The abbreviations FBAR and FATCA are probably aren’t new to you if you live overseas. However, it’s important that you know whether or not you need to file them. There are steep penalties that come with failing to file when it is required. We will guide you through the things you need to know if you have a foreign bank account as a U.S expat.
The Difference Between FATCA and FBAR
Foreign Bank Account Report (FBAR) and Foreign Account Tax Compliance Act (FATCA) are both meant to stop tax evaders from flourishing by hiding assets in overseas accounts. The IRS takes tax collection very seriously from expats.
FATCA is infamous worldwide because it forces foreign financial institutions to report the accounts of their American clients. This caused some foreign bank accounts to avoid entertaining Americans who want to open an account because the additional filing requirements asked of them can be a burden.
You’re not paying additional taxes from submitting FATCA and FBAR. They only exist because they are reporting requirements. It will let the IRS and Department of the Treasury know about the amount of money and assets you have, and where they are deposited. You aren’t really taxed on the assets when you report them. You’ll only be obliged to pay taxes depending on some circumstances such as when you withdraw funds from a specific investment account.
What is FBAR?
To put it simply, FBAR is all about bank accounts. The reporting requirements for foreign bank accounts is based only on your account balances overseas. This means if you have foreign bank accounts or any accounts you have signing authority over with balances that is more than $10, 000 or more at any point in the previous year, FBAR will be asked from you. The report must show the combined balanced of all your accounts. For example, you have $4000 balance in one account and another is $7, 000, these amounts must be reported together.
You will file FBAR to the US Treasury Department via FinCEN Form 114 and not to the IRS. The filing deadline is every 30th of June without any extensions, unlike your US tax return.
What is FATCA?
The filing requirements for FATCA is slightly different from FBAR. It encompasses a broader spectrum of assets. Although bank accounts are still part of FATCA reporting, there is a much broader filing requirement ask. The value of specified foreign assets more than the filing threshold which depends on the filing status and residency will say whether or not you must file FATCA.
Here are the following defined foreign financial assets:
The following, on the other hand, are thresholds for US tax paying expats:
If you’re planning to move back to the US in the future, take a closer look at the thresholds because those living in the US has a much lower amount.
Get to Know Streamlined Filing Procedures
The IRS was thoughtful enough to create an amnesty program called Streamlined Filing Procedures to help out expats become more compliant. So don’t worry if you’re a little behind your filings because you’re not the only one who didn’t know about the filing requirements. If the lack of filing was found to be just an incident of unawareness and innocence about the law, then you can just file the last three years tax returns and last six year’s FBARs that you missed. The IRS waived all late filing and FBAR penalties which means it’s a great tie for you to comply and not worry about the financial issues. The program can be terminated at any given time though so it's best that you work on it as soon as possible.