All you need to know about Bank FATCA reporting as a US taxpayer

All you need to know about Bank FATCA reporting as a US taxpayer

All you need to know about Bank FATCA reporting as a US taxpayer

Bank FATCA reporting as US Taxpayer.It should not come as a surprise that the US Government looks into a wider array of things for expats and not just the taxation. FATCA is one such avenue.  There are a lot of rumours and misinformation surrounding FATCA, so let’s break it down slowly.

What is It?

FATCA or Foreign Account Tax Compliance Act came into the law books in the year 2010. It made way for reporting of information related to payments towards foreign financial institutions or foreign entities in general. The whole intent of creating this Act was to make it easier for the IRS to keep a track of all the earnings that US citizens and business have from foreign investments or bank accounts.

One thing to keep in mind is that the IRS does not govern the FATCA. In fact, the Financial Crimes Enforcement Network under the US Treasury Department takes care of the same. Though, there is nothing holding them against sharing information at the time of need.

Whom does it Affect?

Knowing whether or not FATCA affects you is important. Simply because if it does, you would need to file everything very carefully and in a timely manner. The following individuals are impacted by FATCA.

  • US citizen or resident aliens (Green card holders) must be compliant with FATCA irrespective of where they stay.
  • US persons owning a business or have a majority stake in a business.
  • Any form of worldwide agreements.
  • US investment houses or banks that have interactions and dealings with foreign financial institutions.
  • Any foreign financial institution that deals with money.

Requirements to File FATCA

US residents who have foreign bank accounts or investments must file the FinCEN Form 114 if their investments meet the threshold amount. The FinCen Form 114 was previously known as the FBAR Form and some people still use the name. There aren’t any minimum age criteria for filing the Form 114.

The threshold amount for individuals stands at $10,000. If at any point in time during a financial year the investments breach the $10,000 mark, it must be reported with the help of FinCEN Form 114. Other forms of income such as interests or dividends must also be reported regularly to avoid any penalties or fines at a later stage.

What you Need to file FinCEN Form 114

In order to fill the FinCEN Form 114, you would need to have the following information handy.

  • Your name, social security details and address.
  • If there are any joint account holders, their name, social security number and address.
  • The type of bank account that you are holding (ex. Current, savings etc.). The type of Securities that you are holding (mutual funds or stocks) and any other type of investments that don’t come under the category of bank account or securities.
  • Details of your bank account.
  • The name and address of the bank with which you hold the account.
  • The bank account number.
  • The number of joint owners of the account.
  • The highest amount of money held in the account for the taxable year in question.

Are there any penalties?

The US Government levies some hefty penalties for withholding such information or failing to declare them during your tax filing. For non-willful violations, you might end up paying up to $10,000 for every year of not filing.

If you are found to be willfully violating the rules, you might face penalties up to $100,000 or 50% of the amount of money in your account at that point in time.

Worried About an IRS Audit? 7 Saviour Tips You Need

Worried About an IRS Audit? 7 Saviour Tips You Need

Worried About an IRS Audit? 7 Saviour Tips You Need

The very idea of undergoing an audit by the IRS can be quite intimidating for a lot of folks. The central idea behind IRS audits is to double-check the information provided by an individual. There should not be any difference between taxes owed and taxes paid. There is a silver lining to IRS audits as well, as only less than 1% of all tax payers get audit notices during a financial year. If you are genuine with your tax filings, there is nothing to worry about, even if you are being audited.

You can certainly reduce the chances of being on that less than 1% list by keeping the following in mind.

Try to avoid doing anything that might put some sort of suspicion in their mind.

File your returns

This seemingly obvious option is at times ignored by people. Not filing returns brings you under the radar of IRS. There might be instances where you did not have any income for the previous year. You would still need to file your returns to show that you did not pay any taxes, because you did not have any income source for the year in question.

Bring clarity on the table

Messy handwriting and document filing can also bring you into IRS’s limelight. If the IRS is unable to read your tax return, you might draw their attention. Try to stay away from any such situations. It is better off to be one of the million people whose documents just sail over, than coming under audits.

Get your Maths straight

The theme of trying to avoid drawing any attention continues here as well. Make sure you have your calculation accurately. There should not be any room for error. The easier way out is to use software or file your taxes online. That way the chance of making errors reduces drastically. But if you are filling up forms offline, ensure that the proper boxes have proper data set. And most importantly double check that you have signed the tax return.

Knowing the targets

Professions where you deal mostly with cash or maintain your own book, chances of being under audit are relatively higher. For example profession like hairdresser, lawyer, accountant etc. might generate more friction in the IRS department. You need to be very clear with your return filing and specially the deductions.

Do not Forget information

Failing to mention any income from any front or omitting information can turn the tides against you. No matter how small the value is, missing it can prove to be expensive. The reason being, that IRS is most probably aware of that. And its absence from the tax returns would draw attention again.

The selection process

It is essential to understand the selection process to know your probability of making into or out of it. To a normal eye the process looks to be pretty random. But internally, IRS uses software to compare your deductions with those in your bracket. This is not meant to intimidate you, rather the take away point is to have as much documentations as you can.

Additional documents

Where it is your paranoia or something else that makes you feel you might be the chosen one, it is good to have documents. Additional documents such as forms, receipts for events, worksheet etc. will definitely come in handy in such times. Providing sufficient documentations ensure that even if the software flags you, an IRS agent can comprehend your return and let you off.

There is no guaranteed way to keep you away from IRS audits, but taking some of these precautions can help you reduce its probability.

Even if you are under audit, having sufficient evidence for each description will aid you to get through.