Understanding Foreign Income Reporting for FBAR: Remittances to Foreign Accounts

What Constitutes Foreign Income for FBAR?

FBAR, or Form FinCEN 114, is a financial reporting form required by the US government to declare any financial interests in foreign financial accounts. One common question among taxpayers is whether remittances from US income to foreign accounts are considered foreign income that must be reported on FBAR.

It is important to clarify that FBAR does not concern itself with the specific sources of income. The primary function of FBAR is to disclose the existence of foreign financial assets rather than the origin of the funds. This means that if an individual has any financial assets outside the United States, they are required to report these assets, regardless of whether the funds originally came from US or non-US sources.

Amount Threshold for Reporting on FBAR

Under FBAR regulations, the reporting threshold is set at $10,000 for the aggregate balance in all foreign financial accounts. If the aggregate balance in these accounts exceeds this threshold at any point during the year, the account holder is required to file the FBAR. This applies to both individuals and entities.

Examples of Foreign Financial Assets

Examples of foreign financial assets that must be reported on FBAR include:

Bank accounts in foreign banks Brokerage accounts in foreign financial institutions Ownership of foreign securities, such as stocks or bonds Owning shares in a foreign private company Owning a foreign partnership or trust

Declaration of Remittances to Foreign Accounts

Regarding remittances, it is crucial to understand that the act of transferring money from a US source to a foreign account does not automatically qualify as foreign income for FBAR reporting. Instead, the focus is on the existence of the foreign financial assets and whether the balance in these accounts surpasses the $10,000 threshold.

For instance, if an individual receives a salary in the US and subsequently remits part of that salary to a foreign account with a balance below $10,000, no FBAR reporting is required. However, if the total balance in the foreign account reaches $10,000 at any point during the year, an FBAR must be filed.

FBAR Filing Requirements

The Annual Due Date for FBAR is June 30th of each year, and it requires tax practitioners and individuals to file Form FinCEN 114. Failure to report can result in heavy penalties and other legal consequences. It is highly recommended to consult a tax professional to ensure compliance with all requirements.

Note: Tax laws and regulations can change, and this article provides general information. Always seek professional advice for the most up-to-date and accurate guidance.