Reporting Foreign Financial Accounts
By: Richard Chapo | Posted: 12th March 2007
If you are a US citizen, it is important to know that you must report the presence of any foreign financial accounts you have per IRS rules and regulations.
In the past, the idea of a foreign financial account carried a certain wink factor. The wink, of course, referred to most of these accounts being associated with tax evasion and small, non-descript banks in Switzerland or some other banking haven. Every once
Today, however, the creation and use of foreign financial accounts is fairly common. This is particularly true for businesses. As the economies of the world begin to truly intertwine for better or worse, the need to establish bank accounts in other countries is common.
Unfortunately, the creation of a bank or other financial account in another country must be reported to the IRS if the total value of the accounts exceeds $10,000 at any point during the year. This is true for both personal and business accounts.
The reason for the reporting requirement is US citizens and businesses are taxed on their world wide income or revenues. There are, however, a couple ways to get around this to some extent.
If you or your business earns money abroad, you must report the revenues pursuant to some very complex tax regulations. That being said, reporting it does not necessarily mean paying taxes on it. Many countries have tax treaties with the US for this purpose.
Tax treaties come in many forms. They often are designed to give the US the ability to determine whether US citizens have bank accounts and illegal holdings in the country per se. There is a positive side, however.
Tax treaties between countries almost always contain a section dealing with double taxation. The idea is to make promote business between the two economies. To do this, businesses are usually only taxed in one country or the other. The business then avoids taxation in the second country by reporting said taxes paid.
For an individual taxpayer, the news is not so good. If you work abroad half the year, you are going to get no tax break. A tax treaty may exist that will help you out. My experience is most such treaties are geared towards business, not individuals.
As an individual taxpayer, however, there is one area where you can get a major break. If you stay out of the US for nearly the full year, you will still be taxed on your income abroad. You will, however, get an exemption for the first $80,000. For many people, this can cover the total income they earned abroad.
If you are a US citizen with foreign holdings or earnings, you really should sit down with a CPA. The rules can be complex, but there are ways to avoid getting killed on your taxes.
Richard A. Chapo is with BusinessTaxRecovery.com - providing information on tax articles.
About the Author
Occupation: Attorney and Traveler
Rick Chapo is with Nomad Journals - makers of
writing journals. He is also with BusinessTaxRecovery.com - information on
taxes.
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Tags: presence, money, extent, citizens, bank accounts, paying taxes, business accounts, double taxation, total value, irs rules, citizen, wink, tax evasion, financial accounts, tax treaties