Are you a US citizen or a resident who maintains a hidden foreign bank account? If yes, beware! As numerous undertakings heralded by the Internal Revenue Service makes it pretty clear that the stakes can be high enough and the potential obligations can be mind-boggling. Why do you need to worry if you have an offshore bank account?
Well, the flaunted mystery of Swiss banks and other tax havens doesn’t turn out to be so secret after all. They have already disclosed names to the IRS and more banks are to be named on the way. Many popular banks are out of the sand now and hence burying your head into the sand won’t work in your favour in the long run.
Important things you need to know on offshore banking
You require reporting worldwide income: You need to report your worldwide income on your US income tax return. On top of that, you should check “yes” if you have an interest in any foreign bank. Worldwide means everything including foreign earnings, interest rates, wages, dividends etc. Even if your foreign income is taxed elsewhere, you should still report it to the IRS. This way you may be entitled to foreign tax credit.
- There are gruesome tax penalties: If you don’t abide by one or both sets of liabilities, the penalties may result to be severe. You actually sign tax returns under penalties of perjury and hence if you don’t report your worldwide income or forget to check the box that discloses that you have a foreign account, this might be deemed as tax evasion or fraud.
- FBAR penalties are bigger: The penalties for failure to file an FBAR are worse. This carries a civil penalty of $10,000 for each non-wilful violation. However, if this violation is considered to be wilful, the penalty can be greater than $100,000 or 50% of the amount in the account per violation. Therefore be careful!
Offshore banking – More than a haven for financial shell games
Offshore bank accounts have been used to hide profits for everything from arms dealing to bribes to drug sales. But today, offshore banking is more than a haven for cloaking such illegal activities. Why do legitimate businesses find it more advantageous to keep foreign accounts? Check out some reasons.
- Privacy: Arguably, privacy has been and will be always be the most compelling benefit of offshore banking. Apart from the need of privacy for criminals, honest and fair-dealing people and businesses also need enough of it. However, frivolous lawsuits are a big part of the problem and given the legal climate in the US, high net-worth individuals often find it easier and beneficial to conceal some of their assets. Organizations like Marshall Islands Offshore Company GWS offer services like asset management, tax optimization, estate planning, initial public offerings and real property holding.
- Flexibility: Yet another attractive benefit of offshore banking is the immense flexibility that they can offer. This is particularly important for all those international business people who keep travelling. Most of such people find it tough or costly to run international operation from a domestic account. To avoid hefty fees for accepting payments in foreign currencies, they take resort to offshore banking accounts.
- Hedge against political hazards: Another overlooked advantage of offshore bank accounts is the hedge that it provides against political risk. Assets held domestically are vulnerable to socio-political risks that you can’t avoid. Inflation is another looming crisis that might eat away your domestically held assets. In such situations, you can escape losing value of your assets when you have them tucked aside in foreign banks.
Therefore, we can clearly see that an offshore account can open up contemporary and unique financial planning benefits and opportunities. If you’re looking for banking services that aren’t available in your home country, offshore banking is certainly the best possible solution for you.