Foreign Financial Accounts Disclosure

FATCA(Foreign Account Tax Compliance Act)

  • A US federal law that is intended to target US Persons who may be concealing assets held in foreign accounts
  • Some foreign entities must report US clients or owners directly (or indirectly, through their local tax authorities) to the IRS. FATCA has classed all non-US entities into two categories:
    • Foreign Financial Institutions (FFIs)
    • Non-Financial Foreign Entities (NFFEs)

For U.S. taxpayers, all assets held outside the U.S. should be reported annually. If a U.S. resident fails to declare an overseas account that exceeds a certain amount, he may face a penalty in $ 10,000. If a U.S. resident did not report it yet after IRS noticed, the penalty can be as high as $50,000. If it is underreported, the penalty can be as high as another 40 undeclared asset consolidation penalty. Those terms in FATCA were made on March 18, 2010, and were effective in 2014.

So far, 113 countries and regions have joined, including China.

https: //www.china-briefing.com/news/china-agrees-fatca-compliance/

After FATCA Grace Period Ends, IRS to Freeze Foreign Bank Accounts Starting in 2020

Form to disclose: Form – 8938, Statement of Specified Foreign Financial Assets

This requirement is in addition to the long-standing requirement to report foreign financials accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)

Reporting Threshold

  • Taxpayers living abroad
    • Married Filing Jointly
      • The total value of designated overseas financial assets exceeds $ 400,000 on the last day of the tax year, or exceeds $ 600,000 at any time during the year.
    • Single or file separately from your spouse
      • The total value of designated overseas financial assets exceeds $ 200,000 on the last day of the tax year, or exceeds $ 300,000 at any time during the year.
  • Taxpayers living in the US
    • Married Filing Jointly
      • The total value of designated overseas financial assets exceeds $ 100,000 on the last day of the tax year, or exceeds $ 150,000 at any time during the year.
    • Single or Married but file separately from your spouse
      • The total value of designated overseas financial assets exceeds $ 50,000 on the last day of the tax year, or exceeds $ 75,000 at any time during the year.

FBAR (Foreign Bank Account Reporting)

  • A US person, as mentioned above, must file FBAR when they have a financial interest or authority account over a financial account located outside the United States. However, they will only need to file if the foreign accounts exceed $10,000 at any time during the calendar year they are filing taxes for.

FBAR Penalties

  • Taxpayers who did not file an FBAR but were required to may be subject to civil and criminal unless there is a reasonable cause.

US Person

A U.S. person for tax purpose includes any of the following:

  1. A U.S. Citizen, which is anyone with a U.S. passport
  2. A green card holder, or
  3. A U.S. resident for tax purposes – most commonly defined as someone who spends more than 183 days (31 days during the current year and 183 days during the 3 year period that includes the current years and the 2 year immediately before that: All the days you were present in the US in the current year, and1/3 of the days you were in the US in the first year before the current year, and 1/6 of the days in the US in the second year before the current year) in the US under the Substantial Present Test. A U.S. resident for tax purposes is commonly referred to as a resident alien.

Multi-States Tax Filing

  • If You Commute to Another State to Work
    • You’d file a resident tax return in your home state and a nonresident tax return in your work state if you commute to another state to work. All your income from all sources goes on your resident tax return, even the income you earned in your “work” state, but you would only include the wages you earned in your work state on your nonresident state tax return for that one. (Tips: This doesn’t necessarily mean that you’ll take a double tax hit on your out-of-state income. Many states provide tax credits on resident returns for taxes you paid to other jurisdictions. The taxes you pay to your work state are effectively subtracted from the income you report in your home state.
  • Reciprocal Agreements
    • Allow you to work in a neighboring state tax-free. You’ll only have to pay taxes to your home state if you alive and work in two states that have this type of agreement, but you must file an exemption form with your employer to avoid taxes being withheld from you pay by our work state. Each state has its own form for this, so check with your employer to make sure you get the correct one.
    • States with reciprocal agreements with other jurisdictions: Arizona, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Montana, New Jersey, North Dakota, Ohio, Pennsylvania, Virginia, West Virginia and Wisconsin.
    • Two of Pennsylvania’s neighboring states do not offer income tax reciprocity: Delaware and New York. This means, for example, a Pennsylvania resident working in one of those states must file a return in that state, pay the tax, and then take a credit on his or her Pennsylvania return.