Filing Late Business Tax Returns as an American Expat: Your Path to Peace of Mind 

The IRS charges a 5% penalty per month for late business tax filings, capped at 25%, but here’s the relief you need: most expats owe little to nothing when they file properly. If you’re an American entrepreneur abroad feeling overwhelmed about late business tax returns, you’re not alone. The good news is that catching up is more manageable than you think. 

What Happens When You File Your Business Taxes Late? 

The penalty structure depends on your business type and how late you file. Here’s what you need to know without the panic. 

Late Filing Penalties by Business Type 

Sole Proprietorships and Single-Member LLCs: 

• File with your personal return (Form 1040 with Schedule C) 
• 5% penalty per month on unpaid taxes, maximum 25% 
• Minimum penalty of $525 if over 60 days late for 2025 returns 

Partnerships and Multi-Member LLCs: 

• $255 per partner per month for late filing (up from $245 in 2024) 
• Due March 15, 2026, for 2025 tax year
• Extensions available until September 15, 2026

S Corporations: 

• $255 per shareholder per month for late filing 
• Due March 15, 2026, for 2025 tax year
• Extensions available until September 15, 2026

C Corporations: 

• 5% of unpaid tax per month, maximum 25% 
• Due April 15, 2026, for 2025 tax year
• Extensions available until October 15, 2026
• Minimum penalty of $510 if over 60 days late for 2025 returns

Additional Costs That Accumulate 

Beyond the base penalties, you’ll face: 

• Interest charges: 7% annually, compounded daily 
• Failure-to-pay penalty: 0.5% per month if you owe taxes 
• State tax penalties (if applicable to your former US state) 

Can You Still File Back Business Tax Returns? 

Yes, absolutely. The IRS advises taxpayers who missed deadlines to file and pay as soon as possible to limit additional financial consequences. There’s no statute of limitations preventing you from filing late returns, and doing so stops the failure-to-file penalty from growing. 

Steps to File Late Business Returns 

1. Gather Your Documentation 

• All income records (1099s, foreign income statements) 
• Business expense receipts and records 
• Foreign tax payments documentation 
• Bank statements for business accounts 

2. Determine Your Filing Requirements 

• Form 1120 (C Corporation) 
• Form 1120S (S Corporation) 
• Form 1120F – (U.S. Income Tax Return of a Foreign Corporation)
• Form 1065 (Partnership/Multi-member LLC) 
• Schedule C (Sole proprietorship/Single-member LLC) 

3. Calculate Your US Tax Liability 

This is where expat entrepreneurs often get pleasant surprises. You can use: 

• Foreign Earned Income Exclusion (FEIE): Exclude up to $130,000 for 2025 tax year (filed using Form 2555) 
• Foreign Tax Credit (FTC): Dollar-for-dollar credit for foreign taxes paid (filed using Form 1116) 

4. File the Return Immediately 

Don’t wait for perfect documentation. Filing stops penalties from growing. 

How Many Years Can Your Business Go Without Filing? 

While there’s no legal limit, practical considerations make prompt filing essential: 

IRS Enforcement Timeline 

• Years 1-3: Penalties and interest accumulate, but enforcement is typically limited to notices 
• Years 3+: Risk of more aggressive collection actions increases 
• Years 6+: IRS can assess taxes indefinitely if returns aren’t filed 

The Accumulating Cost Problem 

Let’s say your business owes $10,000 in taxes: 

• Month 1: $500 late filing penalty + $50 late payment penalty = $550 
• Month 6: $2,500 late filing penalty + $300 late payment penalty + interest 
• Year 2: Penalties max out at $2,500 + $2,500 + compounding interest 

The longer you wait, the more expensive it becomes, even if your tax liability is minimal. 

Can You Start a New Business With Back Taxes Owed? 

Yes, but with important considerations. Outstanding business tax debt doesn’t prevent you from starting new ventures, but it creates complications: 

Potential Challenges 

• Difficulty obtaining business credit or loans 
• IRS liens that may affect business property or assets 
• Collection actions that could disrupt operations 
• Passport restrictions if you owe over $59,000 to the IRS 

Protective Strategies 

• Resolve old tax debts through payment plans or Offers in Compromise 
• Structure new businesses to protect assets from collection 
• Maintain separate business and personal finances 
• Stay current on new business tax obligations 

How Do the Two Main Protections Work for Expat Entrepreneurs? 

Most American entrepreneurs abroad discover they owe little or nothing in US taxes thanks to these powerful protections: 

Foreign Earned Income Exclusion (FEIE) 

• 2025 Amount: Up to $130,000 per person 
• Best for: Entrepreneurs in low-tax countries 
• Requirements: Pass Physical Presence Test (330 days abroad) or Bona Fide Residence Test 
• Bonus: Can be combined with the Foreign Housing Exclusion for additional savings 
• Example: David runs a consulting business in Thailand and earned $120,000 in 2025. Using FEIE, he excludes the entire amount and owes $0 in US taxes. 

Foreign Tax Credit (FTC) 

• Benefit: Dollar-for-dollar credit for foreign taxes paid 
• Best for: Entrepreneurs in high-tax countries 
• Advantage: Often eliminates US tax liability completely 
• Example: Lisa operates a marketing agency in Germany, earning $130,000 and paying $35,000 in German taxes. Her FTC eliminates her $28,000 US tax liability, with $7,000 carrying forward. 

What Special Considerations Apply to Expat Business Owners? 

Form 5471 Requirements 

If you own 10% or more of a foreign corporation, you must file Form 5471 with your tax return. The deadline follows your personal tax return deadline: June 15 for expats. 

Quarterly Estimated Tax Payments 

You must make estimated tax payments if you expect to owe at least $1,000 when you file your annual return. This applies to: 

• Self-employment tax on business profits 
• US taxes after applying FEIE or FTC 
• Any Subpart F or GILTI income inclusions 

FBAR Filing Requirements 

If your business accounts exceeded $10,000 at any time during the year, you must file an FBAR by April 15 (automatically extended to October 15). 

What Are Your Options for Catching Up? 

Streamlined Filing Procedures 

If your non-filing wasn’t intentional, the Streamlined Filing Procedures program offers penalty relief: 

• File the last 3 years of tax returns 
• File the last 6 years of FBARs 
• Submit Form 14653 certifying non-willful failure 

Requirements: 

• You were outside the US for at least 330 days in one of the last three years 
• Your failure to file was not intentional 
• The IRS hasn’t contacted you about an audit 

Learn more about Streamlined Filing Procedures. 

Payment Plans and Offers in Compromise 

If you do owe taxes: 

• Payment Plans: Spread payments over time (reduces some penalties) 
• Offers in Compromise: Settle for less than you owe (if you qualify) 
• Currently Not Collectible Status: Temporary relief if you can’t pay 

First-Time Penalty Abatement 

If you have a clean compliance history, the IRS may waive penalties for a single late filing period. 

What Should You Do Next to Get Back on Track? 

Don’t Panic 

Most expat entrepreneurs owe far less than they fear. The two main protections usually eliminate or drastically reduce US tax liability. 

Gather Your Records 

Focus on getting complete information rather than perfect documentation. You can always amend returns later. 

File the Most Recent Year First 

This stops the clock on growing penalties and gives you a baseline for older years. 

Calculate Your True Liability 

Apply FEIE and FTC to determine if you owe anything beyond self-employment tax. 

Consider Professional Help 

Expat business taxes involve complex interactions between US tax law, foreign tax systems, and international tax treaties. 

How Can Greenback Help You Find Peace of Mind? 

You don’t have to face this alone. At Greenback, we’ve specialized exclusively in expat taxes since 2009. Our CPAs and Enrolled Agents grasp the unique challenges of running a business abroad because many are expats themselves. 

Based on your situation, we’ll match you with the right accountant and guide you through an easy onboarding process. You’ll have direct, one-on-one access and pay a flat price, backed by our Make It Right guarantee. 

Ready to get your expat business taxes sorted? If you’re ready to be matched with a Greenback accountant, click the button below. For general questions about expat business taxes or working with Greenback, contact our Customer Champions. 

Whether you’re years behind or just unsure about the thresholds, our team is ready to help.

Your clear path to compliance starts here.

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This article provides general information and should not be considered specific tax advice. Consult with a qualified tax professional regarding your particular situation.