Filing for taxes can be a big ordeal when you are not even sure of the requirements that apply to you. And when you own foreign assets or have bank accounts outside the United States, it can be even more challenging to figure out which reports you need to file with the Internal Revenue Service (IRS).
If you thought holding financial accounts outside the US does not exempt you from tax filing as a US taxpayer. One of the filing requirements for US individuals is a Foreign Bank Account Report (FBAR). In this context, the IRS describes a US person as a US citizen, green card holder, tax resident, corporation, partnership, limited liability company, trust, and estate.
There are three main filing requirements for a foreign bank account report, with the first being ownership of a financial account outside the US. This financial account could be a bank account with a financial institution that is located outside the country. However, merely owning a foreign bank account does not mean you are automatically required to file an FBAR.
For an FBAR file requirement to apply to you, the aggregate balance in your non-US bank account or the aggregate highest balance of multiple foreign accounts must have exceeded $10,000 at any point in a calendar year.
Let’s take the scenario of a US person who lives in Dubai and has a bank account with Bank A. The highest balance in March was $5,000, and they received a big bonus of $20,000 later in July. In September, they withdrew all the money that was in the account in July.
The highest balance from January to December would have been $25,000, which is well above the $10,000 threshold. In this case, the US person would be required to file an FBAR in that calendar year.
What if you have multiple non-US bank accounts?
FBAR requirements also apply to multiple foreign bank accounts. However, the same $10,000 threshold applies. Let’s say you’re a US person with non-US bank accounts in Bank A and Bank B. The highest balance in Bank A was approximately $5,000 and the highest balance in Bank B was $6,000 in a calendar year.
The aggregate balance in these two accounts – meaning we add the $5,000 in Bank A to the $6,000 in Bank B – is $11,000, which is higher than the $10,000 threshold. Therefore, there would be a filing requirement for the US individual to complete the FBAR because the aggregate balance of the two highest balances in Bank A and bank B exceeds the $10,000 filing requirement.
So, whether you have a personal bank account, a joint bank account, or have signature authority over a financial account located outside the US, you are required to file an FBAR report.
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Other examples wherein you have an FBAR filing requirement
You also have an FBAR filing requirement if you have signature authority over a foreign bank account, even if the bank account does not belong to you. Let’s say you’re a US person who moves out of the country for a job in Dubai.
Now, your employer requires that someone in your position must have signature authority over the employer’s bank account. Then, you will be required to report that account on your FBAR because you are in control and have signature authority over that account.
Married couples that consist of one or two US persons will have several considerations to make before opening a joint foreign bank account. If a husband and wife decide to open a joint bank account in Dubai because it makes housing expenses easier, for example, the US person needs to report that he or she has a joint foreign bank account with that individual.
We need to provide the first and last name of the person and whether or not they are a US person on the FBAR form. If the other spouse is also a US person, then we need to provide their tax identification number, and if they are not, we need to state that they are a non-resident alien.
We provide tailored tax services for U.S. expats across different regions of the globe. You can book a consultation with us right here for world-class service. Our team of highly experienced expatriate accountants will be happy to help you!