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If you’re planning to transfer more than $10,000 from overseas, a money transfer service can help you save on fees — but you still need to report the transfer to the US government. Read on to familiarize yourself with the tax implications and what you need to do when transferring large amounts of cash – and what the penalties could be if you don’t.
Yes. No matter where you’re from, if you’re receiving more than $10,000 in the US, you’ll need to abide by US laws put in place to both protect both your money and the interests of the government.
By law, banks report all cash transactions that exceed $10,000 — the international money transfer reporting limit set by the IRS. In addition, a bank may report any transaction of any amount that alerts its suspicions. Money transfer businesses, which often solely send money between countries, sometimes have reporting thresholds as low as $1,000.
US law requires banks and money transfer companies to report:
If you are living in the US and received foreign gifts of money or other property, you’ll need to report it on Form 3520 — Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.
US citizens and residents are required to use Form 3520 for:
Form 3520 is considered an “information return,” rather than a tax return, because foreign gifts generally are not subject to income tax. However, you are subject to stiff penalties for failing to submit Form 3520 when it is required.
As the recipient of the transfer, you are solely responsible for reporting the amount you received during the current tax year with your annual tax filing.
The penalties for failing to file Form 3520 on time are equal to the greater of $10,000 or the following:
Laws are in place to protect you and the government from fraudulent activity. By monitoring transactions in and out of the US, authorities are able to:
Since 9/11, the US government has put even more stringent laws in place. For example, the Patriot Act allows the government to track money more carefully due to terrorism.
International money transfers that won’t break your business
To prevent the US government from delaying or canceling your money transfers into the country, you’ll need to provide proof of a government-issued photo ID — a driver’s license or passport, for example — and proof of your address.
If you already own an account with the bank or money transfer company, you may not need to provide ID each time you receive money. However, online money transfers may have stricter rules when it comes to proof of ID and could ask for additional documentation or to verify your identity by phone.
To avoid the penalties that come with a failure to report large sums of money into the country, it may be worth it to speak to a tax lawyer to make sure that everything is above board and complies with the laws of all countries involved.
Sending a lot out of the country? Know what the IRS expects of you
Receiving large money transfers while in the United States almost always need to be reported to the IRS, failing to do so could lead to a fine or worse. It may be tempting to think you can slip through the cracks and save money, but the fines far outweigh the benefits. Instead, learn how to save money on your next transfer to help offset the overall cost of the taxes you may owe.