Many of my clients have Foreign Bank Accounts. In Jupiter and South Florida they are quite common. What most people do not know is that the IRS and government require you to fill out a form to tell them how much you have. The penalties are stiff if you do not get the forms in on time. Here is general information on how the process works.

A taxpayer with a financial interest in or signature authority over a foreign financial account exceeding certain thresholds may be required to report the account yearly by filing a Financial Crimes Enforcement Network (FinCEN) Form 114, [Report of Foreign Bank and Financial Accounts (FBAR)]. Specifically, for 2014, Form 114 is required to be filed during the year if—

1. a taxpayer has a financial interest in or signature authority over at least one financial account (which can be anything from a securities, brokerage, mutual fund, savings, demand, checking, deposit or time deposit account to a commodity futures or options, and a whole life insurance or a cash value annuity policy) located outside the U.S., and

2. the aggregate value of all such foreign financial accounts exceeded $10,000 at any time during 2014.

The 2014 Form 114 must be filed by 6/30/15 and cannot be extended. It must be filed electronically through bsaefiling.fincen.treas.gov. The penalty for failing to file Form 114 is substantial—up to $10,000 per violation (or the greater of $100,000 or 50% of the balance in an account if the failure is willful).

FinCEN Form 114 is not required if: (1) the aggregate value of all foreign accounts is $10,000 or less at all times during the year or (2) the accounts are at a U.S. military banking facility. Also, the FBAR is filed on a separate return basis (that is, joint filings are not allowed). However, a spouse who has only a financial interest in a joint account that is reported on the other spouse’s FBAR does not have to file a separate FBAR.

Abacoa CPA's

Jupiter, FL

(561) 331-0744

If you have a teenage child who works, consider encouraging the child to use some of the earnings for Roth IRA contributions. All that’s required to make a Roth IRA contribution is having some earned income for the year.
Age is completely irrelevant. Specifically, for both the 2014 and 2015 tax years, your child can contribute the lesser of:

(1) earned income or (2) $5,500.
Modest Contributions at an Early Age Can Amount to Big Bucks by Retirement Age
By making Roth IRA contributions for just a few years, your child can potentially accumulate quite a bit of money by retirement age. Realistically, however, most kids won’t be willing to contribute the $5,500 annual maximum even when they have enough earnings to do so. Be satisfied if you can convince your child to contribute at least a meaningful amount each year. Here’s what could happen, if a 15-year-old makes the following Roth IRA contributions starting now:
 $1,000 at the End of Each Year for Four Years. Assuming a 5% annual rate of return, the Roth IRA would be worth about $33,000 in 45 years when your “child” is 60 years old. If you assume a more optimistic 8% return, then the account would be worth about $104,000 in 45 years.
 $2,500 for Each of the Four Years. Assuming a 5% return, the Roth IRA would be worth about $82,000 in 45 years. Assuming an 8% return, the account value jumps to a whopping $259,000.
Why the Roth IRA Is Usually the Better IRA Option for Kids
For a child, contributing to a Roth IRA is usually a much better idea than contributing to a traditional IRA for several reasons. The child can withdraw all or part of the annual Roth IRA contributions—without any federal income tax or penalty—to pay for college or for any other reason. (However, Roth IRA earnings generally cannot be withdrawn tax-free before age 59½.) In contrast, if your child makes deductible contributions to a traditional IRA, any subsequent withdrawals must be reported as income on your child’s tax returns.
Advice: Even though a child can withdraw Roth IRA contributions without any adverse federal income tax consequences, the best strategy is to leave as much of the Roth IRA balance as possible untouched until retirement age in order to accumulate a larger federal-income-tax-free sum.

What about tax deductions for traditional IRA contributions? Isn’t that an advantage compared to Roth IRAs?
Good questions. There are no write-offs for Roth IRA contributions, but your child probably won’t get any meaningful write-offs from contributing to a traditional IRA either. That’s because an unmarried dependent child’s standard deduction will automatically shelter up to $6,200 of 2014 earned income from the federal
income tax ($6,300 for 2015). Any additional income will probably be taxed at very low rates. So, unless your child has enough taxable income to owe a significant amount of tax (not likely), the theoretical advantage of being able to deduct traditional IRA contributions is mostly or entirely worthless. Since that’s the only advantage a traditional IRA has over a Roth IRA, the Roth IRA option almost always comes out on top for kids.
Conclusion
Encouraging working kids to make Roth IRA contributions is a great way to introduce the ideas of saving money and investing for the future. Plus, there are tax advantages. It’s never too soon for children to learn about taxes and how to legally minimize or avoid them. Finally, if you can hire your child as an employee of your business, some additional tax advantages may be available.
Please contact us if you have questions or want more information about Roth IRAs for kids.

Abacoa CPA's

Jupiter, FL

(561) 331-0744

Reminder: Report of Foreign Bank and Financial Accounts Is Due 6/30/15

Roth IRA for Kids