Will you pay your tax as a US person or as a foreign person?
Have you recently purchased a few foreign assets and don’t know whether you will be taxed or not?
The US taxation system is quite challenging to understand. With so many criteria, rules, and regulations, reckoning their applicability for one own self is not an easy job. Moreover, if you are not filing your tax returns correctly, you will be assessed a lot in penalties for wrong tax returns.
So, if you have certain foreign assets, you should be aware of everything about the “specified foreign financial assets” and the related Form 8938. In this article, you will get to know about all the details that will help you realize whether or not you need to file Form 8938 during your annual tax return submission.
Before moving further, you need to know exactly what a foreign financial asset is. Let’s say you, as a US individual, have bought a private island somewhere in Greece. This asset is tangible property, and hence it’s considered a foreign financial asset as the property is registered under the Greek government. Similarly, if you start a small company in Germany, it will be of German origin and not the US. Hence, your company will be considered a foreign financial asset.
On March 18, 2019, then-President Barack Obama introduced Form 8938 under the FATCA compliance act to ensure stricter rules on the ownership of any foreign financial asset. When an individual owns a foreign financial asset, he becomes non-compliant for the offshore taxes, and the government suffers the losses. To prevent this, Obama issued the Form 8938 rule so that taxpayers can pay the proper taxes against the various foreign financial assets they possess.
Six different parts are there mentioned in Form 8938. They are:
Every US taxpayer, including US citizens, US persons, resident aliens, and non-resident aliens, are allowed to fill Form 8938 only when their total foreign financial assets valuation crosses the threshold. This threshold value will be set according to the type of individual you have, the valuation rate, the asset type, and other attributes.