Keeping current on your taxes is important for avoiding headaches during tax season. And foreign asset reporting can be one of them. If your business owns assets abroad and you’re not reporting them, then you could be doing yourself a disservice. Here’s why you should disclose foreign assets:
As part of the Foreign Account Tax Compliance Act (FACTA) with a goal to reduce tax evasion, the Internal Revenue Service (IRS) requires U.S. taxpayers. This includes U.S. citizens, resident aliens and certain domestic entities, to report all financial assets acquired abroad. Also, this includes all tax years after December 31st, 2015 for domestic entities.
This act requires specific individuals and domestic entities, such as trusts, corporations and partnerships, to report their foreign assets. They will use the Statement of Specified Foreign Financial Assets or Form 8938. If you fail to report, you may be skipping out on required tax obligations.
Negligence and avoidance for reporting foreign assets can lead to fines leading up to $10,000 per tax year for each form. Additionally, it can lead to a penalty of $50,000 if you keep neglecting to report your foreign assets when required. You can also potentially set your business up for a perpetual tax audit. Thus, it’s vital to keep on top of your foreign asset filing.
Part of reporting your foreign tax assets is being organized and taking the appropriate steps to file correctly. Start by evaluating if your corporate structure falls in the category of a domestic entity required to pay tax on foreign assets. Determine if your company’s foreign assets are taxable and exceed the reporting threshold. For example, businesses with foreign partnership interests have to report foreign assets with total asset values exceeding $50,000 on the last day of the applicable tax year or during any time of that tax year, as of 2016.
Keep accurate records that track your foreign financial assets’ maximum value. You can use a cloud-based accounting software to keep you organized. Accurately fill out all required information without omitting essential data and report that information in U.S. dollars. Determine which tax form to attach Form 8938 to your annual return and file it by the deadline.
Don’t get caught up in a tax conundrum. Instead, take action by taking the right steps to claim foreign assets on your tax returns and getting organized before the tax deadline hits. You can also get help from a professional team of tax experts that can provide the tax consulting services you need regarding foreign assets, including tax debt help and tax tips.