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Ever wondered how much your government knows about your financial life? You might be surprised to find out what your government knows almost nothing again almost everything about you.
If your bank account doesn’t earn interest and you rarely use cash, the government may not know your bank account at all. On the other hand, if you frequently deposit large amounts of cash, the US government may closely monitor your activity.
This article discusses which banks are required to report to the U.S. government and where reporting falls into the gray area.
IRS report
Banks and other financial institutions are required by law to report certain information to the Internal Revenue Service (IRS). For example, a bank must notify his IRS of any dividends or interest he earns from his banking activities.
Each year, if you earn $10 or more in interest from your bank, your bank will issue a 1099-INT and the same form will be filed with the IRS at tax time. You should receive 1099-INT for money earned in a high yield savings account and 1099-DIV for money earned in dividends. Do not ignore any of these formats.
Be sure to include all your 1099 income when filing your taxes. Most banks will issue an electronic 1099 file if you miss the form elsewhere.
Know Your Client’s Laws
The Know Your Customer (KYC) Act is a set of regulations that require banks to verify the identity of their customers and report suspicious activity to the Financial Crimes Enforcement Network (FinCEN). KYC laws apply to individuals and businesses and are part of a broader law. anti money laundering (AML) Regulations designed to identify and prevent criminal misuse of the financial system.
KYC laws apply not only to banks, but to all financial institutions such as securities companies, cryptocurrency brokerages, car dealers, real estate closing companies and escrow companies.
When you open a bank account (or brokerage account) in the US, you are always asked to:
- your name
- date of birth
- Address (not PO Box)
- Tax ID (usually an individual’s social security number)
Banks and other financial institutions have policies in place to verify the identity of a person before doing business with the bank. Many mobile His First apps ask you to take a photo of yourself and her government-issued ID to verify your identity.
KYC laws do not always have reporting requirements. For example, banks do not require you to report that you have a bank account. Instead, it is designed to force banks to accurately assess the risk of every customer.
did you know? Along with your credit score, you also have a “banking score.” Your Banking Score is a record maintained by a third party company of your banking activity. Bouncing checks or having other banking issues can lower your banking score. As a result, other banks will no longer allow banking at that bank.
Report suspicious financial activity
Banks do not necessarily have to report whose bank they are, but they should monitor their customers’ activity and report any suspicious financial activity to FinCEN.
Regulators leave it up to banks to define what constitutes “suspicious financial activity.” Banks should develop training programs for their employees so that bank employees understand how to identify suspicious activity and report it to FinCEN.
Questionable activities include individuals or companies financing terrorism, tax evasion, and money laundering (using the financial system to justify money obtained through illegal means such as drug sales). ) can be included.
Banks establish internal protocols to enable employees to recognize red flags and report on these transactions. This proactive monitoring is part of FinCEN. bank secrecy law (BSA). This allows banks to keep records that regulators can use to investigate suspicious financial activity.
Report all financial transactions over $10,000
Banks have a lot of leeway when it comes to identifying and reporting suspicious financial activity, but FinCEN has very clear rules regarding currency trading. Currency transactions are transactions involving cash (such as dollar bills) or other physical notes.
When withdrawing or depositing money $10,000 or more In your bank account, the bank must file Currency Transaction Report (CTR) This includes the following when making large trades:
- name
- social security number
- date of birth
- Street address (or account number and tax ID number for corporate accounts)
CTRs must be submitted within 15 days of the transaction for paper reports and within 25 days for other report types. The purpose of CTR is to easily identify potential money laundering and terrorist financing schemes.
Note: This is also true when using cash as a store. If he tries to spend $10,000 in cash at Target or Walmart, those stores must also submit his CTR.
Submitting too many CTRs
A bank may change a customer’s risk profile after one year of doing business with the customer. The change will eliminate the need for some customers to submit many of her CTRs, such as bars and restaurants that deposit large amounts of cash, and construction companies that pay their salaries in cash. Banks may develop these exceptions to reduce paperwork.
However, banks report suspicious financial activity related to these accounts without reporting every cash transaction. If local, state, or federal law enforcement has a warrant for records from a bank, the bank must comply with these requests.
Record trails created by banks through Know Your Customer Act or as part of Bank Secrecy Act may be provided to appropriate law enforcement agencies during an investigation.
final thoughts
Using cash is not illegal, but banks must report large cash transactions. If you want to earn cash and deposit infrequently, you can deposit over $10,000 at once. The bank may submit his CTR and ask about their funding sources.
Depositing large amounts of cash will not automatically get you into trouble. But only if you haven’t laundered money and can provide a paper trail showing where the cash came from.
Keeping good records is especially important if you earn cash on the side and have to file your taxes on a quarterly basis.