Thinking of Putting Your Money Offshore? Here Are a Few Things You Should Know

Are you a U.S. taxpayer who is thinking about opening an offshore financial account in a country outside of the United States? If you are, you are definitely not alone. There are ample reasons to open offshore accounts. You may spend time in another country and want to keep some money there; may want to have an overseas account where loved ones live; may want money outside the U.S. due to political or economic issues; or may simply want to diversify your assets so you have funds invested in a different currency in case the purchasing power of the dollar weakens.

While opening an offshore account can make a lot of sense, there are also some important things you need to be aware of – especially if you don't want to find yourself in trouble with the IRS and owing back taxes or penalties. A Washington DC international tax attorney can provide you with help before you open an offshore account so you don't run afoul of tax laws and find yourself facing legal issues.

What You Need to Know Before Opening an Offshore Account

One of the most important things to be aware of before setting up an offshore account is that U.S. citizens are required by law to pay taxes on all of the income that they earn, even if that income is earned in a foreign jurisdiction.

For example, if you earn money on investments in a Swiss bank account, you'd still have to pay taxes on your investment income even though it was not earned in the United States. If you failed to report the investment income and pay taxes on it, this would be a violation of U.S. tax laws.

The IRS not only requires that you declare income earned in a foreign bank on your taxes, but you are also required to comply with certain laws related to the disclosure of the existence of foreign financial accounts. For example, if you have more than $10,000 invested offshore, you are mandated by law to submit an annual Report of Foreign Bank and Financial Accounts form (FBAR).  There are substantial financial penalties associated with not filing FBARs. 

For those with at least $50,000 invested, there are additional requirements for submitting reports under FATCA. The Foreign Account Tax Compliance Act (FATCA) mandates you must report your offshore investments totaling $50,000 or more using Form 8938 each year.

If you do not provide required reports of your foreign investments, there is a significant chance you will be caught as the United States has been aggressive in recent years in going after alleged tax evaders who park money offshore in order to potentially avoid taxes.

Numerous foreign financial institutions were threatened with prosecution for facilitating tax evasion and many of those institutions voluntarily came forward to disclose details about U.S.-affiliated accountholders with offshore accounts in exchange for avoiding criminal charges. Foreign financial institutions are also required to provide certain reports under FATCA, so the IRS will likely be alerted as to the existence of your account even if you do not make required disclosures.

Washington DC international tax attorney Kevin Thorn can help you to understand all of the requirements of offshore investing and can also provide you with assistance if you failed to fulfill those requirements and are now facing legal problems because of it. Contact our office online or by calling 202-349-4033 today.