Are you a U.S. taxpayer with foreign financial assets? If so, you may be required to report those assets on Form 8938.
As certified public accountants, tax strategists and professional bookkeepers at Creative Advising, we understand the importance of accurately reporting your foreign financial assets to the IRS. Failing to do so can result in hefty fines and penalties.
That’s why we’re here to help you understand what assets need to be reported on Form 8938.
The form is used to report certain foreign financial assets when their total value exceeds certain thresholds. Generally, these assets include financial accounts held at foreign financial institutions, foreign stock or securities, and interests in foreign entities.
But it’s important to note that not all foreign assets need to be reported. For example, if you own an interest in a foreign life insurance policy or annuity, you may not need to report it.
At Creative Advising, we’re here to help you understand the complexities of reporting your foreign financial assets. We can help you determine which assets need to be reported and how to accurately complete Form 8938.
Don’t let the complexities of filing taxes with foreign financial assets overwhelm you. Contact us today to learn more about how we can help you report your foreign financial assets on Form 8938.
Cash and Cash Equivalents
Cash and cash equivalents, as defined by the IRS, refers to assets such as checking and savings accounts, money market accounts, certificates of deposit, and foreign currency deposits. A key component of an individual’s or business’s financial portfolio, cash and cash equivalents provide safety, liquidity, and convenience. The best cash investments are those with no risk of loss of principal and no reinvestment risk.
Cash and cash equivalents have become increasingly important as the world experiences uncertain economic times. Although cash and its equivalents often yield lower returns compared to other investments, cash portfolios can have a stabilizing impact on portfolio volatility.
When filing taxes, individuals and businesses with certain assets held in foreign accounts must report them on Form 8938. Assets that must be reported on Form 8938 include cash and cash equivalents, such as checking and savings accounts, money market accounts, certificates of deposit, and foreign currency deposits. In addition to cash, stock and securities, interests in foreign entities, financial accounts, and precious metals also must be reported.
Stock and Securities
Tom Wheelwright’s Creative Advising is here to help you understand the ins and outs of global finance and ensure you are properly reporting your assets and minimizing your tax liability across the board. One of the most important things to consider is including all foreign assets when filing tax returns. This includes stocks, bonds, mutual funds, and other types of investments.
When investing in foreign markets, it is easy to overlook the global nature of those investments and the tax considerations that come with them. Here at Creative Advising, we take all of these into account, knowing that you don’t want to be on the wrong side of the law come tax time. Once you report your foreign assets, you will not only be reducing your chances of an audit, but you can also reduce your overall taxes due.
The Department of the Treasury requires individuals who have an interest in certain foreign financial assets to report those assets on Form 8938. It is important to remember that this must be done in addition to any other tax filing methods such as a 1040, 1040A, 1040-EZ, or 1040-NR, as applicable. Assets which need to be reported on Form 8938 include cash and cash equivalents, stock and securities, interests in foreign entities, financial accounts, and precious metals held in foreign accounts.
By staying up to date on the foreign financial asset requirements and properly filing Form 8938, you can feel more confident and know that you are in compliance with the law and reducing your overall taxes. If you’re ever unsure, Creative Advising is here to help you make sure you are filing properly and taking advantage of the resources you are given.
Interests in Foreign Entities
When it comes to filing taxes for expatriates, it’s essential to know about the various kinds of assets and interests which need to be reported. As a CPA and tax strategist, one of my main tasks is to make sure all my clients are aware of what they need to report on their tax returns, even if they may not automatically think of it.
One of these often-overlooked assets is interests in foreign entities. It’s important for taxpayers to remember that any kind of interest in any foreign corporation, partnership, trust, or estate needs to be reported. This includes non-taxable estates or trusts, voting rights, and even underlying assets. In other words, even if an asset does not give the taxpayer a direct source of income or taxable gain, they still need to report it to the IRS, as these interests can easily count as taxable assets.
What assets need to be reported on Form 8938? Interests in foreign entities typically need to be reported on Form 8938—the Statement of Specified Foreign Financial Assets. This form is used to disclose various foreign investments to the IRS. Any kind of foreign investments need to be reported here, including interests in foreign entities, stock and securities, financial accounts, precious metals, and more. It’s important for taxpayers to report these items even if they aren’t producing any sort of taxable income—the form needs to include both income-producing and non-income-producing foreign assets. All foreign investments must be reported, no matter how small.
Financial Accounts
Financial accounts, such as foreign bank accounts, brokerage accounts, and other financial accounts, are some of the most common assets that typically need to be reported on Form 8938. These assets are often held by international taxpayers due to the benefits, such as tax advantages and banking privacy, that come with having an account abroad. Depending on the value of the accounts, taxpayers may also need to report these assets to the Financial Crimes Enforcement Network (FinCEN).
When reporting financial accounts, taxpayers will need to provide the country in which the asset is held, the account holder’s name(s), account type (such as a checking, savings or brokerage account), and the maximum value of the account during the year. Additionally, taxpayers should be aware of any applicable thresholds that may cause them to be exempt from reporting these accounts.
Taxpayers should also be aware of the reporting requirements for foreign financial assets on both the federal and state level. Depending on the amount of assets owned abroad, taxpayers may be required to report these accounts separately on their state tax returns.
Overall, financial accounts are some of the most common assets reported on Form 8938, so it is important for international taxpayers to understand the requirements so that they can accurately report all of their applicable assets.
Precious Metals
At Creative Advising, we advise our clients on the importance of reporting all of their foreign assets, including any precious metals held in a foreign account or with a foreign custodian. Precious metals (such as gold, silver, and other similar metals) are assets that must be reported on Form 8938. This is an IRS form for those subject to the rules of Foreign Bank Account Reporting (FBAR) or Foreign Financial Asset Reporting (FFAR).
If any of the precious metals are held in a foreign financial account however, the account counts toward the total assets required to be reported on Form 8938 and is subject to FBAR. When reporting precious metals on Form 8938, clients must include the address and account number of the foreign financial account along with its financial institution name.
For those taxpayers who are beginning a new business abroad, understanding how to report precious metals held in foreign accounts is critical in the planning stages for any new venture. It’s important to be aware of the many intricacies of Form 8938 and the FBAR to make sure that all of the assets are correctly reported and relevant penalties are avoided. At Creative Advising, we help our clients understand how to properly report their assets so that everyone is fully compliant with the law.
“The information provided in this article should not be considered as professional tax advice. It is intended for informational purposes only and should not be relied upon as a substitute for consulting with a qualified tax professional or conducting thorough research on the latest tax laws and regulations applicable to your specific circumstances.
Furthermore, due to the dynamic nature of tax-related topics, the information presented in this article may not reflect the most current tax laws, rulings, or interpretations. It is always recommended to verify any tax-related information with official government sources or seek advice from a qualified tax professional before making any decisions or taking action.
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