Tax Tips for U.S. Americans Abroad
We talk about US taxes a lot here, but did you know reporting your foreign assets to the US government is just as important? The FATCA, or Foreign Account Tax Compliance Act, is what gives Americans and Green card holders living abroad the responsibility to report their foreign assets. It’s a prominent law that you need to be aware, so we’ll break it all down for you.
What is FATCA
The Foreign Account Tax Compliance Act, or FATCA, was founded and authorized by the US Treasury Department. It is also known as the Financial Crimes Enforcement Network (FinCen). It is a law from the US government made to track potential illegal tax activity and monitor American taxpayers and business folks who are earning income abroad. This is through tracking income or investments deposited into foreign bank accounts.
Additionally, through FATCA, the US government has the power to withhold payments in being deposited into certain foreign financial institutions or other entities.
US citizens and Green Card Holders living abroad will need to report their foreign assets if they exceed certain monetary thresholds, under this FATCA law. Plus, foreign institutions (like banks) are also involved, and need to report to the IRS the assets from their American clients.
Who Needs to be Compliant with FATCA
You may be surprised to learn that it’s not just US individuals that are affected by FATCA – but foreign institutions and governments as well. The Foreign Account Tax Compliance Act makes sure everyone who needs to be is involved to prevent illegal money activity overseas will happen.
Here is a list of who must be tax compliant with FATCA every tax season:
- US Citizen or Green card holders abroad (a.k.a. “resident aliens”)
- US business owners or US individual who is an owner or a majority shareholder in a foreign corporation
- Foreign governments
- Foreign banks and institutions that accept and store money
- Investment houses that accept and store money, plus work with foreign institutions
- US banks that work with foreign banks
The FATCA and FBAR
The FBAR, or Foreign Bank Account Report, is similar to FATCA, since its purpose is to uncover tax avoiders, or people who use foreign bank accounts to hide money.
To put it simply, the FBAR is for foreign bank accounts. It’s specifically for people who have had $10,000 or more in all of their foreign bank accounts at any one time during the tax year. If you fall within this, you must file FinCen 114 electronically, or can do it through us before the expat tax deadline of June 15 (July 15 in year 2020 due to the coronavirus).
FATCA for Americans abroad is different in that while it’s also used for reporting of foreign financial accounts and assets it’s more comprehensive due to it’s high filing thresholds and reporting of the income from such assets.
If you do need to file an FBAR, you may need to declare your foreign financial account in form 8938 as well. The IRS Form 8938 is the Statement of Specified Foreign Financial Assets. It reports the balance of all your foreign financial accounts, plus lists taxable income connected to each account. Or better yet… just fill out the form electronically when you walk through our software!
FATCA Filing Thresholds
According to the IRS, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets.
Here are the FATCA for Americans abroad filing thresholds:
- Single or filing separately from spouse: If you have more than $200,000, or $300,000 at any time in the year in foreign financial assets at the end of the year, you’ll need to submit Form 8938
- Married filing jointly: If you are filing jointly with your spouse, and have more than $400,000 or more than $600,000 at any time during the year in foreign financial assets at the end of the year, you’ll need to submit Form 8938. This applies even if only one of the spouses lives abroad.
- Non-married but filing joint income tax return: If you have more than $200,000 at the last day of the year, or more than $300,000 at any time in the year in foreign financial assets, you’ll need to submit Form 8938
What Needs to Be Reported According to FATCA
What are the specific foreign assets FATCA wants you to report to the US Treasury? They can be foreign.. bank accounts, mutual funds, issued life insurance, pensions, hedge funds and more.
Banking Issues and the FATCA
It is possible that you as an American abroad could experience bank issues while living abroad. This is because many foreign institutions do not want to go through the extensive paperwork the US government wants them to do if they have American customers. So they may not accept you.
It is also not uncommon to go to a bank overseas, request to open an account and get denied because of your citizenship. This is unfortunately an obstacle US citizens will need to overcome abroad.
We suggest just to be safe. Have a US bank account in case you cannot find a bank account in time.
Avoid FATCA Penalties with MyExpatTaxes
There is no fun in fees or penalties as a US citizen abroad. You can avoid failing to file fees of $10,000 or more if you file on time with the right forms. As an American expat, you can stay and remain tax compliant every year when you file expat taxes through our friendly expat tax software.
If you did forget to file, and may have missed years of reporting under the FATCA rule, no worries. You can take advantage of our affordable Streamlined Procedure tax preparation program. It is one-third the price from other competitors in the expatriate taxation world.