax Help has experience assisting expatriates and people with international financial dealings. Get in touch with Ted Kleinman at US Tax Help by calling (541) 923-0903 or by visiting our website.
Standards for Who Has to Report a Foreign Account
Not all accounts must be reported. There are a few conditions that, if met, require individuals to file a foreign financial account report. The first condition is that the individual has signing authority over more than one account (including a mutual fund, brokerage account, or bank account) in a foreign country. The second condition is that the total value of the accounts exceeds $10,000 at any point during the year it is reported.
All citizens and residents of the United States with accounts in foreign countries that meet the preceding conditions are required to file FBARs, as well as domestic legal entities including corporations, estates, trusts, partnerships, and LLCs. It should be noted that “foreign countries” means any area outside of the United States. Washington D.C., Indian reservations within the U.S., Pacific Island territories, the Virgin Islands, the Mariana Islands, Puerto Rico, Guam, and American Samoa are not considered to be foreign countries.
An FBAR must be filed even if no taxable income has been made from the account. However, accounts that meet any of the following criteria do not need to have foreign financial reports filed for them: accounts that are trusts, of which you are the beneficiary; retirement plan accounts; military banking accounts; accounts with international financial institution or governmental ownership; and Nostro/correspondent accounts.
Also, you are exempt from having to file an FBAR for the current calendar year if you have consolidated all of your foreign financial accounts on a single FBAR, or if your spouse has joint ownership of the foreign account and you have both completed FinCEN Form 114a, which authorizes your spouse to file on your behalf. FBARs are due on April 15, the same all other tax documents in the United States.
How to File an FBAR Report
Filing an FBAR can be done by filling out and sending FinCEN Form 114 through the BSA E-Filer. The BSA is the Bank Secrecy Act, which was passed in 1970 to protecting persons and institutions against fraud by requiring that financial institutions cooperate with the U.S. government during fraud investigations. The BSA E-Filer allows you to submit information through a secure system.
Note that an FBAR is not supposed to be filed along with ordinary federal tax returns. Filing your FBAR via paper is available by contacting the Financial Crimes Enforcement Network (also known as FinCEN) and requesting to be exempt from filing through the BSA E-Filer. If your request is approved, then FinCEN will send a paper FBAR form to you through the mail, which you can fill out and send to the IRS.
Even If You Live Outside the United States, You Will Have to File a U.S. Tax Return
The United States in an anomaly in that it taxes people based on citizenship instead of residency (the United States is the only country in the world besides Eritrea that taxes this way). Individual citizens and residents must pay taxes on reported income they earn while living in another country.
All individuals living abroad and paying United States income tax are automatically granted a two-month extension on the filing April 15 deadline, making their deadline June 15. You can file your taxes the same way you would as if you were living in the United States, either through the mail or by using a free file program or commercial tax preparation software.
You may be exempt from paying taxes on your foreign-earned income if you qualify for the Foreign Earned Income Exemption. This exemption applies if you pass either the physical presence test or the bona fide resident test. An individual passes the physical presence test if they stay in a foreign country for 330 full days within a 12-month period. Days of arrival and departure do not count as one of these days since a “full day” means 24 hours. These days do not have to be consecutive.
Passing the bona fide residence test requires residing in a country for an uninterrupted period that covers the span of a full tax year. Essentially, the bona fide residence test means that a person has lived in a country for a full calendar year, from January 1 through December 31. If you qualify for the Foreign Earned Income Exclusion, then you’re able to exclude much of your income from being taxed. It adjusts to match inflation; for the 2019 tax year, the maximum amount that can be excluded is $105,900. Any income less than $105,900 will not be taxed, and any income that goes above will be taxed on the difference.
Streamlined Foreign Offshore Procedures
If you do not qualify for the Foreign Earned Income Exemption, you will have to file your taxes regularly. However, if you lapse in payment, the IRS offers a tax amnesty program known as the Streamlined Foreign Offshore Procedures that allows United States citizens to pay previously unpaid taxes with minimal risk of penalty.
An individual is eligible for the Streamlined Foreign Offshore Procedures if they are either a United States citizen or green card holder who has not lived in the U.S. in the last three years and has not physically been in the United States for at least 330 full days. You may also be eligible if you are not a citizen or green card holder and have not passed the physical presence test.
Keep Control of Your Finances with the Aid of US Tax Help
Reporting your foreign financial accounts and paying taxes on your income can seem like a difficult process, but it doesn’t have to be. With the help of Ted Kleinman and the team of certified public accounts at US Tax Help, you can manage your taxes from anywhere in the world. Contact us today by visiting the US Tax Help website or call (541) 923-0903 to learn more about all of the services that we offer.