There are so many intricacies involving your US expat tax return obligations, including one you may not have thought about: your foreign financial accounts. There are several methods for reporting these accounts if you meet the respective thresholds, but one has been a bit more controversial: FATCA Form 8938. Not sure if you’re one of the US expats who may be required to file this form? We’ve got the details you need in order to determine if Form 8938 should be included with your US tax return.
Breaking Down Form 8938
Form 8938, Statement of Specified Foreign Financial Accounts, must be filed by US citizens who have foreign financial assets over a specified amount. The types of accounts that must be reported along with your US expat tax return to the IRS include:
- Bank accounts
- Brokerage accounts
- Stock or securities of foreign issuers
- Foreign financial instruments
- Foreign-issued life insurance
- Annuity contracts with cash value
- Shares in foreign hedge funds and private equity funds
You must file Form 8938 if you’re required to file a US expat tax return for the year and if the value of your aggregate foreign financial accounts meets one of the following thresholds:
Single or Married Filing Separately – The total value of your foreign assets is greater than $200,000 on the last day of the tax year or more than $300,000 at any point during the year.
Married Filing Jointly – The total value of your foreign assets owned by you and your spouse is greater than $400,000 on the last day of the tax year or more than $600,000 at any point during the year.
If you meet the threshold and must file Form 8938, you’ll do so along with your US expat tax return. This form is subject to the same deadlines and extensions as the rest of your tax return. For the 2017 tax year, the dates are as follows:
- April 18, 2017 – This is officially ‘tax day,’ but US expats living abroad on this day automatically receive a two-month extension. Note that any tax owed will be due on this date or interest will accrue until paid.
- June 15, 2017 – This is the expat tax due date. For an extension until October, you must make an extension request by this date.
- October 16, 2017 – This is the final tax due date for those who requested an extension.
Example Using Form 8938: John Expat
Sometimes the best way to understand something is by way of an example. With that in mind, let’s meet John Expat. John was a computer software engineer who grew tired of the cold weather in Boston and decided to move to Nicaragua a few years ago. John continues to work remotely as a software engineer, while enjoying the lower cost of living abroad. He deposited his savings into two accounts at the Nicaraguan Central Bank. John also purchased a house inside of a Nicaraguan Corporation, called a Sociedad Anonima.
Parts 1 and 2: Summary Information
This part of the form asks you to summarize the total amount of your deposit and custodial accounts, as well as any other foreign financial assets. John is going to report that he has two ordinary bank accounts, which are deposit accounts, with a combined value of $205,000. John didn’t open or close any accounts in the current year, and didn’t purchase or sell any other foreign assets either.
Part 3: Summary of Tax Items
Since John’s asset profile in Nicaragua is simple, the only income he has from his assets is a little bit of interest. His interest will get reported like interest from any other bank account, on Schedule B of the US expat tax return. If he had other assets generating other types of income, that would get reported in this section as well.
Part 4: Excepted Specified Assets
Sometimes, the IRS asks for information in more than one place. Luckily, Form 8938 tries to minimize that a bit. Since John put his house in a Nicaraguan corporation, he’s required for file Form 5471, Information Return for Certain Foreign Corporations. This is a form that is often required when a US citizen has ownership of a corporation organized outside of the US. John’s ownership of the stock of the corporation is considered a financial asset, and would normally be required on Form 8938. However, in this case, since he already completed Form 5471 for this corporation, he doesn’t need to duplicate the information on Form 8938. Here, he can just mark that he filed Form 5471. This is a handy timesaver, and the IRS doesn’t give many of those!
Keep in mind, just because the asset doesn’t need to be reported again, it is still counted to determine whether you meet the filing threshold.
Part 5: Detailed Information for Each Account
In this section of the form, you report the details for each account. This includes the bank name, the account number, and the address of the bank. You also have to determine the maximum value of the account in the year. This will often require a careful inspection of your bank statements. You will need to complete a separate Part 5 statement for each foreign account you have if you meet the reporting threshold.
Many overseas accounts are held in a currency other than US dollars. For converting to US dollars, you should use the US Treasury Borough of the Fiscal Service year-end exchange rates. In John’s case, one of his accounts was held in Nicaraguan currency called the Cordoba. The end of the year exchange rate was 27.8600 in 2015, which he used to convert to US dollars. If your bank gives you an exchange rate on your bank statement, you can use that instead of the numbers from the Treasury Department.
Part 6: Other Financial Assets
This section will be used to disclose details of financial assets other than the bank and depository accounts from Part 5, or the excepted assets from Part 3. This might include a corporation that doesn’t need to file Form 5471, or a trust that does not require Form 3520. This section will ask you to describe the asset, including a determination of the value of the asset.
Understanding your expat tax requirements, including the reporting of your foreign financial accounts, can be confusing, so it’s always a good idea to consult with an expat tax professional for advice. Making sure you file the correct forms the first time can prevent unnecessary stress when the filing deadline approaches! For more tax tips and important details about your expat tax requirements, check out our tax guide for Americans working overseas.
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