Form 8938-All you need to know about Foreign assets reporting
It was after March 2010, that taxpayers in the United States of America were required to report their financial assets in other countries apart from the USA. This addition was initiated by HIRE or Hiring Incentives to Restore Employment Act under the FATCA or Foreign Account Tax Compliance Act. There are two significant parts to the FATCA. Firstly, it allows global financial institutions to report any financial interest of taxpayers in other countries. And secondly, it adds provisions for US taxpayers to declare their assets outside the USA.
Before we get to the details of the ACT, it is important to know which all assets qualify as foreign financial assets. Here is a brief list of the same.
- Any accounts held with financial institutions such as bank accounts, mutual funds, other investments, outside the United States of America.
- If a person has any interest in an entity such as a corporation, partnership or member of a trust outside the USA.
- If a person holds any form of securities such as stocks or bonds which are not part of an investment account.
- If a person holds any financial interest or instrument where the issuer or counterparty is a non-US resident.
Now that we are cognizant of the different assets, the next obvious question is, should you file Form 8938? Technically any US resident who is impacted by the FACTA must file Form 8938 in their tax returns. However, for the time being, the IRS requires only specific individuals to file the Form along with their returns. Citizens of US, resident aliens, non-resident aliens and non-resident aliens who stay in Puerto Rico or American Samoa qualify to file FORM 8938.
Thresholds for Form 8938
In order to file Form 8938 properly, taxpayers need to be aware of a couple of values. Firstly, the maximum value of their assets for a fiscal year and the asset’s value by the end of the year. A taxpayer must then add up all the maximums and year-end value. This will help the IRS assess if an asset’s value surpasses the thresholds. If and only if the assets exceed the threshold limits set, that a taxpayer must file Form 8938.
The following are the different threshold values set by the IRS.
For an unmarried individual taxpayer, they need to file Form 8938 if their asset’s year-end market value is greater than $50,000 or if it exceeds $75,000 during any part of the year.
If an individual is unmarried and resides outside the USA and qualifies as a bona fide resident or passes the physical presence tests, the limits stand at $200,000 for last day of the year and $300,000 during any time of the year.
Individuals who are married and are filing their taxes jointly, the Form 8938 would come into the picture if the foreign assets exceed $100,000 on the last day of the fiscal year or exceed $150,000 during any time of the year.
If married individuals are filing their taxes separately, the threshold limits remain the same as that of unmarried individuals.
Along with the above information, it is important to be aware of how to value your foreign assets. To calculate the market value, one must be aware of the maximum value of the asset and convert it to USD. One must only refer to the Treasury Department’s Financial Management Service for conversion rates. And finally, you must file the Form 8938 with your Form 1040.
The above should help you identify assets, whether or not you need to file the Form 8938 and how to file the same.