Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
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What is Form 8938?
Form 8938 is a tax form used by the IRS to track foreign financial assets owned by US taxpayers.
If you have financial accounts or investments overseas and their total value exceeds a specific amount, you’ll need to report them by filing this form along with your annual tax return.
Who needs to file Form 8938?
As a US citizen, Green Card holder, or resident, you may need to file Form 8938 if your foreign financial assets exceed certain thresholds.
These thresholds depend on whether you live in the US or abroad, and whether you file taxes as single, married filing jointly, or married filing separately.
- Single or Married Filing Separately
- Living in the US: You need to file if your foreign financial assets are worth more than US$50,000 on the last day of the tax year or more than US$75,000 at any time during the year.
- Living Abroad: You need to file if your assets exceed US$200,000 on the last day of the year or more than US$300,000 at any point during the year
- Married Filing Jointly
- Living in the US: You need to file if your foreign financial assets are worth more than US$100,000 on the last day of the year or more than US$150,000 at any point during the year.
- Living Abroad: You need to file if your assets exceed US$400,000 on the last day of the year or more than US$600,000 at any time during the year.
What types of assets need reporting?
If you have any of the following types of assets outside the US, you’ll need to report them on Form 8938 if they exceed the thresholds mentioned above:
- Foreign Bank Accounts: Checking, savings, or other types of accounts held in foreign banks.
- Foreign Investment Accounts: Accounts that hold investments like stocks, bonds, or mutual funds in foreign institutions.
- Foreign Stocks and Securities: If you own stocks or bonds from companies outside the US, even if they’re not in an investment account.
- Foreign Partnership Interests: If you own a part of a business or partnership based outside the US.
- Foreign Mutual Funds: Investments in mutual funds managed by companies outside the US.
- Foreign Life Insurance or Annuity Contracts: Life insurance policies or annuities issued by foreign companies that have a cash value.
- Foreign Trusts or Estates: If you have an interest in a trust or estate that’s based in another country.
What happens if you don’t file?
Not filing Form 8938 when required can lead to hefty fines.
The IRS can charge a penalty of US$10,000 just for not filing the form. If you keep ignoring it after the IRS sends you a notice, the fines can add up quickly, potentially reaching up to US$60,000.
In extreme cases, criminal charges might be brought against you.
What’s the difference between Form 8938 and FBAR?
Form 8938 is attached to your yearly tax return and is focused on specific types of foreign financial assets, like bank accounts and investments, if their total value exceeds the set thresholds.
On the other hand, FBAR (which stands for Foreign Bank Account Report, also known as FinCEN Form 114) is a separate form that you file to report foreign bank accounts when the combined balance is over US$10,000 at any point during the year.
Even though both forms report similar information, they are filed separately and for slightly different purposes.
How do you file Form 8938?
You’ll need to submit Form 8938 along with your regular tax return (Form 1040).
If you file your taxes electronically, you can include Form 8938 as part of your electronic submission.
Do you have to report the same accounts on both Form 8938 and FBAR?
Yes, if your foreign accounts meet the reporting requirements for both Form 8938 and FBAR, you’ll need to include them on both forms.
Are there Exceptions to filing Form 8938?
- No US Tax Return Required: If you’re not required to file a US income tax return for a particular year, you don’t need to file Form 8938 either. This holds true regardless of the value of your foreign assets.
- Assets Already Reported Elsewhere: If you’ve already reported some of your foreign assets on other forms like Form 3520 (for foreign trusts and gifts) or Form 5471 (for foreign corporations), you don’t have to repeat the details on Form 8938. Instead, you can just note that those forms have been filed. This helps avoid duplicating information across multiple forms.
- Excluded Assets: Not all foreign assets need to be reported on Form 8938. For example, if you directly own foreign real estate (like a house or apartment abroad), foreign currency, or physical precious metals like gold bars, these do not need to be included on Form 8938. This exclusion helps simplify reporting, focusing only on financial assets that the IRS is concerned with.
How do I determine the value of my foreign financial assets for Form 8938?
- Identify Which Assets to Report: First, identify which of your foreign assets qualify as “specified foreign financial assets.” These typically include things like foreign bank accounts, foreign investment accounts, foreign stocks and securities, and interests in foreign entities.
- Calculate the Highest Value During the Year: For each asset, determine the maximum value it reached at any point during the tax year. This includes the total balance in a bank account or the highest market value of an investment. You might need to check your bank statements or investment records to find this information.
- Use Reasonable Estimates: If you can’t get the exact value of an asset, you can use a reasonable estimate. For example, if your foreign bank sends you quarterly statements, you can estimate the maximum value based on those.
- Convert to US Dollars: Once you have the values, you need to convert them into US dollars. Use the exchange rate provided by the US Treasury Department as of the last day of the tax year (usually December 31st). You can find these exchange rates on the Treasury Department’s website.
Example: Let’s say you had €50,000 in a foreign account at its peak. You would convert this amount into US dollars using the exchange rate from December 31st to determine its value in USD. - Add Up All Your Assets: After converting each asset’s value to US dollars, add them up. This total will help you determine whether you meet the reporting thresholds that require you to file Form 8938.
- Report the Total on Form 8938: If the total value of your specified foreign financial assets exceeds the threshold for your filing status, you’ll need to complete Form 8938 and attach it to your annual tax return (Form 1040 or Form 1040-SR).
