Offshore Banking: What You Need To Know
People doing business or living overseas may be interested in doing some offshore banking. When people think of it, they think Swiss bank accounts or funds stashed away on some tropical nation like the Cayman Islands.
But the consequences of and rules to offshore banking can be tricky. While it’s not necessarily illegal to store money overseas, you can find yourself in some serious tax trouble if you don’t know some important information.
If you’re thinking about offshore banking, know that sooner or later that the IRS is bound to learn about you. Slowly over the past few years, Swiss banks have disclosed the identities of their American clients, with HSBC being perhaps the highest-profile bank taking part.
Also, the federal government has entered into numerous treaties with foreign nations to learn about international tax dodgers located in those foreign countries.
Perhaps the most important rule in offshore banking is that you have to disclose everything to the IRS. This includes any wages, earnings, interest, and dividends. If you live and work abroad, you may be able to exempt your foreign-earned income from U.S.
Part of engaging in foreign banking is filing what are known as Foreign Bank Account Report forms. They’re due every year by June 30, and have to be filed if you have an interest in or control over a combined minimum of $10,000.00 in all of your foreign financial accounts. If the foreign accounts don’t add up to $10,000.00, you can skip filing a FBAR but you’ll still have to report any money you earned from them.
Not filing a FBAR can lead to serious tax trouble. Civil penalties start at $10,000.00 for each unintentional violation. But if the IRS determines you intentionally didn’t file a FBAR, the penalty is the greater of $100,000.00 or half of the amount that’s in each of your foreign accounts per violation.
Failing to file a FBAR is also a criminal violation. Criminal penalties can cost you up to half a million dollars, and up to ten years of time in federal prison.
Needless to say, if you think there’s even a possibility that you have to file a FBAR, work with a tax attorney or tax professional to make sure it’s done.
Sometimes, people will come hat in hand to the IRS’s criminal division, with the help of a tax attorney, and voluntarily disclose their hidden offshore banking accounts. If you plan on doing this in order to stop playing cat and mouse with your money, you’ll have to make plans to pay any and all back tax debt, penalties, and interest. You’ll also have to file amended past tax returns for the previous several years.
You may not avoid criminal prosecution, but getting caught trying to hide your offshore bank accounts is a surefire way to have federal prosecutors learning about your finances.
Offshore banking may seem enticing and exciting, but failing to report your accounts to the IRS can lead to a can of worms you’ll regret opening. If you’re in need of some help with your offshore banking, check out our website and contact us.