At Sovereign Research, one of our regular recommendations is to consider moving a portion of your savings to a safe, stable, foreign bank.
A foreign bank account can provide a number of benefits, such as higher interest rates and increased asset protection.
But most importantly, in many cases foreign banks are much more liquid and better capitalized than domestic banks– making them potentially much safer.
Moving a portion of your savings abroad is a completely legitimate strategy. There’s nothing illicit, immoral or illegal about it.
However if you are a US citizen you do need to disclose your foreign financial accounts to Uncle Sam.
And one of the forms they want you to file every year is known as the FBAR– technically the FinCen Form 114.
The good news is that filing the FBAR is typically EASY and only takes a few minutes. It’s all done completely online.
And in this article, we’ll walk you step-by-step through how to file the FBAR. We’ll also answer all your questions regarding the filing requirements, what accounts need to be reported and even how to ensure you convert foreign currencies correctly.
Keeping assets abroad is all about diversification. And the government doesn’t have a problem with that.
The US government just wants to know where taxpayers’ money is located, so that they can get a piece of the action. In the end, they just want taxes paid, period. They don’t care “where” the money is.
Holding part of your savings abroad generally is a great idea. It just means you have to deal with a bit more (online) paperwork.
In this in-depth article:
How to file the FBAR
Don’t be scared of the FBAR
Moving a portion of your savings into a ultra-safe offshore bank account is one of the smartest decisions you could ever make
Afterall, why would you hold all of your financial eggs in one geographic basket?
It’s 2019 and geography should no longer factor into your mental calculus when it comes to making decisions about where to keep your money.
Most people just open an account at the bank across the street. And that might be convenient to be able to withdraw some cash from time to time.
But the bulk of your money should be located wherever in the world it’s treated best– where the banks are safe, liquid, backed by a well-capitalized insurance fund in a jurisdiction with no net debt.
In this section we'll answer commonly asked questions about FBAR
If you have a foreign account overseas, then we want to make sure you know about a mandatory filing – the FBAR (Foreign Bank and Financial Accounts Report), also known as Form FinCEN 114.
It tells the United States government about bank accounts, brokerage accounts, precious metals accounts, etc. that US taxpayers have outside America.
Don’t neglect filing this form. Penalties for failing to do so can be steep: If the IRS deems your omission “non-willful”, then they might charge you about $13,000… per account.
And if they decide that you willfully omitted an account, then you could be looking at a $130,000 penalty… again, per account. You could even be looking at jail time.
We’ll get into the details of how to file the FBAR in a few moments, but note that you do not file the form with the IRS, and you do not file it with your regular tax return.
Instead, you file it with the Financial Crimes Enforcement Network. (That’s why the form has the acronym FinCEN in its name.)
The FBAR is due every year on Tax Day. In 2019 that was the 15th of April.
But everyone gets a six month extension. The extension to file your FBAR is automatic — you do not need to apply for it.
So the final FBAR filing deadline is October 15th, 2019.
If you are a US citizen — regardless of where you live — or a US taxpayer living in the US, and
… then you need to file the FBAR.
Do I have to file the FBAR if I’m a foreigner?
If you are a foreigner living outside of the US, you do not need to file an FBAR. It is only for US citizens or residents.
For example, if you are a foreigner living abroad and own an income-generating property in the US – and must file your US taxes because of that – you still don’t need to file an FBAR. Non-resident aliens of the US do NOT need to file FBAR, even if they file US taxes for any other reason.
But if you are a US resident alien, meaning you are a foreigner who DOES live in the United States, then yes, you do need to file the FBAR if you hold accounts abroad (i.e. in your home country).
You only need to file the FBAR if the aggregate value of all your foreign financial accounts exceeded $10,000 at any time during the calendar year reported
The government is VERY strict about the $10,000 threshold. If your foreign account(s) hit $10,000 in value at any point — even for just a day, even for just an hour — during the previous year, then you MUST report the account(s).
So if you had a Hong Kong-based brokerage account, and the Australian and Korean stocks you bought hit $8,000 in value at one point… and you traded $3,000 in precious metals through a service in Singapore, then you must file the FBAR and report both accounts.
If you had a bank account in Panama with only $1,000 in it… but you made $30,000 buying stocks through an Australian broker, then, here again, you have to file both accounts, even though the bank account’s balance is so small. It’s the aggregate that counts, and everything goes into the filing pile.
Any kind of foreign financial account can qualify for the FBAR (if you meet the $10,000 aggregate value for the year). Some of the most common include:
Financial accounts vs Custodial accounts
For FBAR reporting purposes it’s important to understand the difference between financial accounts (FBAR reportable) and custodial accounts (not reportable).
In financial accounts, transactions can take place, and you usually can initiate them yourself from a distance (online, by picking up a phone, etc).
Example: a brokerage or bank account overseas.
But in custodial accounts, assets are simply held on your behalf; in most cases, only you have direct access to them.
Example: gold or cash held in a foreign safe deposit box.
So if you have a foreign bank account with a $12,000 balance, you must report it. But if you are storing $50,000 worth of gold in a vault in Vienna, and only you have access to it — no one can sell it or buy more for you — then it’s a custodial arrangement, and you don’t have to report for FBAR purposes.
By “foreign”, the US government is not including accounts located in Puerto Rico, Guam, or the US Virgin Islands. These are US territories.
And if you have, say, a brokerage account with Vanguard or Interactive Brokers or another US-based company, then even if you’re trading foreign stocks, you don’t have to report your account on the FBAR.
It’s the provenance of the company that matters.
If you buy and sell cryptocurrency online through Gemini, an exchange based in New York City, then the government would likely find your transactions to be US-based and therefore not reportable for FBAR purposes.
But if you’re buying Bitcoins through China-based Binance, then you’d need to report the account if your crypto’s value reached $10,000.
Does filing the FBAR trigger an audit?
We spoke to our legal team and other experts about whether filing the FBAR triggers audits. It does not. Only if there’s a major discrepancy between what you’re filing on your personal tax report and what’s on your FBAR is a red flag ever even raised.
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The information in this article is intended as a general guidance and should not be considered tax or financial advice. Before acting, please consult a qualified and trusted financial advisor familiar with your particular situation.
The good news is that you can file your FBAR entirely online. No need to send physical documents anywhere.
Their online filing system gives you two options: a) download, fill out, and upload the PDF version of the FBAR; or, b) fill out the online form.
Both filing options are straightforward. But if you choose the online form, you won’t be able to make changes to it later. And with the PDF version, you have a copy for your records.
(For the PDF form, you will need a program – such as Adobe Acrobat Reader – which you can get for free here).
Now onto the technical part… filing the FBAR itself, which should only take about 30 minutes, depending on how many accounts you have.
The first thing you’ll do is gather all the names and addresses of the custodians of your various accounts, plus your relevant account numbers and statements showing how much was in each account. That will help you save time when it comes to the actual filing.
Then you’ll want to head over to the following web site:
(You’ll notice that you’re filing through FinCEN and the Treasury Department, not the IRS.)
Again, we prefer the PDF version so that we have a copy.
Here you enter the usual identifiers — your name, date of birth, social security number, address, etc.
We are focusing on individual filers in this report, but if you are filling out a corporate FBAR, then you’d click on that in this section.
At the bottom of this page, it asks if you have more than 25 foreign financial accounts. If you do, then you don’t have to fill out the rest of the FBAR. But you’ll probably hear from Uncle Sam in some other way.
Most of us do not have that many accounts, however, so check “No” and move on to Part II.
Here’s where they want to know:
The amount of money is the most important part for them, so “Maximum Account Value” is the first box you’ll see. “Maximum” simply denotes the most the account was worth (in US Dollars) at any point during that year.
If the account was a brokerage one holding stocks, you might see a wide delta in value. Simply list the peak value in US Dollars.
Bank account values are a bit easier to find at first glance. Check your balance statements and list the biggest one.
For example, let’s say your first account is a Hong Kong bank account at HSBC, denominated in Hong Kong dollars.
You look at your statement and realize that it held a maximum of 100,000 Hong Kong dollars last year.
To figure out how to translate that into US Dollars for the form, head to the Financial Management Service of the US Department of Treasury.
(If that link doesn’t work, then go to this page and click “Get Historical Rates” to access the info you need.)
Click “2018”, then “December 31, 2018.” (We are calculating your foreign holdings for the year 2018, December 31st being the last day of the year and therefore the arbiter of that year’s exchange rates.)
This will take you to a chart showing you applicable exchange rates:
As you can see, as of 12/31/18, Hong Kong’s exchange rate was 7.8320… so if you had HKD 100,000 in your account at some point that year, then to get the USD equivalent, you simply divide 100,000 by the rate:
100,000 / 7.8320 = $12,768
You would therefore enter $12,768 into Line 15 of Part II, “Maximum account value.”
In Line 16, you’re going to select “bank,” since it’s a bank account. If it were a brokerage account, you would select “securities,” and if it were a precious metals account, you would select “other” and type “PRECIOUS METALS” in on the line next to it.
The rest is self-explanatory: You enter your account number and the bank’s address.
What if you have more than one account in your name?
Hit the blue and white + sign on the top right (circled in red below):
You’ll get a new area to fill out, and you’ll do exactly the same thing:
If you push the plus sign too many times, just press the minus sign to delete an extraneous entry.
Now let’s move on to the next section:
This section is exactly like Part II, except that here it’s for accounts which you own jointly – with your spouse, your business partner, etc.
In addition to the account information, however, you’ll also be listing the number of joint owners, plus information about the principal owner.
The number of joint owners is self-explanatory: two if it’s you and your spouse, three if it’s you and two other business partners, etc.
As for the Principal Joint Owner Information, that’s determined by who has the biggest share of the account, business, etc.
If you own an account 50/50 with your spouse, then there are some rules around who has to file.
Let’s say you and your wife jointly own a bank account in Singapore. You’re already filing a personal FBAR because you also have a brokerage account in Hong Kong.
Your wife only has one foreign financial account — the Singapore bank account that she shares with you. As long as you report the jointly owned account, and as long as she doesn’t have any other accounts to report, then she doesn’t have to file her own FBAR. (You BOTH have to complete, sign, and keep for your records this form, 114a, “Record of Authorization to Electronically File FBARs.”)
If she has her own foreign brokerage account, or has signature authority over her parents’ bank account in Canada, etc., then each of you would have to file separate FBARs. And each of you would have to report the entire value of the jointly owned account(s).
You fill out this part of the form if you have signatory authority over the account but do not have any financial interest in it.
For example, as we noted earlier, if your IRA’s LLC has a foreign bank account with a $12,000 balance, and you have signature authority over it, then you will report this account on your own personal FBAR.
The LLC has a financial interest in the account, but because you are the signatory on the account (as the owner of the IRA which owns the LLC), then you report it.
Under “Owner Information,” though, you put the IRA LLC’s information in there. The owner of the account is the IRA LLC, so:
Here we’re typing in the name of the IRA LLC, its Tax Identification Number (not your Social Security Number, as the LLC should have its own EIN). We’ll note that as an EIN under TIN type.
At the bottom of the page, it will ask for your title. We usually type in “Manager,” since you are the manager of the IRA LLC.
Part V of the FBAR goes into consolidated reports, which individuals generally do not file.
(Large companies with subsidiaries often have an enormous number of bank accounts via those subsidiaries, so they file consolidated FBARs.)
The last part of the FBAR covers your signature information, as well as who your third-party preparer is if you had help filling it out. (We recommend that you always consult with a qualified tax professional when filing such forms.)
The FBAR is filed electronically, so once you register your electronic signature, you’ll either upload the pdf or click “submit” on the non-pdf version.
Get more examples in our premium report…
Inside you’ll find many more examples of when you have (or don’t have) to file an FBAR with easy to understand instructions.
Our analysts have created dozens of detailed reports on topics ranging from second passports to robust retirement plans to investing in precious metals.
Here we’ve gone through just a few of the examples of what requires FBAR reporting and what doesn’t.
In the meantime, remember that despite what Bolshevik reporters and politicians might imply, it is perfectly legal to hold assets abroad.
(By the way, have they ever crossed state lines to save on sales tax? Or considered moving to a low-tax state? Or put some savings into an online bank that pays a higher interest rate? Same thing, different location.)
Again, without international financial pipelines like foreign bank accounts, brokerage accounts, and foreign companies, you wouldn’t be able to easily access most of what you enjoy in the modern world.
International supply chains wouldn’t exist with any degree of efficiency. Legal battles would stymie production.
You wouldn’t be able to move abroad and pay your bills without a lot of hassle and expensive ATM or currency exchange vulture fees. Even food wouldn’t be able to move across the world to your grocery store without expensive, cumbersome hurdles to overcome.
The US government understands this; in fact, many people working in that government — in its highest echelons — have foreign accounts, foreign companies, etc. It’s good business.
The FBAR exists because the governments are nosy. Period.
As you know by now, there is no privacy in the financial system — anywhere. Governments want to know where all “their” money is swimming around the world, so they make you tell them. So you tell them.
The FBAR does not trigger an audit. It does not send up a red flag. (NOT reporting does.)
The FBAR just lets Uncle Sam know that you happen to have a brokerage account in France that made $50,000 last year. If you don’t report that income on your tax return, that could be a problem, but having the account itself is not a big deal.
And neither is filing. The FBAR, it turns out, is a fairly simple document to file.
Annoying, but fairly simple.
Yes, it’s an extra hoop you must jump through in order to increase your financial freedom. However, in the big picture, the hoop is small.
We’ll continue to maintain that holding a portion of your assets overseas makes sense, no matter what’s going on in the world (or in your world).
Every part of it, if you think about it, requires jumping through a few hoops — visiting a bank in person, or opening a foreign trust, etc. — and it requires dealing with some compliance hurdles, such as filing the FBAR. But it’s worth it just the same.
Remember to stay compliant in all parts of your holdings. AND WHEN IN DOUBT, REPORT.
Make sure to consult with a qualified tax professional about this and all other filings. And remember that the extended deadline for the FBAR is October 15th.
Please note that all the information provided is current and correct at the time of publication. However, financial requirements and required documents can change quickly and without notice. Please contact a service provider for the most current information.
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