Do you really know Form 8938?

Do you really know Form 8938?

Often after reviewing clients tax declarations that were self-prepared or prepared by another firm I see mistakes relating to Schedule B. Schedule B is used to report interest and dividend income you receive during the year.

Per the IRS rules, Schedule B is only required if you receive more than $1,500 of taxable interest or dividends. In part I you list the amounts of interest received along with the name of the payer. Interest is money paid on an amount borrowed and is normally calculated as a percentage of the (principal) amount. Normally, this is earned in bank accounts and bonds. In part II you list the amounts of dividends received along with the name of the payer. A dividend is money a distribution of a portion of a company’s earnings to its shareholders. Normally, this is earned in investment accounts where you own stocks or funds. In part III you have to list if you have a foreign financial account and if you must file a foreign bank account report. For most U.S. taxpayers living outside the U.S. this makes the form compulsory since most have foreign bank accounts. This is also where most mistakes are made, as the taxpayer doesn’t complete this form since they have less than $1,500 of interest or dividends received. However, since they have a foreign bank account the form should be completed and is mandatory.

Do you really know Form 8938?

The exchange rate that should be used to convert foreign interest or foreign dividends depends on the nature of each transaction. If the money is received sporadically during the year such as at the end of the year or on a specific date you should use the spot exchange rate from a reliable source such as www.oanda.com. If the money is received evenly throughout the year you can use the IRS yearly foreign exchange rates as published on the IRS website (https://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates).


About US Tax Practice GmbH: US Tax Practice offers U.S. tax services in Switzerland. It is the go-to tax preparation service and compliance practice for U.S. tax payers. Located in Lenzburg, Switzerland, the company was founded by Patrick Evans, a U.S. tax accountant (CPA, CGMA) and U.S. citizen determined to work with his clients’ best interests in mind. US Tax Practice GmbH services include U.S. Income Tax Preparation, U.S. Tax Compliance, Foreign Bank Account Reporting (FBAR), Tax Planning and Optimization, and Expatriation.