At Ridgewise, we understand the complexities of accounting and tax preparation, which is why our expert services can make your financial life simpler. One area where many people struggle is with Form 8938, a crucial document for reporting specified foreign financial assets.

If you have foreign assets, the IRS requires you to disclose them using Form 8938, but navigating this form can be daunting. That’s where Ridgewise comes in. We specialize in helping clients accurately complete and file Form 8938, ensuring compliance with all tax regulations. Let us handle the details so you can focus on what matters most to you.

Understanding Form 8938

Form 8938 is critical for reporting specified foreign financial assets to the IRS. Accurate completion ensures compliance with tax regulations, and Ridgewise offers support to manage this requirement.

What Is Form 8938?

Form 8938, or Statement of Specified Foreign Financial Assets, is a document required by the IRS. It mandates individuals to disclose specified foreign financial assets to maintain transparency in financial reporting. Examples include foreign bank accounts, foreign stocks, and financial instruments issued by non-U.S. persons. The form aims to prevent tax evasion by ensuring all financial interests are declared.

Who Needs to File Form 8938?

Not all taxpayers must file Form 8938. This requirement applies to specified individuals, including U.S. citizens, resident aliens, and certain non-resident aliens, with foreign financial assets above a specific threshold. For instance, unmarried taxpayers living in the U.S. must file if their total foreign assets exceed $50,000 on the last day of the tax year or $75,000 at any time during the year. Higher thresholds exist for married taxpayers and those living abroad.

Ridgewise simplifies the process of managing Form 8938. My team of experts ensures that individuals and businesses meet all reporting requirements, so they can focus on their priorities while we handle their financial documentation.

Requirements for Filing Form 8938

Form 8938 mandates reporting specific foreign financial assets to the IRS. Meeting the requirements ensures U.S. taxpayers comply with tax laws.

Reporting Thresholds for Form 8938

Taxpayers need to file Form 8938 if they meet set asset thresholds. These thresholds vary based on filing status and residence.

• Single or Married Filing Separately: Must file if the total value of specified foreign assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the year.
• Married Filing Jointly: Must file if the total value of specified foreign assets exceeds $100,000 on the last day of the tax year or $150,000 at any time during the year.
• Specified Domestic Entity: Entities must file if they have specified foreign assets valued over $50,000 on the last day of the tax year or $75,000 at any time during the year.

For taxpayers residing abroad:

• Single or Married Filing Separately: Must file if the total value of specified foreign assets exceeds $200,000 on the last day of the tax year or $300,000 at any time during the year.
• Married Filing Jointly: Must file if the total value of specified foreign assets exceeds $400,000 on the last day of the tax year or $600,000 at any time during the year.

Differences Between Form 8938 and FBAR

Although Form 8938 and FBAR (FinCEN Form 114) both require reporting foreign assets, they have distinct purposes and requirements:

• Reporting Authority: Form 8938 is filed with the IRS, whereas FBAR is filed with the Financial Crimes Enforcement Network (FinCEN).
• Thresholds: Form 8938 thresholds vary by filing status and residence, while FBAR requires reporting if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year.
• Types of Assets: Form 8938 includes a wider range of assets, such as foreign stocks and interests in foreign entities. FBAR focuses only on foreign financial accounts, like bank and brokerage accounts.
• Penalties: Non-compliance with Form 8938 can result in penalties starting at $10,000. FBAR non-compliance may lead to penalties up to $10,000 for non-willful violations or higher amounts for willful violations.

Ridgewise provides expert assistance with Form 8938, ensuring accurate and timely filing. Ridgewise’s accounting and bookkeeping services help individuals and businesses manage their books efficiently, complying with reporting requirements seamlessly.

How to Complete Form 8938

Completing Form 8938 accurately is crucial. This document is essential for reporting specified foreign financial assets to the IRS.

Step-by-Step Instructions

1. Obtain the Form: Download Form 8938 from the IRS website. Make sure you’re using the latest version.
2. Personal Information: Fill in your name, Social Security Number (SSN), and other identification information at the top of the form.
3. Threshold Determination: Determine if your foreign assets meet the reporting thresholds. These vary based on your filing status and residency. For example, unmarried taxpayers living in the U.S. with foreign assets over $50,000 at year-end must file.
4. Part I: Foreign Depository and Custodial Accounts: List your foreign bank and custodial accounts if their aggregate value exceeds the applicable reporting threshold. Include the name of the financial institution, maximum value during the tax year, and account number.
5. Part II: Other Foreign Assets: Detail other specified foreign financial assets like foreign stocks, bonds, or interests in foreign entities. Provide information such as the asset type, maximum value, and foreign issuer details.
6. Part III: Summary of Tax Items Attributable to Specified Foreign Financial Assets: Summarize income, deductions, and credits related to the foreign assets listed. This includes interest, dividends, and royalties.
7. Part IV: Taxpayer’s Foreign Financial Assets Aggregated Value: Indicate the total value of all specified foreign financial assets you’ve reported. Ensure values are in US dollars, converting if necessary using an IRS-approved exchange rate.
8. Part V: Signature: Review all information for accuracy and sign the form. Unsigned forms aren’t valid.
9. Submission: Attach Form 8938 to your annual tax return, Form 1040. Submit it by the tax filing deadline, typically April 15th.

Necessary Supporting Documents

Include the following documents to substantiate your foreign financial asset disclosures:

• Foreign Bank Account Statements: Provide statements showing the maximum value of each account during the tax year.
• Brokerage Statements: Submit any documents listing foreign securities, including purchase and sale transactions.
• Partnership or Trust Documents: Include agreements or declarations if you have interests in foreign partnerships or trusts.
• Appraisal Reports: If exact market values aren’t easily determined, secure a professional appraisal for the relevant assets.

Effective completion of Form 8938 requires accurate documentation. Keep records organized and accessible for verification.

For individuals and businesses needing assistance with bookkeeping, Ridgewise offers expert services to simplify Form 8938 management. We ensure accurate and timely filing, helping you stay compliant with reporting requirements and manage all your bookkeeping needs seamlessly.

Penalties for Not Filing Form 8938

Failing to file Form 8938 leads to severe repercussions. The IRS imposes both financial penalties and legal consequences to ensure compliance.

Financial Implications

Neglecting to submit Form 8938 results in substantial financial penalties. The IRS imposes a $10,000 penalty for failing to file the form by the due date. If you don’t rectify this situation within 90 days after receiving an IRS notice, an additional $10,000 penalty accrues for each 30-day period. Penalties cap at $60,000. Furthermore, if you understate your tax liability due to undisclosed foreign assets, accuracy-related penalties may apply, potentially adding 40% of the understated tax.

Legal Consequences

Non-compliance with Form 8938 reporting requirements leads to serious legal consequences. The IRS considers this failure a felony. Convictions might include up to three years in prison, depending on the severity. Also, falsifying information or deliberately omitting assets subjects individuals to further criminal charges. The IRS holds a stringent stance on tax evasion, reinforcing the importance of accurate foreign asset reporting.

Ridgewise can mitigate these risks by offering tailored bookkeeping services. My expertise ensures Form 8938 compliance, helping both individuals and businesses meet their reporting requirements. Using Ridgewise’s professional services, clients avoid the pitfalls of hefty penalties and legal actions.

Key Takeaways

• Importance and Purpose: Form 8938, or the Statement of Specified Foreign Financial Assets, is essential for reporting specified foreign financial assets to the IRS. This ensures transparency in financial reporting and prevents tax evasion.
• Filing Requirements: Not everyone needs to file Form 8938. The requirement applies to U.S. citizens, resident aliens, and certain non-resident aliens with foreign financial assets exceeding specific thresholds, which vary based on filing status and residency.
• Comparison with FBAR: While Form 8938 and FBAR require reporting foreign assets, they differ in purpose, thresholds, types of assets covered, and reporting authorities. Understanding these distinctions is crucial for accurate compliance.
• Completion and Documentation: Accurate completion of Form 8938 involves several steps, including determining reporting thresholds, listing various types of assets, and summarizing tax items. Supporting documents, such as bank statements and appraisal reports, are necessary to substantiate disclosures.
• Penalties for Non-Compliance: Failing to file Form 8938 can result in substantial financial penalties, capping at $60,000, and severe legal consequences, including potential felony charges and imprisonment.

Conclusion

Accurate reporting of foreign financial assets using Form 8938 is crucial to avoid severe penalties and legal consequences. Ensuring compliance is not just about following the law but also about safeguarding your financial future. With the complexities involved, enlisting expert services like Ridgewise can make the process smoother and more reliable. Don’t underestimate the importance of precise documentation and professional help when dealing with international tax obligations. Trust in the right resources to keep your financial reporting in check and avoid costly mistakes.