Chuyn | Istock | Getty Images
Whether you’re an expat or U.S.-based, you may need to report your foreign accounts to the U.S. Department of the Treasury by April 15 — or face costly tax penalties.
The anti-money laundering Bank Secrecy Act of 1970 requires Americans with overseas assets to disclose holdings via a Report of Foreign Bank and Financial Accounts, or FBAR, if the combined value exceeds $10,000 any time during the year, regardless of whether it produced income.
While most Americans know to file taxes, the FBAR can be easy to overlook, said Eric Bronnenkant, a certified financial planner and CPA at Betterment, a digital investment advisor.
More from Personal Finance:
Who felt the biggest pinch from rising gas prices in February
There’s a tricky ‘virtual currency’ question on your tax return
The Great Resignation continues, as 44% of workers look for a new job
“You can’t file this using commercial tax software,” said Bronnenkant. Instead, account owners must file the FBAR digitally through the Financial Crimes Enforcement Network’s Report 114.
One big difference between regular taxes and the FBAR is you report each account’s maximum balance during any point in the year instead of the year-end total, he explained.
For example, let’s say you had a foreign bank account with a $5,000 balance for most of the year. If the amount jumped to $100,000 for one day, you’ll report $100,000 on the FBAR, he said. But you don’t pay taxes on that amount.
Another point of confusion is which accounts to disclose on the FBAR, which may include bank accounts, brokerages or even trusts, according to Jude Boudreaux, a CFP and partner at The Planning Center in New Orleans.
You may not realize you need to report accounts if you have “a financial interest” or “signature authority,” he said.
If you’re overseeing accounts for retired parents in Italy, for example, you may need to disclose those, said Boudreaux. “The definitions are really broad as far as what must be reported.”
If you don’t file the FBAR when required, penalties may depend on whether it’s seen as a “willful” or “non-willful” violation, Boudreaux said.
While the maximum fee for a mistake is $12,921, a willful violation may incur a whopping $129,210 penalty or 50% of the amount you failed to disclose, whichever is greater.
That means if you willfully didn’t report $1 million in a foreign account, you may have to pay a $500,000 fee, he explained.
“It’s one of the biggest hammers in the code,” he said. “The penalties aggressively and actively encourage compliance.”
And in extreme cases, there are criminal penalties that may include jail time, Bronnenkant said.
“Ultimately, disclosure is your friend,” Boudreaux added.
View original Post