How to Report a Foreign Bank Account on Your Tax Return

For many Americans living abroad, or those who hold financial accounts overseas, understanding your tax reporting obligations is essential. The U.S. government requires citizens and residents to disclose certain foreign financial accounts each year. Failing to do so can lead to significant penalties. Here’s a clear breakdown of when and how to report a foreign bank account on your tax return.

What Is a Foreign Bank Account Report (FBAR)?

The Foreign Bank Account Report (FBAR) is a key requirement for U.S. taxpayers with overseas financial interests. If the combined value of your foreign accounts exceeds $10,000 at any time during the calendar year, you must file FinCEN Form 114 — the FBAR — separately from your regular tax return.

Accounts subject to reporting include:

• Checking and savings accounts
• Investment accounts
• Retirement accounts (depending on structure)
• Mutual funds and certain insurance policies

It’s important to remember that the threshold is calculated by adding the highest balances across all your foreign accounts, not by looking at each account individually.

What About FATCA (Form 8938)?

In addition to the FBAR, some taxpayers must also complete Form 8938, part of the Foreign Account Tax Compliance Act (FATCA). This form is filed with your annual federal tax return (Form 1040) if your foreign financial assets exceed certain thresholds. The specific filing requirements depend on your residency status and filing situation.

Living in the U.S.

If you reside in the United States, the reporting thresholds for Form 8938 are as follows:

• For individuals filing as Single or Married Filing Separately, you must report if the total value of your foreign financial assets exceeds $50,000 on the last day of the tax year or $75,000 at any point during the year.
• If you are Married Filing Jointly, the thresholds are higher. You are required to file if your foreign financial assets are worth more than $100,000 on the last day of the year or $150,000 at any time during the year.

Living Abroad

If you qualify as living abroad — typically meaning your main home is outside the United States and you meet certain IRS presence tests — the thresholds are significantly higher:

• For individuals filing as Single or Married Filing Separately, you must file Form 8938 if the total value of your foreign assets exceeds $200,000 on the last day of the year or $300,000 at any point during the year.
• If you are Married Filing Jointly and living abroad, you must file if your foreign assets exceed $400,000 on the last day of the year or $600,000 at any point during the year.

Important Distinction

Both the FBAR and FATCA reporting requirements exist to promote financial transparency, but they are separate obligations. Filing one form does not satisfy the requirement to file the other. U.S. taxpayers who meet the relevant thresholds may be responsible for completing both the FBAR and Form 8938 each year.

How to File the FBAR

Unlike your federal tax return, the FBAR is filed directly with the Financial Crimes Enforcement Network (FinCEN), not the IRS. The process is online and fairly straightforward:

1. Gather your foreign account information: bank name, address, account number, type of account, and highest balance during the year.
2. Use the BSA E-Filing System to submit FinCEN Form 114 electronically.
3. File the FBAR by April 15, with an automatic extension available until October 15.

FBAR penalties for non-compliance can be substantial, particularly if the IRS views the omission as willful, so timely and accurate reporting is important.

How to File Form 8938

Form 8938 is attached to your annual income tax return (Form 1040) and filed with the IRS. You’ll need:

• Account details similar to those needed for the FBAR
• Income generated from the foreign assets
• Any related deductions, credits, or tax attributes

While Form 8938 overlaps with the FBAR in some respects, it covers a broader range of assets, including interests in foreign businesses, partnerships, and trusts.

Common Mistakes to Avoid

When dealing with foreign financial reporting, here are a few common pitfalls:

• Assuming small accounts don’t matter: Even accounts with relatively small balances must be included if the combined total crosses the threshold.
• Believing “out of sight, out of mind”: U.S. taxpayers must report global income and financial assets, regardless of where they reside.
• Missing the difference between FBAR and FATCA: They serve different purposes and require different filings.
• Thinking one missed filing can be ignored: Penalties can accumulate quickly. If you’ve missed a past filing, it’s worth seeking professional support to correct it.

How to Report a Foreign Bank Account on Your Tax Return

Navigating foreign account reporting can seem complex, but being proactive can help prevent unnecessary penalties and stress. If you hold financial assets outside the U.S., staying informed about your obligations under both FBAR and FATCA is key. Blacktower’s experienced team can help facilitate your compliance, offering professional guidance tailored to your cross-border financial needs.

Sources

• IRS – FATCA (Form 8938) Requirements
• IRS – Form 8938, Statement of Specified Foreign Financial Assets
• FinCEN – FBAR Filing Requirements (FinCEN Form 114)
• IRS – FBAR Reference Guide