Guidelines for Foreign Bank Accounts and Tax Reporting

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Businesses and individuals operating foreign bank accounts should pay close attention to whether they are required to report this financial data. The IRS has guidelines in place that determine whether someone should be disclosing this information while filing their tax returns. If you feel like you may be required to report this as taxable income, consult with a tax professional to ensure that you are in full compliance with any such requirements.

IRS Regulations and Guideline: For purposes of dealing with the IRS, you will be deciding whether you should create a report of foreign bank and financial accounts (FBAR). The IRS has extensive guidelines regarding who should and should not fill out a FBAR disclosure form. Nevertheless, you will only have to file if you meet two specific criteria:

  • You are a United States citizen who holds some type of financial account in an overseas location.
  • The total value of this account exceeded $10,000 at any time over the course of the tax year in question.

If you meet both of these criteria, you may have to file an official taxable statement; however, some exceptions to these rules may apply to your situation. One such exception is if these foreign financial accounts were jointly held by both spouses and one of those individuals held foreign citizenship.

This may occur if your spouse was originally the citizen of another country and owned a bank account there. After you got married, he/she may have kept that account in place. If this is the case, it is possible that you could be exempt from the filing requirement for an otherwise eligible FBAR account.

Another exception may occur if the account holder operates the fund through a United States Military facility that features a banking system. This may be true of military personnel who have been deployed overseas. To make it easier to access their funds, they may decide to open up an account through one of these foreign located financial institutions.

You may be exempt from the FBAR filing requirements if you have an IRA that is located in a foreign financial institution. IRAs are usually non-taxable anyway but there may be some additional tax considerations if your IRA is held overseas.

As always, there will be other exceptions and guidelines to consider when deciding if you should report your foreign bank account. It is sometimes difficult to understand this information from just a cursory reading of the guidelines so make sure that you do plenty of research. Talk to your accountant to find out if your foreign account may be taxable, particularly if you noticed that it was raised over $10,000 during the last fiscal year. Be sure to ask about the aforementioned exemptions and if your situation may apply.

 

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