The Foreign Account Tax Compliance Act (FATCA) is crucial for expats abroad, influencing how financial information is reported. FATCA mandates the disclosure of assets held by U.S. citizens by international banks to prevent offshore account scams. This necessitates accurate reporting of foreign assets to the IRS and FinCEN. Understanding Form 8938 and FBAR is important for compliance.
Form 8938, part of FATCA compliance, requires reporting foreign assets based on specific thresholds for single expats and married couples living abroad. Failure to report assets may lead to penalties of up to $10,000. The form encompasses a wide range of foreign financial assets such as bank accounts, investments, and ownership in foreign companies. Filing Form 8938 should be done alongside annual U.S. tax returns by standard tax deadlines for expats.
The FBAR, or FinCEN Form 114, is another crucial document for expats with foreign bank accounts surpassing $10,000 at any time during the year. Different from Form 8938, the FBAR serves to combat tax evasion and should be filed separately with FinCEN. Penalties can apply for late FBAR submissions, making it vital to adhere to filing deadlines.
The Streamlined Procedures offer an opportunity for expats who were unaware of their tax obligations while living abroad to become compliant without facing penalties. This initiative enables the filing of the past three years of tax returns and six years of FBARs without incurring fines. Eligibility for the Streamlined Procedures requires no prior IRS contact regarding tax returns scrutiny.
Consulting a tax professional for guidance on appropriate reporting and compliance with FATCA regulations is advised to minimize errors. By being proactive and thorough in reporting foreign assets and adhering to filing deadlines, expats can ensure compliance with FATCA requirements and avoid penalties. The importance of understanding the distinctions between Form 8938 and FBAR, as well as knowing when and how to file these documents, cannot be overstated for expats navigating U.S. tax regulations while living abroad.
