The answer to your question is that Form 8938 is purely a disclosure form; it does not and is not meant to
calculate your US income tax on any foreign financial holdings. Any
actual income you received through your foreign account (and any US tax
on it) will be input separately when you report your income on Form
1040, Schedule B, Schedule D, etc. In TurboTax, this will mean entering
your foreign income into the Interest & Dividends section
interview, for example. That is where you US tax gets "calculated."
For additional details please keep reading below for much more
information on this topic.
With respect as to how to report earnings on your foreign bank
account, the answer is that you will
do this on a United States tax return just as you would as if the bank
were domestic in nature instead of foreign. It does not matter what is
the dollar amount involved, whether it is $1,500 or $15, the reporting
process is just the same -- although you do need to convert any foreign
currency amounts back into US dollars, simply for tax compliance and
reporting.
In
other words, whether or not you receive an actual US Form 1099-DIV (for
dividends) or Form 1099-INT (for interest) you will simply "pretend"
that you did, and proceed to enter your dividends and interest in that
manner. As such, you can can follow the mechanical data-entry
instructions for each type of passive income, as described in each of
the following links:
https://ttlc.intuit.com/questions/2952456-where-do-i-enter-my-1099-div
https://ttlc.intuit.com/questions/1899701-where-do-i-enter-form-1099-int
If you also paid any foreign taxes
on those dividends or interest, you can input that data on the very same
1099-DIV and 1099-INT input screens in TurboTax. There will be boxes
provided there, in which you can indicate any foreign taxes paid.
Now
then, reporting the income from your foreign financial accounts is one
thing. Reporting the existence of your foreign financial accounts is
entirely another. In other words, there is a "disclosure" requirement
for every US taxpayer who holds assets in a non-US account financial
account, even if the account or asset generates no taxable income. This
applies to mainland US citizens, territorial residents, and expats,
including those who never return to the US, but still maintain their US
citizenship. Essentially, the government wants to know about your
non-US assets -- how much and where you keep them.
In fact, there are two
separate disclosure forms that may be required; each also has different
reporting rules. One is known as IRS Form 8938, and can be
attached to the relevant yearly Form 1040 tax return. The other is FinCen
Form 114, which can only be filed via the internet. The following
Internal Revenue Service webpage describes them in some detail, and provides
their dollar value reporting levels:
https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements
Form 8938 is included in
TurboTax. FinCen Form 114 is not included in TurboTax, and you would need
to access that reporting webpage separately, if your foreign financial assets
total over the limit(s). Note that you can get to the FinCen reporting
internet site directly through the above IRS link.
If you are
asked about the specific schedule and line where your foreign interest
and / or dividends are reported, on Form 8938, you would answer that as follows. For interest income it will be Form 1040, Schedule B, Line 1. For dividend income it will be Form 1040, Schedule B, Line 5.
Thank you for asking this important question.
