Ines Zemelman, EA
05 Jan 2023
If you have money in foreign bank accounts, you may be required to file a Foreign Bank Account Report (FBAR).
In this article, we cover every top important and essential question about FBAR filing, including the requirements, deadlines, and how to file online. We'll also discuss the tax rate for FBAR and the potential disadvantages of filing.
But first - what is FBAR?
The FBAR is a report that must be filed by individuals and entities who have a financial interest in or signature authority over foreign financial accounts that exceed certain thresholds. The FBAR is used by the Internal Revenue Service (IRS) to help detect and deter tax evasion and money laundering through the use of foreign accounts.
Also read -Tax Avoidance vs. Tax Evasion for American Expats
Who is Required to File an FBAR?
What is FBAR filing?
FBAR filing is the process of submitting a report to the IRS disclosing your financial interest in or signature authority over foreign financial accounts.
You are required to file an FBAR if:
- You are a U.S. citizen or resident alien.
- You have a financial interest in or signature authority over at least one foreign financial account.
- The combined value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year.
NOTE! The $10,000 threshold applies to the combined value of all your foreign financial accounts, not to each individual account. If the total value of your foreign accounts exceeds $10,000 at any point during the year, you are required to file an FBAR.
Disadvantages of Filing FBAR
Filing an FBAR can be time-consuming and require you to disclose detailed information about your foreign financial accounts.
Additionally, if you have income earned from your foreign financial accounts, it may be subject to taxes in both the United States and the country where the accounts are located.
Also read:
- Simple Tax Guide for Americans in the UK
- Simple Tax Guide for Americans in Canada
- Simple Tax Guide for Americans in Australia
- Simple Tax Guide for Americans in France
- Simple Tax Guide for Americans in Germany
- Simple Tax Guide for Americans in Japan
However, failure to file an FBAR can result in significant penalties, so it's important to understand your obligation to file and to do so accurately and on time.
How to File FBAR Online?
Filing your FBAR online is a breeze, and you can do it anytime through the BSA E-Filing System on the FinCEN website. Best part? It's completely free of charge.
Just create an account and fill in some basic details about yourself, like your name, address, and social security number. Then, provide the necessary information about your foreign financial accounts, including where they're located, the account number, and maximum balance.
Remember that the FBAR deadline is April 15th, with an automatic extension until October 15th. If you miss it, you may be hit with penalties. So don't forget to mark your calendar!
Pro Tip! It's important to hold onto your records of your FBAR filings for at least 5 years. That way, you are able to prove your compliance in case of an unexpected audit.
What is the FBAR Tax Rate?
The FBAR is not a tax form, so it does not have a tax rate associated with it. However, income earned from foreign financial accounts may be subject to taxes in the United States and in the country where the accounts are located.
Pro Tip! It's important to consult with a tax professional to determine your tax obligations related to income earned from foreign accounts.
FBAR Minimum Amount
As mentioned earlier, you are required to file an FBAR if the combined value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year. This is the minimum amount that triggers the FBAR filing requirement.
It's important to note that the $10,000 threshold applies to the combined value of all your foreign financial accounts, not to each individual account. If the total value of your foreign accounts exceeds $10,000 at any point during the year, you are required to file an FBAR.
What is the FBAR Filing Amount?
The FBAR filing amount is the total value of all foreign financial accounts that a taxpayer has a financial interest in or signature authority over. This includes accounts held in the taxpayer's own name, as well as accounts held jointly with others.
So, the FBAR filing amount is the total value of all your foreign financial accounts. If the combined value of your accounts exceeds $10,000 at any time during the calendar year, you are required to file an FBAR.
It's important to accurately report the value of your foreign financial accounts on the FBAR to ensure compliance with the filing requirements.
NOTE! The FBAR filing amount is determined by the maximum value of the accounts during the tax year, not the average balance or the current balance at the time of filing.
FBAR Timeline -When to File
The deadline for filing an FBAR is April 15th of the year following the calendar year being reported. However, if you need an extension, you can file Form 4868 to request an automatic six-month extension. The extended deadline for filing is October 15th.
Also read -The Difference Between Form 4868 and Form 2350
It is important to remember that the FBAR is a separate form from the taxpayer's tax return, and must be filed separately even if the taxpayer is requesting an extension for their tax return.
NOTE! It's crucial to meet the FBAR filing deadline to avoid potential penalties for failing to file on time.
Reasons for Not Filing FBAR
There are no valid excuses for not filing an FBAR if you are required to do so. If you fail to file an FBAR, you could be subject to significant penalties. It's important to understand your obligation to file an FBAR and to do so accurately and on time to avoid potential consequences.
There are several (NB- poor) reasons why a taxpayer may not file an FBAR, including:
- The taxpayer is unaware of their obligation to file an FBAR;
- The taxpayer is unaware of the existence of the foreign financial accounts;
- The taxpayer believes that the accounts are not subject to FBAR reporting;
- The taxpayer believes that the accounts do not meet the FBAR minimum amount.
NOTE! Ignorance of the law or mistake is not a defense for not filing an FBAR. Taxpayers who do not file an FBAR when required to do so may be subject to penalties.
Penalties for Not Filing FBAR
If you fail to file an FBAR, you could be subject to civil penalties of up to $10,000 per violation. If the IRS determines that your failure to file was willful, you could be subject to criminal penalties, including fines and imprisonment.
The penalties for not filing an FBAR can be severe, and may include:
- Civil penalties of up to $10,000 per violation.
- Criminal penalties of up to $250,000 and/or up to five years in prison.
- Inflation-adjusted civil penalties of up to $12,921 per violation.
NOTE! The penalties for not filing an FBAR may be waived if the taxpayer can show that the failure to file was due to reasonable cause and not willful neglect.
It's important to understand the potential consequences of not filing an FBAR and to take steps to ensure compliance with the filing requirements.
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FAQ
1. What is the FBAR deadline 2023?
The FBAR deadline for 2023 is April 15, 2023. This is the due date for filing the FBAR for tax year 2022. If you are unable to file the FBAR by the deadline, you may request an extension until October 15, 2023 by submitting Form 4868, "Application for Automatic Extension of Time To File U.S. Individual Income Tax Return."
It is important to note that the FBAR is a separate form from your tax return, and must be filed separately even if you are requesting an extension for your tax return.
2. Do I have to file FBAR every year?
Yes, if you have a financial interest in or signature authority over foreign financial accounts with a total value of more than $10,000 at any point during the tax year, you are required to file an FBAR every year. The FBAR must be filed annually by the due date of your tax return, which is typically April 15th. For taxpayers who file for an extension, the FBAR deadline is extended to October 15th.
3. What if I’ve never filed an FBAR but I should have?
If you have never filed an FBAR but should have, it is important to file as soon as possible. The U.S. Department of the Treasury has established a voluntary disclosure program that allows taxpayers to come forward and disclose their foreign financial accounts without facing criminal prosecution.
To participate in the voluntary disclosure program, taxpayers must file all required FBARs and tax returns, as well as pay any taxes, interest, and penalties owed. If you are unsure of your FBAR filing requirements or have questions about the voluntary disclosure program, it is advisable to seek the advice of a tax professional.
