Do you find yourself confused by the different tax reporting requirements for foreign assets? With so many acronyms and numbers to remember, it’s easy to feel overwhelmed. But fear not! In this blog post, we’ll break down the differences between Form 8938 and FBAR reporting requirements in a way that’s simple and easy to understand. Whether you’re an individual taxpayer or a business owner with foreign investments, this guide will help you stay compliant with the IRS while avoiding costly penalties. So grab your coffee and let’s dive into the world of tax reporting together!
Introduction to Form 8938 and FBAR
The Foreign Account Tax Compliance Act (FATCA) introduced a new tax form, Form 8938, which must be filed by taxpayers with certain foreign financial assets. This is in addition to the existing requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the taxpayer has financial interests in or signature authority over foreign financial accounts exceeding certain thresholds.
Both Form 8938 and FBAR reporting requirements are designed to help the IRS detect and combat international tax evasion. However, there are some key differences between the two forms that taxpayers should be aware of.
Unlike FBAR, which only requires taxpayers to report on their foreign financial accounts, Form 8938 also requires taxpayers to report on certain foreign assets such as stocks, bonds, and real estate. In addition, the filing thresholds for Form 8938 are much higher than those for FBAR: $50,000 for unmarried taxpayers living in the U.S., $100,000 for married taxpayers filing jointly, and $200,000 for married taxpayers filing separately.
Another key difference is that Form 8938 must be filed with the taxpayer’s annual tax return, while FBAR is filed separately with the Department of Treasury. Finally, while penalties for failing to file FBAR can be steep (up to $10,000 per year), penalties for failing to file Form 8938 are even higher: up to $60,000 per year.
Who Needs to File Form 8938 or FBAR?
If you are a covered expatriate, you will need to file Form 8938. A covered expatriate is an individual who has renounced their U.S. citizenship or terminated their long-term residency in the United States.
If you are not a covered expatriate, but you have foreign financial assets that exceed certain thresholds, you will need to file FBAR. The thresholds for FBAR filing are higher than the thresholds for Form 8938 filing.
You will need to file FBAR if:
- You have foreign financial accounts that exceed $10,000 at any point during the year
- You have signature authority over foreign financial accounts that exceed $10,000 at any point during the year
- You have foreign financial assets that are not held in a financial account and exceed $50,000 at any point during the year.
What is the Difference Between Form 8938 and FBAR?
It is important to understand the difference between Form 8938 and FBAR reporting requirements. For starters, FBAR is required if you have a financial interest in or signature authority over foreign financial accounts worth more than $10,000 at any point during the year. Form 8938, on the other hand, is only required if your foreign financial assets exceed certain thresholds set by the IRS ($50,000 for single filers and $75,000 for joint filers).
Another key difference is that FBAR must be filed electronically with the Treasury Department, while Form 8938 can be filed either electronically or via paper return.
Lastly, it’s important to note that while both forms are used to report foreign financial assets, they each have different purposes. FBAR is primarily used for tax enforcement and compliance purposes, while Form 8938 is used to provide information about your foreign financial assets so that the IRS can assess your tax liability.
Penalties for Noncompliance with Form 8938 or FBAR Requirements
The penalties for noncompliance with Form 8938 or FBAR requirements can be significant. The base penalty for each failure to file a required report is $10,000, and the maximum penalty is $50,000. If there is a pattern of non-compliance, the penalties can increase to $100,000 or 50% of the account balance, whichever is greater. In addition, the IRS may impose other penalties, such as interest and late filing penalties.
The best way to avoid these penalties is to ensure that you comply with the reporting requirements. If you are unsure whether you are required to file a report, you should consult with a tax advisor.
How to File Form 8938 and/or FBAR
Assuming the reader is already familiar with the basics of Form 8938 and FBAR reporting requirements, this section will provide detailed instructions on how to file each form.
Form 8938 is filed with the IRS and must be attached to your annual tax return. You will need to provide basic information about yourself and your financial accounts, as well as the maximum value of each account during the tax year.
FBAR is filed electronically with the Financial Crimes Enforcement Network (FinCEN). You will need to provide your name, address, Social Security number, and details about each of your foreign financial accounts, including the account number, balance, and name of the financial institution.
Conclusion
Understanding the differences between Form 8938 and FBAR reporting requirements is essential for anyone with foreign financial assets or accounts Schedule c. This article has outlined the key differences between these two forms, as well as tips on how to complete them accurately. With this knowledge in hand, US taxpayers can ensure they are compliant with their filing obligations and avoid potential penalties from the IRS.
