My computer greeted me with “Tax Day!” as I signed in this morning. While we expats generally get an automatic 2-month extension on our “Tax Day!”, there is still something almost iconic about this day in April.
Remember to file US taxes
Before we get to the FBAR and how to file it for free, the IRS would like to remind us:
If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. (IRS.gov)
Whether we are tax residence of the US or of a foreign country, whether we have protection against double taxation of our income via a tax treaty or not, and whether we owe Uncle Sam a penny or not, we do need to file US income tax forms each and every year.
Remember to file the FBAR
In addition to our US income taxes, many missionaries and nonprofit workers will need to file Reports of Foreign Bank and Financial Accounts (FBAR). Expats don’t need to worry about the April Tax Day for this one either. In truly convoluted logic, an Act was passed in 2015, declaring that the due date of the FBAR would be, in fact, the same as the April tax deadline. However, the IRS informs us that…
The Act also mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.
Umm… Whatever. It’s not clear if this extension will be in place every year, but for this year, we’re good.
In addition to confusing the due date for this filing, some of us have gotten FinCEN confused with FBAR. The IRS seems to add to the confusion by saying that we will report to the:
Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).
So, whether you call it the FinCEN Form 114 or the FBAR doesn’t really matter, so long as you fill out the form electronically.
Please note that this isn’t really part of your annual income tax filing. The due dates sort of align, but it is a separate filing with the Department of Treasury as part of the Bank Secrecy Act. The FBAR is not a part of your income tax filing. Some US tax preparers won’t even complete the FBAR. If they do, it comes at a cost.
Do I have to file it?
According to FinCEN,
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
Did all of your foreign financial accounts added together ever slip over $10,000? Be really careful with this. The penalties are very steep! H&R Block writes,
The penalties for not following mandatory FBAR regulations can be severe. If the failure to file isn’t willful, the penalty can reach $10,000, unless it was due to reasonable cause. If willful, the penalty can reach $100,000 or 50% of the total account balances – whichever is greater. You may also face criminal penalties.
We’ve got to measure the costs of not complying with the FBAR!
Are your foreign accounts usually only worth a few hundred bucks? Great! But don’t forget about the time you moved a bunch of money into your post office account to pay the deposit on your rented home or you put a large sum into your bank account to pay your foreign income tax. If you crossed the threshold, report it!
Filing the FBAR for free!
You may have noticed above that this is not part of your taxes and that it must be filed electronically, so who files this? Does your US tax preparer do it, does a fee-based, expat tax specialist do it (I saw prices online of $90-100 today!), or do you?
Now, I know some missionaries and nonprofit workers are scared of filling out their taxes on their own (I am too!!!), but this FBAR stuff is pretty straightforward. The website is a bit clunky, but I can deal with that to save $100. Here’s how I filled mine out online for the first time this year. Give these steps a try:
- Go to the site
- Choose your method and click “Start Now” (I’m choosing the online form)
- Fill out the “Filer Contact Information” and click “Start Now.” Piece of cake, right? However, did you notice anything weird about this website? The form is like one long page. So clicking “Start Now” doesn’t really move you to the next page or save anything. That’s important to note. At least for this year, it will not save your work as you go along. But wait, it gets weirder!
- Fill out the page that has the instructions, giving a name to your filing and explaining why it is late (if it is). Now stop! Don’t click “Sign,” “Remove” or “Submit.” You are supposed to complete the entire form below and then return back up to this signature section afterward. I told you it would get weirder.
- Fill out Part I. No problems there, I hope.
- Now, if you are filing individually, you’ll fill out Part II or if you are filing jointly, you’ll fill out Part III. Go ahead and enter the information for your first account in either Part II or Part III.
- Let’s assume you are filling this out for an individual, so you’ve just filled out Part II and you find yourself at the bottom of it. However, let’s say you had two foreign bank accounts. Where do you enter the info for the second account? Part III is for joint accounts and Part IV starts a different section, so you can’t add additional bank accounts there. Ok, so there must be an “Add Account” button at the bottom of your Part II, right? Nope. Please scroll back up to the top of Part II and click on the “+” button. Bingo! You have just opened a second account section in Part II. One will be listed as Part II, “1 of 2” and the other as Part II, that’s right, “2 of 2.” I told you it was clunky!
- Fill out Parts IV and V if necessary.
- Proceed to the Signature section where, oddly enough, you cannot sign. Enter any title you might desire on line 45.
- Now return to the top of the entire page where those three untouchable buttons were. Now you are able to sign and submit your form.
I hope that my steps work for you. While I’m no tax or financial expert, doling out advise. I do feel pretty confident about this little FBAR form.
Yes, the FinCEN 114 is weird. You go up and down so much on the current form that you feel like you’re in an elevator. However, as unusual as this form is to fill out, it is vital that it does get filled out (to avoid extremely high penalties!) and to save, you know, $100.