We get it… mid-April comes around a lot faster than you might expect! Nevertheless, April 15th is the primary tax deadline for Americans living stateside and abroad alike, and it’s best to file as early as possible to put your mind at ease and avoid filing taxes late. In this post, we’ll discuss why that is.
Before we even begin talking about filing taxes late, it’s important to know that you as an expat have options to extend your deadline!
As a taxpayer whose residence and main place of employment is outside the US, the IRS grants you an automatic two-month extension that you don’t have to proactively apply for. It’s important to note, however, that you will need to attach a statement along with your submitted tax return in June explaining why you qualified for the automatic extension.
If you expect that you’ll need even more time than that, filling out Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, will give you until mid-October to file your return.
Consequences of Filing Taxes Late
If you end up filing taxes late for any reason, you may end up facing penalties and losing benefits related to your foreign income and assets.
First, there are two penalties that the IRS assesses for filing taxes late. There is the Failure to File penalty, which is a charge if you were to file your actual return past deadline. Normally, this penalty is 5% of unpaid taxes for each month beyond your filing deadline up to a maximum of 25% of your unpaid taxes due.
There is also the Failure to Pay penalty, which is levied on all taxes due that are not paid by the filing deadline. This penalty is normally an interest charge of 0.5% per month on the basis of your total unpaid taxes. This penalty can continue until it reaches 25% of your total unpaid taxes.
It’s important to note here that at least 90% of your expected taxes due must be paid by the mid-April filing deadline even if you are planning on filing taxes late via the automatic two-month extension. Otherwise, you may face a Failure to Pay penalty even if you file your return on time. In most cases, we actually find that expats do not owe taxes due to foreign tax credit and foreign earned income exclusion, but just in case, it’s good to file by April or file an extension until October, just to have peace of mind that you won’t have to pay penalties.
What may be perhaps more of an issue with filing late taxes are the privileges you as an expat might lose.
For expats filing late taxes, there is no guarantee that the Foreign Earned Income Exclusion – which allows you to exclude over $100,000 of foreign-earned income from your tax bill. Claiming this exclusion requires that you file Form 2555 with your tax return in a timely manner. Without this, the IRS reserves the right to revoke your right to the FEIE, and once revoked, you cannot claim it for at least five years thereafter. The FEIE can save you thousands per year in taxable income alone, so it’s definitely a benefit you want to keep!
It’s Good to Stay Current
Of course, the best way to avoid all these potential penalties is to stay compliant and file your tax returns in a timely manner each year. That said, if you do find yourself falling behind and filing taxes late, you still have options!
The IRS has programs in place to get caught up, especially for expats who did not know they needed to file. If you are just 1 year late, then it’s better to file as quickly as possible. If you were unaware you needed to file and are several years late, you may be a good match for the Streamlined Filing Procedures. It’s better to get caught up with the IRS late than not at all, and it’s best if you consult a registered professional to help you understand how best to go about it.
Have Specific Questions Related to Your US Expat Tax Return?
We can help! Our dedicated team of CPAs and IRS Enrolled Agents have specific expat tax expertise to help Americans abroad navigate their US taxes in a way that makes sense for their individual situation – Get started today.
Originally published in 2017; updated April 8, 2018.