How to File Taxes if You Have a Foreign Bank Account

Using one or more foreign bank accounts could pose a number of problems for a person that is unfamiliar with filing taxes for these types of accounts. When filing taxes for a foreign bank account, you want to ensure that you remain compliant with any tax regulations that may apply to you. You do not want to receive a surprise tax bill or other notice from the Internal Revenue Service due to a mistake on your foreign bank account taxes. If you are unsure about how to file taxes for your foreign bank account, Ted Kleinman, CPA, could assist you in remaining compliant with foreign financial account reporting. US Tax Help recognizes the complexity of foreign account reporting requirements, and we would be pleased to help you manage your taxes. Ted Kleinman, CPA, is here to discuss how to file taxes if you possess a foreign bank account.

Reasons for Filing Taxes for a Foreign Bank Account

U.S. persons that have money or assets in one or multiple foreign bank accounts should be aware of the tax ramifications of these accounts. For tax purposes, money or assets in a foreign bank account will present different tax liabilities than an account opened by a U.S. person in a U.S. financial institution. This is because the American government taxes citizens on income that is earned within the country and income that is earned in foreign countries, as these countries may not employ the strict reporting requirements used by American financial institutions. As a result, you should understand how these global taxes could affect your foreign finances.

Additionally, if a taxpayer ignores their tax liability for foreign income, they could be subject to penalties from the IRS or even charged with a criminal offense.

To learn more about how to file taxes for a foreign bank account, you should continue reading and consult with an experienced international tax accountant as soon as possible.

Who Must Report Foreign Bank Account Income on Their Taxes?

U.S. persons that possess a foreign bank account are required to report their foreign accounts to the U.S. Treasury Department by April 15 of the next calendar year, even if the account does not produce taxable income. Note, however, that US expats may be provided with an automatic extension under certain circumstances.

Under the Bank Secrecy Act of 1970, the following U.S. persons must file Foreign Bank and Financial Account Report (FBAR):

  • S. persons that have a financial interest in a bank account, brokerage account, mutual fund, other similar types of financial accounts
  • The aggregate balance of all foreign accounts was more than $10,000 at any point during the calendar year

It is important to note that having an account in some U.S. territories and possessions will make a person liable to the IRS for taxes. For example, if you have an account in any of the following U.S. territories, the account will be considered a foreign bank account:

  • District of Columbia
  • American Samoa
  • Guam
  • Puerto Rico
  • S. Virgin Islands
  • Northern Mariana Islands
  • Trust Territories of the Pacific Islands

If a foreign financial account is owned by multiple individuals, each person must report the foreign financial account on their taxes. Specifically, each taxpayer with an interest in the foreign account must file an FBAR and report the entire value of the account. Fortunately, there are some exceptions for spouses.

If you and your spouse own an interest in a foreign financial account, you could file an FBAR jointly. However, if you do not submit the proper forms to file your FBAR jointly with your spouse, you and your spouse will have to file separately. When filing separately, the total value of all shared foreign accounts must be reported to the IRS.

If you are unsure about how to file your FBAR, you should waste no time in working with an experienced accountant that understands foreign account tax compliance. To learn more about the penalties for late filing your FBAR, continue reading and consider contacting US Tax Help for your accounting needs.

Penalties for Late Filing Taxes for a Foreign Bank Account

If a taxpayer fails to file taxes for their foreign bank account, they could be subject to a number of penalties. Ordinarily, a taxpayer would be required to pay a heavy fine to the IRS. However, there are other penalties that may be imposed depending on the circumstances.

In severe cases, a late filer could be sentenced to up to five years in prison. However, this is typically reserved for taxpayers that ignored warnings from the IRS. If you have a reasonable excuse for missing a filing deadline, you could be able to work out a payment plan with the IRS to satisfy your past-due taxes.

Consult with an Experienced CPA for Foreign Bank Account Tax Filing

If you need assistance with filing taxes for your foreign bank account, you should consult with Ted Kleinman of US Tax Help, an accountant, for streamlined foreign account reporting. Our firm has extensive experience providing taxpayers with the tax services they need to ensure compliance with IRS foreign account reporting laws. We could help you avoid tax penalties that may result from errors or a failure to file taxes associated with a foreign bank account. To schedule a confidential consultation to discuss the details of your foreign account tax liability, contact US Tax Help at (541) 362-9127. You could also use our short submission form to schedule your consultation online.