FBAR Filing Mistakes to Avoid
The Report of Foreign Bank and Financial Accounts (FBAR) is an important document for U.S. citizens who have foreign financial accounts. It is mandatory for individuals to file this report annually if their aggregate maximum value of foreign financial accounts goes above $10,000 during the calendar year. The penalties for failing to file an FBAR can be severe, so it’s essential to get it right with CPAs accounting services. Here are some of the most common mistakes made during FBAR filing:
- Failing to Report All Foreign Accounts
The FBAR requires individuals to report all of their foreign financial accounts. This includes bank accounts, brokerage accounts, mutual funds, and other financial accounts. Failing to report all of these accounts is a common mistake and could result in penalties.
- Incorrect Reporting of Account Information
Individuals must provide accurate information about their foreign financial accounts on their FBAR. This includes the name of the financial institution, the account number, and the maximum value of the account during the calendar year. Providing incorrect information could result in penalties and may trigger an investigation.
- Failing to File an FBAR on Time
The FBAR must be filed annually by June 30th of the year following the calendar year being reported. Failing to file the FBAR by this deadline could result in penalties, including fines and late fees.
- Filing FBAR Late without Reasonable Cause
In some cases, individuals may have a valid reason for filing their FBAR late, such as a medical emergency or a family crisis. In these cases, individuals may apply for an extension. However, penalties may still apply if there is no reasonable cause for the late filing.
- Misunderstanding the FBAR Filing Requirements
Some individuals may misunderstand the FBAR filing requirements and believe they only need to file if they have earned income from their foreign financial accounts. This is not the case. The FBAR must be filed annually if the aggregate maximum value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
- Failing to Report Accounts of Foreign Entities
Individuals must also report foreign financial accounts held in the name of a foreign entity in which they have an interest. This includes foreign corporations, partnerships, and trusts. Failing to report these accounts could result in penalties.
- Not Understanding the Definition of a Financial Account
Some individuals may not understand a financial account’s definition and believe they only need to report accounts that generate income. However, the definition of a financial account includes any account in which assets are held to produce income, such as a savings account or a mutual fund.