What is the difference between Form 8938 and FBAR form in terms of reporting of Foreign Financial Assets?

What is the difference between Form 8938 and FBAR form in terms of reporting of Foreign Financial Assets?

by | May 17, 2019 | Blog, Tax Extension, Tax Planning, Tax Preparation

What is the difference between Form 8938 and FBAR form

in terms of reporting of Foreign Financial Assets?

Form 8938,FBAR, FATCA, these are some of the acronyms that might confuse a lot of taxpayers. Especially when it comes to foreign financial assets, which one should a taxpayer choose and why.

Form 8938

The HIRE Act was the triggering factor behind the FATCA or the Foreign Account Tax Compliance Act coming in to effect in 2010. As per this Act, financial institutions are required to report the assets held by US-based account holders or run into the risk of withholding on certain taxes. As per the HIRE Act, US citizen also needs to declare their foreign financial investments. This is where Form 8938 comes into the picture. Taxpayers of the United States of America use Form 8938 to fulfil the FATCA obligations. The form must be submitted along with their annual tax return.

FBAR

The Bank Secrecy Act of 1970 was the deciding factor behind the introduction of Foreign Bank Account Reporting or FBAR. The intention of this Act was to discourage tax evasions by foreign investments. While the Act was ignored for a very large period of time, it has caught up quite a bit in recent years. The Government’s push towards this compliance has been a major factor. Couple that with hefty penalties and more people are filing FBAR forms as compared to previous years. The IRS also has a voluntary disclosure program for individuals who might have to file FBAR.

The Difference

While on the surface it might seem that both the forms are collecting exactly the same information, there are quite a few subtle differences.

FBAR form is for US persons having an interest in foreign financial accounts. Also, they must meet the specified thresholds.

Form 8938 is for specific US persons having an interest in foreign financial assets. Also, they must meet the thresholds mentioned.

  • Unmarried individuals with assets worth $50,000 or more on the last day of the fiscal year or $75,000 or more during anytime in the fiscal year.
  • Married individuals with assets worth $100,000 or more on the last day of the fiscal year or $150,000 or more during anytime in the fiscal year.
  • Reported Materials

For FBAR, individuals need to report the maximum value of their foreign financial accounts.

For Form 8938, individuals need to report the maximum value of their foreign financial assets.

  • Thresholds

The FBAR’s threshold value is $10,000. Thus, if the total financial value of accounts exceeds $10,000 it must be reported.

The threshold value for individuals filing Form 8938 who are living outside the country are:

  • Unmarried individuals with assets worth $200,000 or more on the last day of the fiscal year or $300,000 or more during anytime in the fiscal year.
  • Married individuals with assets worth $400,000 or more on the last day of the fiscal year or $600,000 or more during anytime in the fiscal year.
  • Where to file

FinCEN’s BSA e-filing system is how you should file your FBAR Form and it is all electronic.

Form 8938 must be filed along with your annual federal tax return.

  • Penalties

Failing to file FABR non-willingly results in a fine of $10,000. And the penalty for willful non-filing results in a fine of $100,000 or 50% of the balance in the accounts.

Form 8938 has a penalty of $10,000 for not filing the form. The amount increases by $10,000 for every 30 days passed, to a maximum of $60,000.

You can now decide for yourself, which form you need to file when it comes to Foreign Financial Assets reporting.

3 things to do if you did not file your FBAR/FATCA

3 things to do if you did not file your FBAR/FATCA

by | Feb 23, 2019 | FATCA, FBAR, Tax Payers, Tax Planning, Tax Preparation

3 things to do if you did not file your FBAR/FATCA

The major requirement under The FBAR/FATCA is to find out the financial assets of the U.S. citizens outside the country. All financial institutions outside the U.S. need to find out the records of customers with the U.S as their place of the birth & report about their assets to the U.S. Department of the treasury.

FBAR stands for Foreign Bank Account Report which must be filed with the Financial Crimes Enforcement Network (FinCEN) by U.S. citizens who are authorized signatories or financial interest holders in any foreign financial account, where the account can be either a bank account or a mutual fund.

Filing for FBAR is different from general filing for tax returns with IRS and is generally done electronically by E-Filing system.

Unfortunately, there are cases of U.S. citizens being unaware of the filing for FBAR and being penalized by the Government. So, if you have missed out filing for FBAR by any chance you can follow the below-mentioned procedures.

Streamlined Filing Compliance Procedures–

This method is applicable:

  • If you have unknowingly missed foreign assets declaration
  • Made any mistakes while filing FBAR forms
  • If you are non-tax compliant for all foreign accounts which will be mentioned in your FBAR declaration.

In this method, the taxpayer is allowed to amend or make changes in the last 3 years of tax returns & the last 6 years of not reported FBAR declarations.

Offshore Voluntary Disclosure Program–

In this method, the IRS provides another opportunity to the non-tax compliant citizens to disclose their foreign financial assets voluntarily before the IRS finds out and implements criminal prosecution.

However, there are penalties associated with this method but can be reduced to a certain extent.

Delinquent International Information Return Submission Procedures-

  • The taxpayers who opt for this method need to file the International Information Return by providing a statement of all facts which justify the reason for the failure of non-compliance.
  • Usually, those citizens who have reasonable causes for non-compliance & have not been contacted by IRS yet for any penalties can use this method.

The FATCA also instructs citizens to self- report about their non-U.S. assets to the IRS (Internal Revenue Service). The entire motive behind this law is to prevent tax evasion. Several methods are used by the citizens to avoid paying taxes like making a tax-advantaged investment, plans or opening tax-advantaged accounts.

The Health Savings Account (HSA) is one of the best examples of tax-advantaged accounts in which the contributed funds are tax-exempted. Since these accounts are not liable to taxation citizens contribute more & more to these accounts.

As per current statistics reports, there are approximately 22 million HSA accounts holding over $45 billion in assets. The HSA accounts have grown by 8.3 billion dollars which results in a year over year increase of 22% in assets.

Another such tax-advantaged plan is the Child Tax Credit. This credit amount is given to the taxpayer at the end of the tax year for every dependent child below the age of 17 and satisfying other mandatory criteria like citizenship test, family income test, relationship test etc.

The new Child tax credit for tax years after 2017 is up to $ 2000 per qualifying child with a refundable amount up to $1400. As per recent reports, around 60 million children from 35 million families are saving taxes using the Child tax credit. In the U.S, the state and local tax deduction is one of the major tax expenditures.

However, all these procedures & methods enlisted are not simple and will need professional guidance as well. Hence, to have a hassle –free financial life it is always advisable to be compliant with the tax payments.