If you’re a U.S. taxpayer with financial assets outside the U.S., you may need to file Form 8938. This form helps the IRS track foreign financial assets, ensuring all your income is properly reported. While it may seem overwhelming at first, we’re here to break it down for you so you can stay compliant and avoid penalties! 🚨
Since you may not need to read all of this, let’s start by highlighting an important tip:
💡 If you do not have to file an income tax return for the tax year, you do not need to file Form 8938 for that year, even if the value of your specified foreign financial assets exceeds the reporting threshold.
For those who do need to file a tax return for the tax year:
Who Needs to File Form 8938? 🧐
You must file Form 8938 if you meet certain thresholds for foreign financial assets based on your residency and filing status.
“Specified individuals and specified domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold.”
Great! Now let’s break that down:
Specified individuals and specified domestic entities:
✅ Specified individuals include U.S citizens, resident aliens, and certain non-resident aliens
✅ Specified domestic entities include certain domestic corporations, partnerships, and trusts
(…) interest in specified foreign financial assets (…)
What is a Foreign Financial Asset? 💼💰
Not sure what qualifies as a “foreign financial asset”? Here’s a handy list with examples of what you need to report:
✅Foreign bank accounts
✅Foreign investment accounts
✅Foreign-issued bonds and stocks
✅Foreign stock or securities not held in a financial account
✅Interests in foreign entities like partnerships, trusts, or estates
✅Foreign mutual funds and pension plans
✅Financial (deposit and custodial) accounts held at foreign financial institutions
✅Foreign partnership interests
✅Foreign-issued life insurance or annuity contract with a cash-value
✅Foreign hedge funds and foreign private equity funds
✅Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
✅Foreign stock or securities held in a financial account at a foreign financial institution
ℹ️The account itself is reportable, but the contents do not have to be reported separately.
✅Foreign financial account where you have signature authority
ℹ️Only if you have an interest in the account as described above
✅Foreign real estate held through a foreign entity
ℹ️The real estate alone isn’t reportable, but the foreign entity itself is, and its value includes the real estate
This list goes on with more details and specifications, but in short: If it’s a financial asset located outside the U.S., it likely needs to be reported on Form 8938!
When do you have an interest in an account or asset?
You have an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on your income tax return.
You have an interest in a specified foreign financial asset even if no income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are included or reflected on your income tax return for this tax year.
Reporting threshold (total value of assets)💰
ℹ️ Specified individuals living in the US:
✅Unmarried individual (or married filing separately):
Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
✅Married individual filing jointly:
Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.
ℹ️ Specified individuals living outside the US:
✅Unmarried individual (or married filing separately):
Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
✅Married individual filing jointly:
Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.
ℹ️ Specified domestic entities:
Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the tax year.
⚠️ Living outside the U.S.?
If you’re living abroad, make sure you meet the presence abroad test to qualify for these higher thresholds.
You satisfy the Presence abroad Test if you are one of the following:
✅A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
✅A U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of 12 consecutive months that ends in the tax year being reported.
What is reported? 📑
Maximum value of specified foreign financial assets, including financial accounts with foreign financial institutions and certain other foreign non-account investment assets. You must also report identifying information for these assets.
When Do You Need to File? 🗓️
Form 8938 must be submitted by the same deadline as your tax return, typically April 15. If you file for an extension, the deadline for Form 8938 is also extended. Meeting the filing deadline is essential to avoid hefty penalties! ⏰
How Form 8938 Differs from FBAR 🤔
You might be wondering, “Isn’t this just like FBAR?” Not quite!
✅ Form 8938 is submitted to the IRS with your tax return, while FBAR is filed separately with the FinCEN.
✅ FBAR reports financial accounts, while Form 8938 reports financial assets, including accounts and certain non-account assets
✅ Filing thresholds for Form 8938 are generally higher and depend on where you live and your filing status.
Think of Form 8938 as a more comprehensive version of FBAR, covering a broader range of foreign assets. 📋
⚠️Heads up!!!⚠️
Remember, Form 8938 is separate from FBAR, with its own filing requirements, you may need to file both! 😲
Here’s a Form 8938 vs. FBAR: A Side-by-Side Comparison that can help you visualize the differences.
What Happens If You Don’t File? 😬
Failing to file Form 8938 or failing to report all your foreign assets can lead to serious penalties. 🚨 The IRS can charge you $10,000 for failing to file, with penalties increasing up to $50,000 if you don’t file after receiving a notice.
How to File Form 8938 📄🖋️
Filing Form 8938 is part of your annual tax return (Form 1040). You’ll need to include details about each foreign financial account or asset, such as:
✅ The name and address of the financial institution where your assets are held
✅ The maximum value of each account during the tax year
✅ Income generated from these accounts (if any)
💡 If you’ve hired a tax professional, they’ll help ensure the form is filled out correctly.
Stay Compliant & Stress-Free ✨
Keeping track of foreign financial assets and meeting filing requirements may seem complicated, but with proper planning and organization, you can stay compliant with IRS rules. Filing Form 8938 ensures you report all your foreign assets accurately and avoid penalties. 👌
If you’re unsure about your filing requirements or want to avoid mistakes, don’t hesitate to reach out to your tax professional or contact us for expert guidance!
🛠️DIY: If you want to prepare the form on your own along with your tax return, you will find the necessary guidance and form here:
