What Is IRS Form 8938?
Regardless of where they live, American citizens must file taxes in the United States. That includes American expats who retain their citizenship. Because of this, it’s important to understand the various additional forms expats are required to file regarding their foreign assets and income. One of these is IRS Form 8938.
American expatriates and residents must file Form 8938 if they exceed a certain threshold of foreign financial assets. This form accounts for assets that are held in foreign accounts or are issued in another country. As finances become increasingly digital, reportable assets might shift. This can include cryptocurrency held in foreign accounts, despite the IRS deeming cryptocurrency property and not currency. As an American expat, it’s important to know the correct tax forms to complete to avoid potential fines and penalties.
The certified public accountants (CPAs) for American expatriates at US Tax Help can guide you through tax season. Our CPAs work with expats to help them properly file their United States taxes and report their foreign assets. For tax assistance, call the CPAs for American expatriates at US Tax Help today at (541) 362-9127.
What Is the Purpose of IRS Form 8938?
Also known as the Statement of Specified Foreign Financial Assets, IRS Form 8938 is primarily used by American expatriates to report their foreign assets. Because of the United States’ citizen-based taxation system, expatriates must file U.S. taxes and report their foreign income as long as they retain their American citizenship. Form 8938 allows American expats to report their foreign financial assets for the tax year.
American expatriates must file Form 8938 with their annual income tax return if their foreign financial assets exceed a certain amount. Expats filing their returns individually must submit Form 8938 if their annual foreign assets were higher than $300,000 during the tax year or higher than $200,000 on the final day of the tax year. Those filing jointly have to file Form 8938 if their annual foreign assets exceeded $600,00 during the tax year or $400,000 on the last day of the tax year. These rules ensure that American expatriates report their foreign financial assets to the IRS.
The IRS created Form 8938 to monitor the financial activity of American citizens overseas. The Foreign Account Tax Compliance Act requires foreign financial institutions (FFI) to scan their accounts in case of any action from American citizens. The original purpose of this act was to alert the IRS to any potential instances of fraud, money laundering, or tax evasion. While those rules are still in place, the act has evolved to require American expats to report their annual foreign assets.
What Is Reported on IRS Form 8938?
While foreign financial assets are reported via Form 8938, how are these assets defined? The IRS is relatively vague when describing what constitutes a foreign asset, so clarifying that definition can be helpful for American expatriates who might not know whether nor not they have to file Form 8938.
To properly file Form 8938, you need to know what to report on it. The answer is your financial assets. But what does that mean exactly? The term “foreign financial assets” refers to property and funds located outside of America. This includes bank accounts held in FFIs and cryptocurrency that is held or acquired abroad. Foreign checking, savings, and security accounts of American expats who retain their United States citizenship qualify as foreign financial assets. However, some assets not held in an account still need to be reported if they came from a foreign source. For example, interest in foreign estates, bonds, retirement plans, and stocks are just some of the foreign-issued assets you must report on Form 8938.
Beyond that, identifying reportable foreign financial assets can become confusing. That’s why it’s important to enlist the help of experienced CPAs for American expatriates at US Tax Help. For example, real estate is not a reportable asset, but any interest in a real estate company or holding company that owns the property might be reportable. If you, as an American expat, have a personal residence or rental property in your foreign country of residence, you don’t usually have to report it on Form 8938. However, you could have to report your share of interest in any holding companies, and the value of the real estate that they own could be included in your reportable assets.
Some expats could be exempt from having to file Form 8938. For example, if your foreign assets are held in a U.S. bank branch in another country, you do not have to report it on Form 8938. However, if those assets are part of your foreign earned income, you’ll have to report it along with your yearly United States federal tax return.
Do I Need to Report Cryptocurrency on IRS Form 8938?
American expats expect to report the previously mentioned traditional assets. But what about more modern methods of accruing wealth, like cryptocurrency? As of now, the IRS hasn’t clarified whether or not American expatriates should include cryptocurrency on Form 8938, but most signs indicate that you should report it.
The IRS defines cryptocurrency as property instead of actual currency. Therefore, cryptocurrency funds should be reported on Form 8938 if they were acquired or are held abroad. The general rule of thumb is that American expats’ foreign-issued or foreign-held assets should be reported to the IRS via Form 8938 if they are above a certain aggregate amount. Because cryptocurrency is property, it should be included in this reporting if it was held or acquired in another country.
The CPAs for American expatriates at US Tax Help can advise you on what to do depending on your situation. If the IRS releases new rulings and takes a more confident stance on foreign cryptocurrency holdings, it might penalize those who fail to include it on Form 8938. Generally, whether or not you have to report cryptocurrency as an expat will depend on where it’s being held. If your cryptocurrency is being held in a foreign bank account that is classified as a reportable asset, you’ll have to include it on Form 8938. There is also no need to report it if you do not meet the aggregate reporting threshold. Talk to a CPA to learn if your foreign crypto holdings meet that threshold or not.
When tax season rolls around for American expatriates, things can become confusing. As assets and finances advance to include cryptocurrencies, it’s important to confer with the experienced CPAs for American expatriates at US Tax Help. Because the IRS remains vague regarding cryptocurrency and Form 8938, prepare to report it, especially if it was foreign-issued or held. The fines for failure to correctly file Form 8938 can amount to tens of thousands of dollars.
Call Our CPAs to Help You File IRS Form 8938
As an American living overseas, you need a certified accountant you can trust to help file your taxes, including Form 8938. To learn more about the CPAs for American expatriates at Us Tax Help, call us today at (541) 362-9127.