5 Myths and Misconceptions About Owning Offshore Bank Accounts

When most people hear the term “offshore bank accounts,” they immediately picture a rich person conducting illegal activity. This is largely because movies and TV shows have portrayed these account as something inherently bad or underhanded, which has led to many myths and misconceptions. Let’s clear up these misconceptions so you can evaluate whether an offshore bank account makes sense for you.

1. Offshore Bank Accounts Are Only Used for Illegal Activity

While this is what most people believe, it is not true at all. Just like traditional U.S. bank accounts can be used either for legal or illegal purposes, so can offshore accounts. The vast majority of offshore bank accounts are opened and used for completely legitimate reasons with no illegal activity whatsoever.  To be clear, it is completely legal to have a bank account outside of the U.S.

2. You Don’t have to Report Offshore Bank Accounts to the IRS

If you have a bank account outside of the U.S., you are required to report it to the U.S. as well as reporting any income earned in the account or deposited into the account to the IRS.  There are complicated rules and regulations governing how U.S. citizens and permanent residents need to report offshore assets, income and accounts. If you attempt to hide money in an offshore account, you may face criminal or civil problems with the IRS.  Anyone using offshore bank accounts needs to take extra precautions to ensure they handle their taxes correctly.

3. Offshore Bank Accounts Are Primarily for Tax Evasion

While there are people who attempt to evade paying taxes by using offshore bank accounts, it is very risky. The U.S. government has information sharing treaties with many governments around the world to find out about U.S. persons who have bank accounts outside of the U.S. The IRS has other ways to gather information on foreign accounts, including using whistleblowers and going after the banks directly. The penalties for tax evasion are extremely high, and it is simply not worth the risk. Simply opening an offshore account is not a method commonly used for tax evasion.

4. Only the Very Wealthy Ever Need an Offshore Bank Account

While the wealthy may use offshore accounts more than the middle class, there are many legitimate reasons why anyone may want or need to have a foreign bank account.  For example, you may be from another country and go back to visit family often, making having a bank account there quite convenient. As an offshore account may be in the local currency, it may be used for an investment for those who do not have long-term confidence in the dollar.  As explained above, there is nothing wrong with having a foreign bank account as long as it’s properly reported to the IRS.

5. Offshore Bank Accounts Are Very Risky

Offshore bank accounts are not inherently more or less risky than U.S. bank accounts. When choosing a financial institution to work with, you will want to do some research to ensure they are legitimate, but that is true no matter the location. Whenever opening an account of any type, you want to weigh the pros and cons to see if it is a safe and secure financial decision.

Is an Offshore Bank Account Right for You?

If you are thinking about opening an offshore bank account, speak with an accountant or attorney who has experience with this type of activity. Not only will this help you to avoid potential tax mistakes, but it can also help ensure you choose the right type of account based on your goals. Please contact us to discuss your options today.

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Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

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