To rapidly answer the question of “do I have to report foreign investments?”: yes, you have to report them and pay your due taxes, according to the IRS. This is true for all US citizens, be it that you are living in the country or not.
Therefore, it will be beneficial for you to read this guide on “do I have to report foreign investments?” and the related topics that emerge from this question, in order to fulfill all of your responsibilities and avoid potential (and costly) problems.
Why Do I Have to Report Foreign Investments to the IRS?
Because it is one of your responsibilities as a US citizen, and because the Foreign Account Tax Compliance Act (FATCA) is an effective development at detecting tax evasion by US citizens that have foreign accounts, investments and assets.
As we are going to see in the next sections, not doing so can result in severe consequences. Therefore, come with us to learn how to report your foreign investments, now that you know the answer to “do I have to report foreign investments?” is an absolute yes.
Beyond Do I Have to Report Foreign Investments: What Forms Do You Need to Use?
Since you are obligated by law to report your foreign investments, you need to use the right forms. First, let’s check the schedules that apply to foreign investments according to the IRS:
- Schedule B: Interests and Dividends
- Schedule D: Capital Gains Profit and Loss
- Schedule E: Real Estate Income
From here, we can talk about the different forms that the IRS will bring you to report your foreign investment. Here you have a list of the most important ones:
- Form W-8BEN
- Form W-8BEN-E
- Form W-8ECI
- Form 1042-S
- Form SS-4
- Form W-7
- Form W-9
- Form 1099
- Form 114 (FBAR)
- Form 8938 (FATCA)
- Form 8621 (PFIC)
- Form 5471 (Foreign Corporation)
- Etc.
As you can see, these forms are the same you would use to report investments in the US. In order to know how to fill them (and which forms to pick), it is better to work alongside a qualified accountant with experience handling foreign investments.
What about the FBAR Filing Requirement?
If all your foreign accounts hold a sum of money that is equal or more than $10,000 USD, then you must report them on the FBAR. It includes bank accounts, investment funds, foreign pension plans, etc. You have to do it by filling the Form 114, and even though you could do it on your own, it’s recommended to work with an accountant.
What are the Consequences of not Reporting Foreign Investments?
If you do not report your foreign investments, then you might have to face hard penalties and expensive fees. It depends on the severity of the case, but here you have some examples:
- Non-willful FBAR penalties of $10,000 per violation
- Form 8938 penalties of $10,000 per year
- Failure to disclose penalty of $10,000
- Criminal penalties
- Etc.
The penalties can vary widely depending on the situation of the US person. It can even lead to jail time, and therefore, it is recommended to work alongside a qualified accountant to report your foreign investments and pay the due taxes on time.
Report Your Foreign Investments Easily and Save Money in Taxes Legally
To make it practical to report your foreign investments and discover how to save money in taxes legally, you will need the guidance of an experienced accountant. Therefore, just give us a call at (786) 310-5582 or contact us at [email protected] to book a consultation.
