While you may be fully aware of your expat tax filing obligations by now, there’s another requirement you should pay attention to: FBAR reporting. FBAR, or Foreign Bank Account Reporting, is required if your foreign financial account balances exceed a certain threshold, and failing to do so can lead to harsh penalties. Here’s what you should know about FBAR so you can stay compliant!
Understanding FBAR Reporting Requirements
FBAR reporting was implemented by the US to uncover tax cheats who were hiding money in offshore financial accounts. The IRS enforces the FBAR requirement by making sure everyone with money in overseas accounts discloses their accounts if the balances exceed the filing threshold. It’s important to note that the FBAR is only an informational form, so you won’t be taxed on the balance of your accounts by filing FBAR.
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What Must Be Reported
For most, filing an FBAR means reporting foreign bank account balances. However, there are other types of accounts that have FBAR reporting requirements, including:
- Foreign stock or securities held in a financial account at a foreign financial institution – The account itself must be reported but the contents of the account do not need to be reported separately.
- Financial account held at a foreign branch of a US bank
- Foreign mutual funds
- Foreign-issued life insurance or annuity contract with a cash-value
Who Needs to File FBAR
If you have any of the accounts mentioned above, you will need to report them via FBAR – if you exceed the filing threshold. Any US person who has account balances of $10,000 or more at any point during the tax year will be required to file FBAR. So, if your account balance hits $10,000 even for a single day (or a single minute!), you must file. Note that this threshold is an aggregate amount, so if you have multiple accounts, it’s the total balance of all accounts that might trigger a filing requirement.
Also, the account doesn’t have to be YOUR account – if you have signing authority over an overseas account, you will also need to file FBAR if the balance exceeds the threshold. Signature or authority means you have the authority to control the disposition of money, funds or other assets held in a financial account by direct communication to the person with whom the financial account is maintained.
Where & When to File Your FBAR
You will actually file FBAR separately from your US Tax Return, and it will go to the US Treasury Department, not the IRS. You will file it electronically via Form FinCEN 114 on the BSA e-filing site. It’s a fairly straightforward process, but you’ll need to ensure you’ve gathered all pertinent information to enter it into the online system. If you choose to have a professional tax preparer handle it for you, you must file Form FinCEN 114a to give him or her authority to do so. Additionally, if you hold a joint foreign financial account, your spouse would need to sign this form in order for you to file on his or her behalf. If your spouse happens to have other foreign accounts (not jointly held), he or she must file a separate FBAR for those as well.
The FBAR form will be due on Tax Day (typically April 15th), with an automatic extension of two months for US citizens living abroad. There is also an extension available until October 15th.
Failing to fulfill your FBAR reporting requirements can lead to penalties. For those whose lack of filing was non-willful (as in, you truly weren’t aware of your FBAR reporting obligation), the fine can be $12,921 per violation. If it’s determined you purposely avoided filing, the fine can be $129,210 or 50% of the balance of the account at the time of the violation (whichever is greater). Penalties can add up very quickly, so it’s so important to stay on top of your FBAR reporting!
FBAR Reporting Requirements: How to Complete the Form
In this example, we’ll look at the FBAR form for John Expat. John retired to Nicaragua several years ago, and began volunteering with an animal shelter. Since he was an accountant in his prior career, he became the treasurer for the shelter on a volunteer basis and has signature authority on their bank account. He also has a bank account in his own name and a joint account shared with his wife. Let’s look at his FBAR.
FBAR Part 1: Filer Information
In Part II, John gives his basic biographical information, including name, address, social security number, and date of birth.
Notice at the bottom the questions about having more than 25 accounts. If he did have more than 25 foreign financial accounts, then the FBAR filing requirements change, but this is pretty rare.
FBAR Part II: Information on Financial Accounts Owned Separately
In Part II, John lists the bank account he owns in his own personal name. He converted from the Nicaraguan Cordoba using the Treasury Department’s year-end exchange rate. He lists the maximum value the account held during the year, along with the account number and the name and address of the bank.
FBAR Part III: Information on Financial Accounts Owned Jointly
In Part III of the FBAR, John is required to report the bank account he owns jointly with his wife, Maria. Maria is Nicaraguan and does not have a Social Security Number. So in this case, he enters her Nicaraguan tax identification number and fills in her name and address.
FBAR Part IV: Information on Financial Accounts Where Filer Has Signature or Authority
In Part IV, John has an FBAR reporting requirement to disclose that he has signature authority over the account for the animal shelter (since he volunteers as the treasurer for this organization). Even though he doesn’t have any ownership in the account, he still needs to report it. He reports the name and address of the animal shelter, along with his title there.
There is also a Part V to the FBAR for consolidated reports, but it is unlikely an average expat will need to worry about that part of the form.
Foreign Bank Account Reporting Made Easy
Filing your FBAR is a critical step in completing all of your US expat tax filing obligations, but remember, it’s simply an informational form – so don’t fret about owing tax for filing this form! If you stay ahead of the filing deadline and accurately report your foreign financial accounts, you’ll be compliant with the US government and avoid penalties! Check out our tax guide for Americans working overseas to learn more about your tax obligations and ways to save money on expat taxes.
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