Published on Friday, August 4, 2023
By Alex McGowin
CPA Tax Consulting Expert
For individuals who hold financial assets abroad, understanding the reporting requirements mandated by the IRS is crucial to remain compliant with tax laws. Two commonly confused forms are the Report of Foreign Bank and Financial Accounts (FBAR) and Form 8938, Statement of Specified Foreign Financial Assets. In this blog post, we will delve into the key differences between FBAR and Form 8938, helping taxpayers navigate the complexities of these reporting obligations.
FBAR, also known as FinCEN Form 114, is a report that must be filed with the Financial Crimes Enforcement Network (FinCEN). It is not a tax form but rather a financial disclosure form that pertains to U.S. persons with foreign financial accounts that exceed certain thresholds during a calendar year.
Any U.S. person (including citizens, residents, and entities) with foreign financial accounts that collectively exceed $10,000 at any point during the year must file FBAR. This includes bank accounts, brokerage accounts, mutual funds, and certain other types of financial accounts held outside the United States.
The FBAR filing deadline is April 15th, with an automatic extension available until October 15th.
Failure to file FBAR when required can lead to substantial penalties, ranging from civil fines to potential criminal charges in cases of willful non-compliance. The general rule is $10,000 per form, per year.
Form 8938, Statement of Specified Foreign Financial Assets, is a tax form required by the Internal Revenue Service (IRS) for individuals who meet specific thresholds for holding specified foreign financial assets.
Individuals who are U.S. citizens, resident aliens, and certain non-resident aliens must file Form 8938 if they have specified foreign financial assets that exceed certain thresholds. The thresholds are higher than those for FBAR and depend on the taxpayer's filing status and location.
Form 8938 is typically filed together with the taxpayer's annual federal income tax return. For most individuals, this means the filing deadline is April 15th, with an extension available until October 15th upon request.
Similar to FBAR, failure to file Form 8938 when required can lead to penalties, including additional fines and potential accuracy-related penalties for underreporting income.
Key Differences Between FBAR and Form 8938. The most significant difference between FBAR and Form 8938 lies in the reporting thresholds. FBAR has a lower threshold of $10,000, while Form 8938 thresholds vary depending on the taxpayer's filing status and location. Generally, Form 8938 thresholds start at $50,000 for single taxpayers living in the United States and $200,000 for those living abroad.
FBAR focuses on foreign financial accounts, such as bank accounts and brokerage accounts, while Form 8938 includes a broader range of specified foreign financial assets, such as stocks, securities, interests in foreign entities, and certain financial instruments.
FBAR and Form 8938 have different filing deadlines and extension options. FBAR's deadline is fixed on April 15th, with an automatic extension until October 15th. Form 8938 is usually filed together with the taxpayer's annual federal income tax return, allowing for a similar extension until October 15th.
Remaining compliant with U.S. tax and reporting requirements for foreign financial assets is essential to avoid potential penalties and legal consequences. Understanding the key differences between FBAR and Form 8938 can help you correctly report their foreign financial accounts and assets.
This is not to be considered tax advice. My firm, McGowin Tax LLC specializing in U.S. international tax planning and consulting for individuals and small businesses. Visit us at McGowinTax.com or email Alex McGowin directly at email@example.com.
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