Do you have a bank account in a foreign country? If so, you may be required to report that to the IRS.
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Do you have a bank account in a foreign county? Yes or No.
If the answer is no, you don’t have a foreign bank account, you can’t sign for anyone with a foreign bank account (like when your parent keeps you as a signer to the account in case something happens to them) —then you’re done here. If your answer is “yes” or “maybe” — keep reading.
Did you know that you are supposed to report that you own a foreign bank account to the IRS on your tax return? The question about foreign bank accounts is on something called Schedule B—that’s where you report your interest and dividends. The problem is many people with foreign bank accounts don’t know that they’re supposed to report their foreign interest. They don’t even look at the Schedule B so they don’t see the question!
Why is this such a big deal? Because, if you own a foreign bank account and you don’t submit the proper forms to the IRS about them, you could be subject to thousands of dollars in fines and penalties. Let me repeat that: THOUSANDS OF DOLLARS IN FINES AND PENALTIES!
The IRS doesn’t take “I didn’t know” as a proper excuse for not reporting foreign income. And if you’ve never seen the question for Schedule B—you don’t even know the question is there. Even if you’re having your taxes professionally done—if you’re not reporting interest income, the question may never get asked because it shows up in the interest income section of the interview.
So, do you have a foreign bank account? Yes or No?
If yes, then do you now, or did you at any time during the year have over $10,000 (US equivalent) in the account? If yes, then you’ll have to file a form called the FinCEN 114. (It used to be called the TD F 90-22.1 but it’s also known as the FBAR.) This is a form that gets filed separately from your tax return. (The new form isn’t up in the IRS website yet.)
If you had over $50,000 in the account, you’ll be required to file form 8938, a Statement of Foreign Financial Assets which gets filed along with your tax return. http://www.irs.gov/pub/irs-pdf/f8938.pdf
The bottom line is—if you’ve got foreign assets, you need to be reporting them on your US tax return. Even if you’re earning no interest on these accounts, you still have to report that you own them. If you are earning interest or dividends on these accounts, you need to report that on your US tax return and pay the tax on them. If you’re paying taxes on that money to a foreign country, you may get a credit on your US return for those taxes you already paid.
Reporting foreign income and accounts can be confusing, but you don’t have to do it alone. Roberg Tax Solutions can help you.