Banking Offshore May Benefit Investors, But There Are Also Strict IRS ObligationsOffshore Account Update
Posted on January 31, 2019 | Share
The promise of anonymity and potential high interest rates are just two of the reasons investors might decide to explore moving funds to offshore bank accounts. But opting to deposit funds in a foreign bank account without understanding all the potential ramifications could be a mistake.
While a New Jersey tax attorney is in the best position to advise you on how offshore banking would impact your particular circumstances, the following provides an overview of some of the potential benefits and drawbacks of banking offshore.
Potential Benefits of Offshore Banking
- Anonymity. If you are someone who likes to keep your financial affairs private, offshore banking might fit your needs. In many countries, disclosing information about deposits and depositors is against the law.
- Interest rates. If you are seeking better interest rates than are available in the U.S., offshore banking could be an option. Many people deposit funds offshore to realize higher interest on their deposits.
Potential Pitfalls of Offshore Banking
- No FDIC insurance. Unlike bank accounts in the U.S., which are guaranteed by the Federal Deposit Insurance Corporation up to specific amounts, offshore bank accounts are not insured or guaranteed by their respective governments. In other words, if the bank fails due to declining economic conditions, mismanagement, political unrest, or natural disaster, the depositors lose everything.
- Costs and Fees. It costs money to open up foreign bank accounts, in terms of both fees charged by the institution to set up and maintain the account, and fees to convert currency. It is important to do a cost-benefit analysis before taking money offshore to make sure that the cost does not outweigh anticipated earnings.
IRS FBAR Reporting
If you keep more than $10,000 in offshore accounts, you must disclose the existence of your accounts and report all income they produce to the Internal Revenue Service. Specifically, the IRS Foreign Bank and Financial Accounts Program (FBAR) requires every United States taxpayer who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other type of financial accounts, in a foreign country, to report the income derived from them if the value is more than $10,000 total.
Failure to file the required FBAR forms each year is considered a serious offense with the possibility of civil and or criminal penalties. Violators could face fines and even go to prison.
How a New Jersey Tax Attorney Can Help
IRS enforcement of regulations regarding offshore accounts has increased over the last few years. It is always best to consult with New Jersey tax attorney Kevin Thorn when setting up the offshore accounts so you understand your responsibilities and any potential liabilities. If you already have offshore accounts, Thorn Law Group’s tax attorneys can advise you on any exposure you have in your present situation and advise you on the best course of action.