foreign-investments-income

If you left foreign financial assets in your native country, your U.S. filing requirements are much the same as U.S. persons living abroad.

Foreign Bank Account Reporting

If the aggregate highest balance (in U.S. dollars) for all of the taxpayer’s bank accounts located outside the U.S., is over $10,000 during the tax year, the taxpayer is required to report all of their foreign bank accounts using form Fincen 114 on an annual basis.

Depending on the residency of the taxpayer during the tax year, and the highest or year end balances of their foreign bank accounts (in USD), their may be further reporting required in addition to the Fincen 114. The statement of Statement of Specified Foreign Financial Assets (Form 8939) is used to make these additional disclosures.

Foreign Investment Income

It should also be noted that any income earned in these foreign bank accounts (whether it be interest, dividends, or capital gains), will need to be reported on an annual basis on the taxpayers U.S. tax return. The rates at which this income is taxed may vary depending on whether or not the U.S. has a tax treaty with the country your foreign investment income is derived from.

Ownership of Foreign Companies

If you own an interest in a company located outside the U.S. (such as one from your native country), the Information Return of U.S. Persons With Respect to Certain Foreign Corporations (Form 5471) may be required to be filed. This is one of the more complex forms that a taxpayer living abroad may be tasked with completing.

Foreign Mutual Funds

Mutual funds are often seen as a relatively “safe” investment tool. While often true, when a non-U.S. individual moves to the U.s., any mutual funds located outside of the United States may trigger additional U.S. filing requirements. Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) is used when foreign mutual funds are considered to be Passive Foreign Investment Companies (PFICs) by the IRS.

Foreign Trusts

Certain foreign government sponsored savings plans (such as saving for education, or tax free savings accounts), can be considered to be foreign trusts by the IRS. Depending on the exact nature of the account, Form 3520/3520A (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts/Annual Information Return of Foreign Trust With a U.S. Owner) would be used to report the account owner, beneficiaries, assets, and income to the IRS. Income earned within the foreign trust may also be required to be included in income on the taxpayer’s annual personal tax return.

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Any tax advice herein is based on the facts provided to us and on our interpretation of tax legislation as it reads at the time the advice is provided. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. We are not responsible for updating our advice for changes in law or interpretation after the date the advice is provided. Every tax situation is different. We are not responsible for the tax implications to any individual or entity that may act on this advice.