If you are a U.S. citizen living abroad, you may have heard about the FBAR, and you may be wondering what it is and whether or not you need to file one with your taxes.
What Is the FBAR?
The FBAR is a United States Department of the Treasury form that stands for Foreign Bank and Financial Accounts Report. This report is submitted to the Financial Crimes Enforcement Network (FinCEN) on April 15th each year when you file your U.S. taxes. The FBAR is also known as form FINCEN114.
Who Needs to File an FBAR?
All U.S. citizens must report any foreign financial accounts that they have by checking the box at the bottom of Schedule B when they file their taxes. This includes accounts, savings accounts, business accounts, joint accounts with your spouse or partner, pension accounts, investment accounts, and any other foreign financial accounts with your name on them.
In addition to that, according to https://www.fincen.gov/
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 [U.S. dollars] at any time during the calendar year.
The FBAR Line Item Instructions go on to state
United States person means United States citizens (including minor children); United States residents; entities, including but not limited to, corporations, partnerships, or limited liability
A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).
How to Calculate the Aggregate Total of Foreign Accounts
The aggregate total of $10,000 U.S. dollars or more is calculated by adding the highest balances from any point in the year in all of your accounts.
Find the highest balance at any point during the year in each of your financial accounts. Take all of those highest balances and add them together. If the total is $10,000 U.S. dollars or more, then you must file the FBAR.
How to File the FBAR
The FBAR is not filed with the IRS with your tax return, it’s filed separately with the Department of the Treasury.
You can also hire a tax professional such as BNC Tax to help you file your FBAR. Contact us for a free consultation.
What Happens If I Don’t File the FBAR?
The penalty for not filing the FBAR is $10,000 minimum per year, and a maximum of up to $100,000 or 50% of the balance of the account at the time of the violation, with a possible prison sentence to boot. So it’s very important to file.
If you haven’t filed FBARs in the past and think you need to, now is a good time to catch up. The Department of the Treasury is currently accepting FBAR filings without penalty. The statute of limitations never runs out, so you definitely want to get caught up.
FACTA and Why You Should File Your FBAR
In 2010 the Foreign Account Tax Compliance Act (FATCA) was passed in the United States. This legislation requires foreign financial institutions to report the assets held by U.S. citizens to the United States. This means that your foreign bank may be reporting your account to the U.S.
Because of the FACTA reporting requirement, many foreign banks refuse U.S. citizens who wish to open accounts. The banks don’t want to deal with FACTA reporting.
However, many banks do comply with FACTA reporting, and this makes it easier for the U.S. government to locate citizens who should be filing FBARs. For this reason, it’s a good idea to go ahead and file the FBAR if you are required to do so.
Help Filing Your FBAR
If you would like to hire a tax professional to help you file your FBAR, BNC Tax is here to help. Contact us to schedule a consultation to discuss your foreign financial accounts and FBAR reporting requirements.
More Tax Tips for U.S. Citizens Living Abroad
We have more articles on our blog about taxes for U.S. citizens living abroad. Two of our most popular articles are How To Do Your Own Taxes, which outlines the documents required for a simple tax return for U.S. citizens living abroad, and Foreign Tax Credit and Foreign Earned Income Exclusion, which outlines the difference between the two and gives examples of situations when you would claim one or the other. We’ll see you there!