Posted on June 23, 2014November 30, 2017 by Jan Roberg

How To File Your FBAR

3d rendered image on white background : piggy

If you have over $10,000 USD in a foreign bank account, you are required to report it to the Internal Revenue Service.

The IRS changed how FBARs are filed. It’s now done online instead of mailing a paper form to Detriot. Here’s a step by step guide to help you through it.

Now before you start, I get a lot of questions from people asking if they even need to file an FBAR. Here’s a link to the IRS website that compares whether you need to file an FBAR or a form 8938. I like this comparison list better than most of the documents about whether you need to file or not. It’s easier to understand in my book. So if you’re unsure, look here before you file: http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

The first thing is to find the website page. Here’s the link: http://bsaefiling.fincen.treas.gov/main.html

When you open the page it says BSA E-Filing System, Financial Crimes Enforcement Network. If you’re a normal human being, and you see the “financial crimes enforcement network” you’re going to think you’re in the wrong place! You’re at the right page. And no, you’re not a criminal. By some weird luck of the draw, the financial crimes division is in charge of FBAR filing. Personally I think they should change the name but the IRS isn’t taking my suggestion on that.

As an individual, you’re going to want to select the top box, Report Foreign Bank Accounts (FBAR).

This will take you to the next screen where you can choose whether to prepare or submit your FBAR. We’ll start with preparing.

When you click on the “Prepare FBAR” link, you should get a download of the input document. But, you might get this instead:

If your download doesn’t convert from the “please wait” page, you’ll probably have to download a newer version of Adobe reader.

[Geeky technical issue: my computer had real problems opening this file. I got around it by downloading the NFFBAR to my computer and then opening the file from there. This might work for you if you’re also having trouble.]

The screen you want to see looks like this:

The first thing you’re going to do is name your file so that you can find it again. I’m choosing Roberg FBAR 2013. Next, you’re going to click on the Filer Information tab. You’ll see a screen like this:

That’s going to have all of your personal information, your name, social security number and address. If you don’t have a social security number or ITIN number, then you can use your foreign identification such as a passport number. When you’re done with this section, go to the next tab: Report of Foreign Bank and Financial Accounts.

That’s the meat of the reporting form. This is where you put your bank account numbers, the maximum value of your accounts and where they are located. These are accounts that you actually own either by yourself or jointly with your spouse.

For accounts that you only have a signature authority over, that’s on the next page. It is as follows:

Now this looks pretty similar to the “consolidated account” form as well:

So just make sure you’re on the right screen when you’re filling out the form.

The last page is for the signature date – or, if your tax preparer is doing this for you, that’s the part that she fills out. If you’re doing this yourself, you don’t need to fill out the title on a personal account and the signature date will auto populate when you put the signature on the front page.

Once you’re done, you’re going to go back to the original screen.

Before you actually hit the signature button, you’ll want to hit the validate button. It will check for errors and omissions for you to correct. Then you’ll want to sign the form and save it. Be sure to print your form, and then when you’re all set click on the ready to file button.

That will put you into a final screen where you’re going to put your email address so you can receive confirmation about your filing. After you submit, you’ll receive a confirmation notice. Later, you should receive an email saying that the BSA has accepted the FBAR.

You want to get your FBAR filed by April 15th. The old date used to be June 30th, but the IRS changed that back in 2016. For those of you who are filing back FBARS, you’ll need to answer the question about why you’re late. If you’re filing on time, just leave that box blank.

Posted on January 3, 2014May 31, 2016 by Jan Roberg

The Single Most Important Tax Question You May Not Know to Ask

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.

Posted on March 16, 2012May 31, 2016 by Jan Roberg

Tax Exclusion for Working in a Combat Zone

Photo by Rande Archer on flickr.com

One of the more interesting tax returns Bill and I worked on last year was for an employee of a private security firm in Afghanistan. While I’m the expert on foreign income, Bill’s our “go to” guy for all things military. While our client wasn’t working for the US military, he was clearly working with the US military and was definitely working in a combat zone.

Our goal of course was to make sure he didn’t pay more income tax than he was required to pay. I realize we’re not supposed to give preferential treatment to clients, but I gotta confess, we do tend to go the extra mile for our service members and for people who are working to keep our service members alive. (Plus he was just a really nice guy.)

My tactic was to claim a foreign income exclusion (Form 2555). While it reduced the guy’s taxable income, it still left him owing the IRS and we were trying to eliminate that balance due. Bill, coming from the military side, was trying to exclude the income under something called Internal Revenue Code Section 112. This basically excludes income that was earned in a combat zone, so we were thinking we might have something there. But here’s the actual rule:

“Gross income does not include compensation received for active service as a member below the grade of commissioned officer in the Armed Forces of the United States for any month during any part of which such member served in a combat zone.”

The key issue here, we decided, was that the person had to be a member of the Armed Forces to qualify for the income exclusion. And so we advised our client to pay the tax.

What we didn’t know at the time was that a similar case was being heard in Tax Court while we were working on the return. In the court case, Nathaniel J. Holmes v. Commissioner (TC Memo 2011-6), the Tax Court ruled that a civilian working for a private company doesn’t qualify for the combat zone income exclusion. So it turns out, we had been right. Had the case gone the other way, of course, we’d be amending our client’s tax return for FREE!

The bottom line though is – if you’re a private contractor in a foreign country, you won’t be able to exclude your income under the Section 112 rules for income earned in a combat zone. You still may be able to exclude your income (or a portion of your income) under the Foreign Income Exclusion on a Form 2555. Or, if you’re paying tax in the foreign country, there’s also the credit for foreign tax paid on Form 1116. There are options out there, you just have to make sure you’re using the right one.

Posted on March 2, 2012May 31, 2016 by Jan Roberg

How to Prepare the FBAR Form, TD F 90-22.1

Photo by Martin Abegglen on flickr.com

So you were working on your tax return and you read that you needed to prepare a form TD F 90.22.1, right? That’s a mouthful isn’t it? That’s why it’s been nicknamed the FBAR. If you need to file the FBAR, it’s really not that difficult. Let me walk you through it.

First, you need the form. It’s on the IRS website, here’s a link to get it: http://www.irs.gov/pub/irs-pdf/f90221.pdf. Most software programs do not include the FBAR form in them. My professional software finally added the FBAR this year, which makes it an incredible time saver, but most at home programs still don’t include it because the FBAR isn’t filed with your income tax return. I’m going to give you the instructions based on doing the form on the IRS website.

First, for Box 1, in the upper right hand corner, you’ll need to input the year. So right now you’re doing 2011. The input is a little goofy – you have to hit tab to get to the next number. You’ll type 2 tab 0 tab 1 tab 1. As you try to move through the document, the tab key can always get you to the next box. (I prefer using the mouse myself, but the tab key will get you where you need to go.)

Box 2, Type of Filer: I’m usually working with individuals, but partnerships, corporations and trusts with foreign accounts are all required to report these accounts. If you’re a person filing a 1040, you would check “individual.” If you are a married couple and you and your spouse both have foreign accounts, you would each file an FBAR in your own name.

Box 3, US Taxpayer Identification Number: that’s going to be your Social Security Number or ITIN. If you don’t have one, you’ll need to complete box 4; otherwise box 4 is left blank.

Boxes 5 through 13 are pretty simple: your date of birth, your name, and where you live. Where is says “Country,” it refers to the country where you live, not the country your bank account is in.

Box 14 asks if you have 25 or more financial accounts. Most people just have one or two. But if you have 25 or more check the “yes” box and you don’t have to fill out parts 2 and 3. I also suspect that you’d better keep really good records for the IRS if you check the yes box, so don’t check “yes” just to avoid having to fill out the other parts. You’re basically telling the IRS that your accounts will require more scrutiny if you do.

Part II is about your actual accounts. Box 15 is asking for the maximum amount of funds that you had in the account all year. They are asking about the account in US Dollars. (You can see my post about reporting interest income to learn how to use the currency converter if you need help with that.) What I mean by the maximum amount of funds during the year is exactly that. What’s the most money that was in there all year? For example: let’s say you started the year with $20,000 USD, and you ended the year with $20,000 USD – well you’d think that you’d put $20,000 USD down in the box. But, maybe you transferred $10,000 USD into the account in the middle of the year to help your parents buy a new house. So that means the highest amount you had in that bank account was $30,000 USD, even though that amount was only temporary.

Box 16 is what type of account – bank, securities, or other.

Boxes 17 through 23 are all basic – name of bank, address of bank, what’s your account number, etc.

If you have more than one foreign account, there are continuation pages where you can list your other accounts. If you only have one foreign account, you’re almost done.

Be sure to sign the form at the bottom. If you’re an individual, you don’t need to put anything in the title box. Don’t forget to date your return.

The FBAR does not go with your federal income tax return. It gets mailed separately to an address in Detroit:

Department of the Treasury
Post Office Box 32621
Detroit, MI 48232-0621

The FBAR form is not required to be filed until June 30th. But why would you wait? Since you’re doing this because you had to report the information on your US income tax return, just finish the FBAR form and mail it in now so you don’t forget.

More FBAR information: http://www.irs.gov/businesses/small/article/0,,id=148849,00.html

Posted on February 28, 2012January 27, 2018 by Jan Roberg

How to Report Your Foreign Bank Interest on Your US Income Tax Return

US citizens and residents are required to report their worldwide income on their US tax returns.

Maybe you’ve heard the stories in the news. The IRS is cracking down on persons with foreign bank accounts who don’t report their income. The penalties for not reporting can be severe. So how do you report your foreign bank account income anyway? Surprisingly, it’s not really all that hard.

The first thing to do is to take a look at your foreign bank statement. Did you earn any interest on the account? How much?

Okay, but I’m guessing your statement is in a foreign currency. So you’re going to have to use a currency conversion rate. While there are several currency exchange websites, I like to use the US Department of Treasury exchange. That’s the one the IRS links to, so when I’m working on tax forms I like to use that rate. Here’s the link: http://fms.treas.gov/intn.html#rates

When you go to the exchange site, you’ll notice that the list is by country name, in alphabetical order. So let’s say that your foreign bank account deals in rupees; we’ll scroll down until we find India-Rupee. The exchange rate for rupees on December 31, 2011 was 52.25 rupees to one US dollar. So if you had earned interest of 1000 rupees in an Indian bank, that would be the equivalent of $19.14 USD. (Because you would take 1000 and divide by 52.25. That equals 19.13876, which you’d round to $19.14.)

You’d report that interest on Schedule B of your US income tax return.

At the bottom of the Schedule B form there is a question:

At any time during 2011, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities, account, or brokerage account) located in a foreign country? See instructions.

It’s a yes or no answer. If you read the instructions, you’ll find that you don’t have to say “yes” unless your foreign bank account has had the equivalent of $10,000 USD or more in it. If your foreign bank or securities accounts do have more than $10,000 in them, you will be required to complete the FBAR form, also known as the TD F 90-22.1. (I’ll make another post about that later this week.) The FBAR is not sent with the 1040 so you can do that separately from your tax return.

If you are using tax software, you may find the questions to be a little different. They may specifically ask–did you have a foreign bank account and did you have over $10,000 in that bank account. Just answer the questions honestly and your software will guide you.

If you are filing an FBAR, the IRS wants you to list the name of the country that your bank account is in on your 1040. There’s a little blank space right after the question about foreign accounts.

And don’t forget to answer the last question about foreign trusts. To be honest, I don’t do foreign trusts, so I’ve never had to say yes. If you’re involved with a foreign trust, you’re going to want to look elsewhere to get more information. But, if you don’t have a foreign trust, you just have to remember to mark the box “no”.

Now that you see how easy it is to report your foreign interest income, you don’t have to worry about the IRS coming to call over your foreign bank account.

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Note: We try to answer all the questions that come to us but please be patient. It’s our busy season right now. We may not get to your post until the weekend. When you make a post and use the capcha code, it won’t immediately show up. You see, for every normal person like you that posts, there’s about three advertisements for things your mother wouldn’t approve of. (We try to keep this a G rated website.) We have to edit those out. If you need an answer right away, here are some links that might help:

EIC questions of any kind: http://www.irs.gov/Individuals/Earned-Income-Tax-Credit-(EITC)-%E2%80%93–Use-the-EITC-Assistant-to-Find-Out-if-You-Should-Claim-it.

How to find free tax preparers: http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers

How to find your local IRS office: http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1

Posted on August 12, 2011November 21, 2018 by Jan Roberg

Filing and Paying Taxes in the United States

If you are working in the United States, you should expect to pay US income taxes.

The United States government taxes the worldwide income of its citizens and residents.

If you plan on working in the United States, here are some things you need to know about the US federal income tax system.

The United States taxes residents differently from non-residents, so the first thing you need to do is determine if you’re considered to be a resident or not. Generally, if you’re in the US temporarily because you’re a student, teacher, trainee, foreign government employee or a relative of one of those, then you’re considered to be a non-resident. These Visas are usually labelled as F, J, M, or Q. If you fall into this category, you’re considered to be a “non-resident”. You will file a tax form called 1040NR. This post is mostly about filing a tax return as a resident, a regular 1040 form.

If you are in the US on a regular working Visa (such as an H1) there are two ways to be considered a resident for income tax purposes. One is to have a green card—this form shows that you are a lawful, permanent resident of the United States. The other way to be considered a resident is to meet what’s known as the substantial presence test. The quick and dirty way to figure that out is to ask yourself if you were here for over 183 days this year. If the answer is, “yes” then you can be considered a resident. I’ve attached a substantial presence test questionnaire at the bottom of this post for anyone who needs a more accurate determination, especially if your time here crosses over two or more calendar years.

Qualifying as a US resident usually reduces your American income taxes. The biggest benefit is being able to claim the same “standard deduction” that US citizens claim. The standard deduction is a portion of your income that the government doesn’t tax. Also, as a resident, if you are married, you can file your tax return as “married filing jointly” which gives you a larger standard deduction and a lower general tax rate. For many people, being able to claim “resident” will reduce your taxes.

The downside of being a “resident” is that the United States government taxes the world wide income of its citizens and residents. Let’s say you move to America from France where you earned an income equal to $50,000 USD. You move to the US in June and work for 7 months, easily qualifying you to be a US resident for income tax purposes. While in the US you earn an additional $50,000 USD for a combined global income of $100,000 USD. You do not want to pay US income taxes on the $50,000 USD that you earned in France!

You have two options in this situation: One, you could file a “dual status alien” return— this would make you a US resident for the 7 months that you were here and a non-resident for the 5 months that you were in France. You would not get the full benefit of the resident deductions, but it would save you from being taxed on your French income. The second option would be to file as a US resident and claim a credit for the foreign taxes paid. If you come from a country where your taxes are equal to or higher than in the US, this is a good option for you. If you come from a country with lower taxes, you might be better off claiming the dual status alien. You do not have to decide this now, you can have your tax preparer work out the numbers for you both ways and choose which option works best for you.

A note about hiring a tax preparer in the US. There are many companies that have shops where you can pay someone to prepare your income tax return for you. These are for profit companies, not government agencies, and they expect you to pay them for the service. Most of them do not prepare 1040NR returns, or dual status alien returns at all. If they see that you qualify to be treated as a resident, they will want to proceed with filing your return as a resident. If you had no income in your home country, this is not a problem, and you can feel comfortable filing a US resident return. If you had income in your home country, make sure that the person you are dealing with understands “dual status alien” and “foreign tax credits”. Many tax preparers, especially the ones that set up temporary kiosks in the shopping center, have not been trained in these areas, and it’s essential to you that you hire someone knowledgeable about tax issues for foreign persons.

A common question is: what if I just don’t report my foreign income? How will the IRS know? The IRS has treaties with several countries and there is a great deal of information sharing. Although it seems impossible that the IRS could find out about someone’s foreign wages, when they do have that information, the fines and penalties for not reporting your income are severe. I recommend filing an honest and accurate return, then you’ll never lose sleep worrying about it.

A few other things you should know about income taxes in the United States. Our tax year ends on December 31st. Your income tax form is due by April 15th of the next year. Most states, and even some cities also have their own income tax forms that need to be completed and usually are due at the same time as your federal tax return. Make sure to file all of the returns you need to file, not just the federal. And the US government also wants to know about your foreign bank accounts. Even if you don’t have any taxable income from them, if you have over $10,000 USD equivalent in a foreign bank, you’ll be expected to report that bank account in an FBAR form.

And probably one of the most confusing things about US income taxes is that different circumstances generate different income tax rates. So you and your best friend could be working at the same job and making the exact same amount of money and withholding the exact same amount of tax – and one of you could wind up owing the IRS and the other one could get a huge refund. It happens all the time. There are different tax rates for married people than for single people, and there are special tax credits for children and all of those things affect what your tax bill will be.

My best advice is that if you are new to the United States, it’s a good idea to get some professional help with filing your US tax return. It will cost you some money to have this done, but it will give you peace of mind.

Substantial Presence Test (You can also find this on the IRS website) to determine if you can qualify to file your tax return as a US resident.

You must pass both the 31-day and 183-day tests.

31 day test: Were you present in United States 31 days during current year?

183 day test: [If you weren’t here for the full 183 days during the current year, the time you spent here in prior years counts towards your being deemed a resident.]

Current year days in United States x 1 =_____days [the days you spent here during this year count as full days]

B. First preceding year days in United States x 1/3 =_____days [the days you spent here last year only count as 1/3 days. So if you were here last year for one month (30 days) then it only counts as 10 days]

C. Second preceding year days in United States x 1/6 =_____days [the farther back the time, the less it counts. Two years ago only count as 1/6 of the days, so a month then counts for 5 days.]

D. Total Days in United States =_____days (add lines A, B, and C)

If line D equals or exceeds 183 days, you have passed the183-day test.

Exceptions: Do not count days of presence in the U.S. during which:
you are a commuter from a residence in Canada or Mexico;
you are in the U.S. less than 24 hours in transit;
you are unable to leave the U.S. due to a medical condition that developed in the U.S.;
you are an exempt individual; [basically that’s an F, J, M, or Q visa]
you are a regular member of the crew of a foreign vessel traveling between the U.S. and a foreign country or a possession of the U.S. (unless you are otherwise engaged in conducting a trade or business in the U.S.)