Foreign Interest Income (2018) – U.S. Taxes, Schedule B & Form 8938
- 1 Foreign Interest Tax Rate
- 2 Interest Income
- 3 How do I Report Foreign Interest?
- 4 Unreported Foreign Income
- 5 What Can You Do?
- 6 We Specialize in Safely Disclosing Foreign Money
- 7 Who Decides to Disclose Unreported Money?
- 8 Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
- 9 Beware of Copycat Law Firms
- 10 4 Types of IRS Voluntary Disclosure Programs
Foreign Interest Income (2018) – U.S. Taxes, Schedule B & Form 8938
The United States follows a worldwide income tax model (aka Citizen-Based Taxation). In other words, the United States taxes U.S. persons on their worldwide income.
Unfortunately, worldwide income includes foreign interest income – even if it was earned in a country in which the income grows tax-free (common in many Asian countries).
Oftentimes, a person gets confused (understandably so) as to how U.S. taxation works for foreign interest income, so we want to provide a brief summary for you.
Foreign Interest Tax Rate
Typically, the tax rate on foreign interest income is the same as your tax rate for other general income and gets taxed at OI rates (ordinary income).
For example, if you earned foreign capital gains, and it was long-term than you are taxed at 15% unless you are in the highest tax bracket, in which you are taxed at 20%.
When it comes to foreign dividends, you are taxed at your ordinary income tax rates, unless it is a qualified dividend, and then the same rules apply for long-term capital gains (15%/20%).
**It should be noted that these reduced rates vary each year and you should check the tax code for the particular year you are filing.
Unlike long-term capital gain or qualified dividends, interest income gets taxed at your ordinary income tax rate. In the United States, for example you may have tax-free interest such as in municipal bond (muni bond), but the same rules do not typically apply to foreign interest.
In other words, even if you are earning tax-free interest generated from abroad, the default rules are that you must still pay US tax on the foreign interest income.
**You should always check the specific U.S. Income Tax Treaty – if there is one with the particular country – to determine if there is a possible exemption or exception for the particular type of income.
But, the default rules are that the foreign interest is taxable.
How do I Report Foreign Interest?
When it comes to reporting form interest income, there are usually three (3) places you have to report the interest.
Interest income on a form 1040 is usually included on line 8. This includes both US and foreign based interest income.
This is where it gets a bit tricky. If you did not have any foreign accounts or foreign interest income, then you would only file schedule B (in most situations) when the total value of the interest and dividends earned exceed $1500.
The rules are different when you have signature authority over a foreign account. When you have signature authority over a foreign account, you have to identify it on schedule B, Question seven, even if you have no foreign interest or dividends.
Therefore, even if you have minimal interest income and the minimal interest income/dividend income is below $1500, if it is being generated from a foreign account in which you either have ownership or signature authority over the count, you have to include a schedule B (with most programs, the interest included on schedule B will flow through to line 8 of your 1040 tax return).
Form 8938 is used to report specified foreign financial assets. The form also requires that you identify any income that is generated from these assets.
Therefore, if you have an account or asset that must be reported on form 8938, it is important to note that you also have to include any income generated from those accounts or assets directly on page 1 of the Form 8938.
Unreported Foreign Income
If you have unreported foreign interest income or other foreign income, which has not been declared to the IRS, you may consider entering one of the approved IRS Offshore Voluntary Disclosure Programs to timely and safely get into IRS offshore compliance-before it’s too late.
What Can You Do?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
We Specialize in Safely Disclosing Foreign Money
We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)
Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
Who Decides to Disclose Unreported Money?
What Types of Clients Do we Represent?
We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.
You are not alone, and you are not the only one to find himself or herself in this situation.
Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
Our Managing Partner, Sean M. Golding, JD, LLM, EA earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)
Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.
Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists
The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.
In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.
Beware of Copycat Law Firms
Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.
*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)
Contact Us Today; Let us Help You.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)