Foreign income (FBAR, FATCA)

Any U.S. person — including citizens, resident aliens, corporations, partnerships, LLCs, trusts, and estates — with financial interests in or signature authority over foreign financial accounts must evaluate whether they have reporting obligations under FBAR, FATCA, or both.

53 steps across 12 sections

1. Covered Accounts

  • Bank accounts (checking, savings)
  • Securities/brokerage accounts
  • Debit card and prepaid credit card accounts
  • Insurance policies with cash value (foreign-issued)
  • Pension accounts (foreign)
  • Any other account maintained with a foreign financial institution

2. Filing Deadline

  • April 15 of the year following the reporting year
  • Automatic extension to October 15 — no form or request needed
  • For tax year 2025, the deadline is April 15, 2026 (extended automatically to October 15, 2026)

3. Filing Method

  • Filed electronically only through FinCEN's BSA E-Filing System at https://bsaefiling.fincen.gov
  • NOT filed with your federal tax return
  • NOT filed with the IRS — it goes to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury
  • Third-party preparers can file on your behalf with proper authorization (FinCEN Form 114a)

4. Key Details

  • You must report the maximum value of each account during the calendar year
  • Convert foreign currency to USD using the Treasury's end-of-year exchange rate
  • Joint accounts: each person with a financial interest must file separately (or one spouse can file if both sign FinCEN Form 114a)
  • Even accounts with zero income generated must be reported if they contribute to the $10,000 aggregate threshold

5. Covered Assets

  • All accounts reportable on FBAR (foreign bank, securities, etc.)
  • Stock or securities issued by a foreign person/entity
  • Financial instruments or contracts with foreign counterparties
  • Interests in foreign entities (partnerships, corporations, trusts, estates)
  • Foreign-issued insurance policies
  • Foreign hedge funds and private equity funds
  • Foreign pension plans

6. Filing Method

  • Filed with your federal income tax return (Form 1040) — attached as Form 8938
  • Only required if you are otherwise required to file a tax return
  • Filed with the IRS (not FinCEN)

7. Filing Deadline

  • Same as your tax return: April 15 (with extensions available per normal tax return extension rules)
  • Expats get an automatic extension to June 15, with further extension available to October 15

8. 2026 Exclusion Amount

  • Maximum exclusion: $132,900 per qualifying individual (adjusted annually for inflation)
  • If both spouses qualify independently, each may claim the full exclusion (combined maximum of $265,800)

9. Qualifying Tests (Must Meet Tax Home Test + One Residency Test)

  • Your tax home (regular place of business/employment) must be in a foreign country
  • Temporary assignments of one year or less do not change your tax home
  • If you have no regular place of business, your tax home is your regular place of abode
  • Present in a foreign country for at least 330 full days during any consecutive 12-month period
  • Days do not need to be consecutive
  • Travel days between foreign countries count; days in the U.S. (even partial) do NOT count
  • The 12-month period can begin on any date (not limited to calendar year)
  • Established residence in a foreign country for an uninterrupted period that includes a complete tax year (Jan 1 – Dec 31)
  • Must demonstrate genuine residency: local housing, bank accounts, community ties, paying local taxes
  • Brief trips to the U.S. do not necessarily break bona fide residence

10. Qualifying Income

  • Wages, salaries, bonuses, commissions
  • Self-employment income
  • Professional fees
  • Tips and allowances

11. Housing Exclusion/Deduction

  • In addition to the income exclusion, you may exclude or deduct certain foreign housing expenses
  • 2026 housing amount limitation: $39,870 (base amount: $19,943, which is 16% of the FEIE limit)
  • Employees claim the housing exclusion; self-employed individuals claim the housing deduction
  • Qualified expenses: rent, utilities (not telephone), insurance, parking, furniture rental

12. Important Notes

  • Form 2555 must be attached to Form 1040 or 1040-X
  • Form 2555-EZ was discontinued after 2018
  • Once elected, the exclusion applies to current and future years unless revoked
  • Revoking the election means you cannot re-elect for 5 years without IRS approval

Common Mistakes

  • Thinking FBAR and FATCA are the same thing
  • Missing the $10,000 aggregate rule
  • Ignoring accounts with signature authority
  • Forgetting foreign retirement/pension accounts
  • Not reporting accounts with zero income

Pro Tips

  • File both FBAR and Form 8938 when in doubt
  • Track your maximum account balances throughout the year
  • Use the automatic FBAR extension strategically
  • Consider the Foreign Tax Credit vs. FEIE decision carefully
  • Keep meticulous records of foreign income and accounts

Sources

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