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One of the most difficult expat tax forms to understand is Form 8938. For years, this form has been a thorn in the side of American taxpayers around the world. To help clear up this confusing topic, we’ve compiled everything you need to know about IRS Form 8938.
Form 8938 is an informational IRS tax form. US persons who own foreign financial assets valued above certain thresholds must file this form to report those assets. Common examples of foreign financial assets include:
This form is required under the rules of the Foreign Account Tax Compliance Act (FATCA). FATCA is designed to prevent taxpayers from hiding their assets and income overseas to avoid taxation.
While this form is similar to the FBAR, they are not the same. Understanding the differences can be crucial for expat tax compliance.
The threshold for filing Form 8938 depends on your residency and filing status.
For US persons living in the US, the thresholds for filing are:
For US persons living outside of the US, the thresholds for filing are:
Refer to the table below for a summary of these rules.
Using Form 8938, you will list the details and balances of any relevant foreign financial accounts. You will also list any income earned from each account during that year. This income should match what you report on Schedule B (interest and dividends) of your income tax return.
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Form 8938 must be filed along with your income tax return (Form 1040) and is due at the same time. In most cases, that would mean the deadline is April 15 (April 18 for 2023). However, expats receive an automatic two-month extension to June 15. If necessary, you can also request an additional filing extension until October or even December.
An extension to file is not an extension to pay. Regardless of your extension, you will still have to estimate and pay your annual taxes by the original April deadline.
Failing to file Form 8938 when required can result in severe penalties. The standard penalty is a fine of $10,000 per year. If the IRS notifies taxpayers that they are delinquent, they will have 90 days to comply. If they continue to refuse, they may be fined an additional $10,000 for every 30 days of noncompliance, up to a maximum of $50,000. (This $50,000 maximum does not include the original $10,000 per year.)
On top of this, the IRS says that “underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial underpayment penalty of 40%.”
In very rare instances, criminal penalties may also apply. The moral of the story is that you should always file this form when required.
Form 8938 consists of six parts.
Once you have completed the form, you must attach it to your annual income tax return and file it simultaneously. For more information, see the Form 8938 instructions provided on the IRS website.
While this may sound simple, Form 8938 is an especially complicated tax form to complete. Even determining whether you are required to file this can be a complex process. We do not recommend attempting to file Form 8938 without the help of a qualified tax professional.
We hope this guide has helped you understand the requirements and instructions for Form 8938. However, expat taxes are nothing, if not complex. If you still have questions, we have the answers you need. In fact, we can even prepare and file Form 8938 on your behalf.