If you’re a successful expat, it is likely that you’ve probably had to file the FBAR each year that you have been overseas, or at least you have heard of it and wondered if you really needed to file one? Let’s take a quick look at what the FBAR is and who needs to actually file one, along with some of the common mistakes I see surrounding the FBAR.
FBAR stands for “Report of Foreign Bank and Financial Accounts” and is a form that needs to be filed each year by April 15th if you meet certain qualifications…
You have any foreign bank or investment account located outside the United States whether you are living inside or outside of the US yourself.
The aggregate value of all your foreign bank and investment accounts was $10K or more at any time during the year. Yes, even a single day of the year.
You are an American citizen or considered a US person. So, anyone with a green card as well.
The 5 most common mistakes that I see surrounding the FBAR are these….
Failure to file. This is the most common mistake and often made because people are unsure about all the reporting requirements. There isn’t a lot of people teaching expats about the FBAR and your accountant may have even overlooked your need to file the FBAR. This is because the FBAR is not actually a tax form, it simply a reporting form to the IRS.
Misunderstanding the threshold. As I stated above, it is an aggregate amount of $10K between all of your accounts, at any time during the year.
Not including non-bank type accounts. Many people don’t realize that they also need to include pretty much anything with a value on the FBAR. Often you need to include a countries retirement scheme, like the Superannuation in Australia. You need to include foreign mutual fund and investment accounts, even if they are located in a so-called tax haven like Cyprus or Isle of Mann. You also need to include any life insurances you may own that have a cash value.
You must report even if the money is not yours. If you are a joint owner on an account for a spouse or a parent, just so if something was to happen your name would already be on the account, you need to report this money. Even if the money isn’t really yours. If your name is on it, it must be reported.
And finally, minors are not excluded from reporting an FBAR. You must disclose your foreign money, if it’s over the $10K aggregate, no matter your age. So, if the grandparents or great grandparents have a savings or investment account for your kid’s future college expenses over in Italy, and your kids name is on that account, there is a requirement for the child to file an FBAR.
Filing your FBAR is pretty important because the penalties for not doing it are pretty high and depend on whether the IRS can show that you were willful in your violation or non-willful in your violation of this rule.
For non-willful violations, the max penalty in 2019 is just under $13K.
And for willful violations or a pattern of neglect in filling the FBAR, the penalties can be up to the greater of $129K or 50% of your money!
For more information about the FBAR and it’s reporting requirements, reach out to me to chat about your personal situation.