The Peck Group, LC - Tax Law
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Yes, you have to pay taxes on your international bank accounts

| Mar 30, 2020 | Firm News |

When it comes to the obligation to pay federal income tax to the Internal Revenue Service (IRS), offshore bank accounts are a common source of confusion among those who must pay federal taxes in the United States. Quite a few people still think of offshore accounts as a means of sheltering or hiding assets from the IRS in order to avoid taxation on those accounts.

However, international banking law doesn’t work the way many people seem to think it does. Even the notoriously secretive Swiss banking system will work with the IRS when it comes to the enforcement of tax obligations. In most cases where you have an ownership interest in an account in an offshore location, you must report the balance of the account when filing your taxes and potentially pay taxes on it.

When do you have an obligation to file tax forms regarding your international bank accounts?

Some people have international bank accounts because they have a summer home in another country or travel frequently and want to avoid needing to exchange currencies. Other people may have an offshore bank account as a means of providing funds for family members abroad.

Regardless of why you have an offshore bank account, the IRS wants to know about it. Typically, you will need to file a Report of Foreign Bank and Financial Accounts if you have ownership or signature authority over any kind of financial account in another country whose overall value was over $10,000 in the previous tax year. Accounts that maintain a balance under $10,000 at all times likely do not have the same reporting obligations of those with accounts that maintain a higher balance.

Maintain your foreign bank account records for at least 5 years

Some people are in a situation where they only have to file reporting paperwork about an international bank account one year, as most of the years the account does not reach the reporting threshold set by the IRS.

If you have ever had to report your account to the IRS or if the account balance has gotten close to $10,000, maintaining those records for at least five years will ensure that if the IRS learns about the account and worries about the potential underpayment of taxes, you can easily demonstrate that the account never met the criteria for tax filings or verify that you did file the appropriate tax form in the years when the account qualified for reporting.

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