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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.
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:
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:
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 2022 tax year, the dates are as follows:
Sometimes the best way to understand something is by way of an example. With that in mind, let’s meet John Expat. John is a computer software engineer. A few years ago, John got tired of the cold weather in Boston and decided to move to Nicaragua.
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.
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.
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.
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 to 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 that even though the asset doesn’t need to be reported again, it is still counted to determine whether you meet the filing threshold.
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 35.402 in 2021, which he used to convert to US dollars.
Note: If your bank gives you an exchange rate on your bank statement, you can use that instead of the numbers from the Treasury Department.
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.
We hope this guide has helped you understand how to file Form 8938. If you have any more questions, we have answers.
In fact, we can even prepare and file your expat tax forms on your behalf.
At Greenback Expat Tax Services, we help Americans around the world file their expat taxes accurately and on time. Just contact us, and we’ll be happy to help you in any way we can.
Get started on your expat taxes today.