The Internal Revenue Service (IRS) requires certain individuals and entities to report their foreign financial assets using Form 8938, Statement of Specified Foreign Financial Assets. The purpose of this form is to ensure compliance with the Foreign Account Tax Compliance Act (FATCA) and to prevent tax evasion. However, filing Form 8938 can be a complex and daunting task, especially for those who are not familiar with the requirements. In this article, we will provide 5 tips for filing Form 8938 correctly to help you avoid any potential issues or penalties.
Understanding the Requirements
Before we dive into the tips, it's essential to understand who needs to file Form 8938 and what types of assets are reportable. The IRS requires the following individuals and entities to file Form 8938:
- U.S. citizens and residents
- Domestic entities, including corporations, partnerships, and trusts
- Certain foreign entities with U.S. owners
The form requires the reporting of specified foreign financial assets, including:
- Foreign bank and securities accounts
- Foreign mutual funds and hedge funds
- Foreign life insurance policies
- Foreign retirement plans
- Foreign trusts
Tip 1: Determine Your Filing Status
To determine if you need to file Form 8938, you must first determine your filing status. If you are a U.S. citizen or resident, you are required to file the form if your aggregate foreign financial assets exceed the applicable threshold. The threshold varies depending on your filing status and whether you live in the United States or abroad. For example, if you are a single filer living in the United States, you must file Form 8938 if your aggregate foreign financial assets exceed $50,000 on the last day of the tax year or $75,000 at any time during the tax year.
Tip 2: Identify Reportable Assets
Once you have determined that you need to file Form 8938, you must identify the reportable assets. This includes any foreign financial assets that are owned or controlled by you, including assets held in your name or in the name of a foreign entity. You must also report any assets that are held in a foreign trust or estate, even if you are not the beneficiary or owner.
Tip 3: Value Your Assets Correctly
To report your foreign financial assets correctly, you must value them using the correct currency exchange rate. You can use the exchange rate published by the IRS or the exchange rate in effect on the last day of the tax year. You must also value your assets using the fair market value, which is the price at which the asset would change hands between a willing buyer and seller.
Tip 4: File the Correct Forms and Schedules
Form 8938 is a complex form that requires the completion of multiple schedules and forms. You must file the following forms and schedules:
- Form 8938: Statement of Specified Foreign Financial Assets
- Schedule A: Assets Reported on Form 8938
- Schedule B: Assets Not Reported on Form 8938
You must also file any additional forms and schedules required by the IRS, such as Form 8939, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.
Tip 5: Meet the Filing Deadline
The deadline for filing Form 8938 is the same as the deadline for filing your tax return, including any extensions. If you fail to file Form 8938 by the deadline, you may be subject to penalties and fines. The IRS may also impose additional penalties if you fail to report certain foreign financial assets or if you report them incorrectly.
By following these 5 tips, you can ensure that you file Form 8938 correctly and avoid any potential issues or penalties. Remember to determine your filing status, identify reportable assets, value your assets correctly, file the correct forms and schedules, and meet the filing deadline.
Next Steps
If you have any questions or concerns about filing Form 8938, we encourage you to consult with a tax professional or attorney. They can help you navigate the complex requirements and ensure that you comply with the IRS regulations. Additionally, you can visit the IRS website for more information on Form 8938 and the reporting requirements.
Who needs to file Form 8938?
+U.S. citizens and residents, domestic entities, including corporations, partnerships, and trusts, and certain foreign entities with U.S. owners.
What types of assets are reportable on Form 8938?
+Foreign bank and securities accounts, foreign mutual funds and hedge funds, foreign life insurance policies, foreign retirement plans, and foreign trusts.
What is the deadline for filing Form 8938?
+The deadline for filing Form 8938 is the same as the deadline for filing your tax return, including any extensions.