In some countries, banks do not charge investors or account holders taxes to keep their money there. Countries like Switzerland have long been known to allow citizens of other countries to keep their money there without taking anything off the top. This kind of account is often referred to as an "offshore bank account." The problem with holding an account like this is that businesses or individuals who hold a large sum of money there can still be subject to all kinds of penalties from the IRS, FBI, or other government agencies. Read on to better understand what having an offshore account could mean for you.
Income Must be Reported
Even if you earn money in any other countries but you're a US citizen or business, the income earned overseas must be reported to the IRS in your total earnings annually. Failure to do this can often be considered tax evasion, which faces some very stiff penalties. Even if you live or work in a different country and pay their tax rate, the income still must be reported. You must also disclose any foreign bank accounts you have with the US Treasury department as well.
The Penalties are Huge
Whenever you sign off on your tax return, you do so under penalty of perjury. In fact, even if you do not check the box on your return saying you have a foreign account, you can be under the risk of facing a tax evasion or fraud charge if it goes unreported. Another interesting thing to note is that if you If you don't comply with the tax obligations, the penalties are severe. Even if you have passed the point of the six-year statute of limitations, the IRS can still attempt to collect anywhere from ten to twenty years' worth of back taxes as well as interest and other penalties.
Are Offshore Accounts OK?
You can certainly keep the money you've earned in bank accounts across the globe, as long as that money is properly reported to the IRS every year. It is not illegal to hold this money in separate, foreign accounts. What is illegal is if you do not let the IRS know about the income you've earned or kept in other countries. If you're ever in doubt about the proper way to hold offshore accounts, it is advised that you contact a legal or financial professional (such as one from Harbor Financial Services) who can give you good, solid investment advice.