Thinking About Opening an Offshore Account? Here's What You Need to Know

If you are considering investing any of your funds in an offshore account, you should talk with a New Jersey international tax attorney before you make the decision to open the account. Investing offshore has become much more complicated in recent years thanks to global efforts to fight tax evasion. While there are still ample reasons to make investments in foreign financial institutions, there is a lot to consider about what obligations you're taking on when you open an account at a foreign bank.

Key Considerations Before Investing Offshore

Offshore investing has long been popular for many reasons, including asset diversification so some funds are invested in foreign currency, or convenience in accessing funds if you live abroad or take frequent vacations.

However, because offshore investing is also frequently associated with efforts to hide money from taxing authorities, offshore accounts have developed a bad reputation. The United States and other jurisdictions nationwide have been aggressively trying to end offshore tax evasion, which means many innocent people who want to open offshore accounts for clearly legitimate reasons could find themselves facing a lot of hassle and red tape.

The problem is, the U.S. requires all citizens to pay taxes on virtually all income. This typically includes money earned from overseas investments. The IRS wants to know if you're investing your money offshore – so not only do you have to report all of your income from offshore accounts, but you are also obligated to report the existence of the accounts themselves.

For example, if you have an offshore account with a value of $10,000 or more, you're required to submit a Report of Foreign Bank and Financial Account (FBAR). If you have an offshore account with a value of $50,000 or more, you're also required to submit Form 8938 under the Foreign Account Tax Compliance Act. You are required to make these reports whether you're the legal owner of the offshore account or whether you have signature authority on an account owned by some other person or entity, such as a corporation you may have created.

The IRS doesn't just trust that people are making mandated reports, either. FATCA requires foreign financial institutions to make certain disclosures to the U.S. government in circumstances where U.S. citizens or U.S. affiliated persons have accounts. Because banks and other offshore institutions will likely provide information on your account to the IRS, you need to make sure you are in full compliance with reporting rules and requirements.

Penalties for not submitting FBARs or not complying with FATCA can be substantial. You could potentially face criminal charges for tax fraud and tax evasion offenses. Even if you aren't charged criminally, however, civil fines and penalties could equal more than the value of an undeclared offshore account.

A New Jersey international tax attorney like Kevin Thorn can help you to understand your obligations if you're thinking about investing offshore and can also provide assistance if you have not complied with the mandates and you are facing legal trouble because of it. Contact an attorney today to learn more. Call 201-355-8202.