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Expat Tax Essentials
For Americans living overseas, tax season can be a difficult time. Fortunately, the IRS lets most expats extend their filing deadline. This helps ease the burden of filing while abroad. So what expat tax extensions are available—and how can you use them? Here’s what you need to know
Yes. Every US citizen is required to file a tax return regardless of where they live in the world. However, by using expat tax benefits such as the Foreign Earned Income Exclusion, most Americans living overseas are able to erase their tax bill entirely.
The IRS does not grant extensions for paying your taxes, so it’s important that you have enough money set aside to pay your taxes by the April 18th deadline in 2023.
Regardless of where you live in the world, all Americans get an automatic two-month extension to file their tax returns in April (this doubles the original deadline from April 18th to June 15th in 2023).
Form 4868 Needs to be Filed by June 15th to extend to the October tax deadline
The due date for filing your expat tax return is the same as it would be for any other American citizen. Most years, the filing deadline is April 15th, but in 2023, that date has been extended to April 18th
There are a few expat tax extensions available. Let’s look at the options.
If you live outside the United States on the annual tax filing deadline, you have an automatic two-month extension. Since the due date for 2023 is April 18, that would mean an automatic extension to June 15th if you miss the initial deadline.
If the automatic two-month expat tax extension doesn’t give you enough time to prepare your taxes properly, you can request a further extension. This extension moves the deadline six months beyond the original deadline, extending it to October 16, 2023.
To request this extension, you have to file IRS Form 4868 before June 15th of this year.
For most Americans living abroad, the six-month extension (October 16th) should be sufficient. However, if you still need more time after that, you can request an additional two-month extension. In 2023, this would give you until December 15 to file.
To request this extension, you must write a letter outlining your justification for the additional two months, then mail it to the IRS by October 16. If your request is approved, you won’t receive a notification from the IRS—so no news is good news.
This is the final expat tax extension available. Once the December 15 deadline has arrived, you will not be able to request any further extensions.
Learn where the best tax havens are, common traps, and ways to save money on your US expat taxes.
One important aspect to understand about expat tax extensions is that they do not extend the deadline for paying taxes; they only extend the filing deadline. If you owe money, you will have to pay it by April 18th, 2023-even if you receive an extension.
Of course, since you haven’t filed yet, this will require you to estimate what you owe. If you aren’t sure what your tax liability will be, consult an expat tax professional to help you make a reasonable estimate. It’s always better to be safe than sorry—especially when the IRS is involved.
Failing to file or pay your taxes will generally result in penalties. Let’s look at the details for each.
If you fail to file your expat tax return by the appropriate deadline, the IRS may impose a penalty of 5% of any unpaid taxes per month overdue. The maximum penalty is 25% of the total amount of unpaid taxes. In addition to this, your unpaid taxes will begin accruing interest as soon as the April due date has passed.
If you file your expat tax return but fail to pay the full amount you owe, the IRS may impose a penalty of .05% of any unpaid taxes. The maximum penalty is 25% of the total amount of unpaid taxes. You will also accrue interest on the taxes you owe.
If you failed to file or pay your expat taxes because you were unaware that it was required, don’t panic. The IRS provides a tax amnesty program called the Streamlined Filing Compliance Procedures that might allow some Americans living abroad to come into compliance without facing any penalties.
Expats with a combined total of at least $10,000 in non-US bank accounts must report this by filing FinCEN Form 114, better known as FBAR. (This applies whether the money is deposited in a single account or spread out over several.)
If you are required to submit an FBAR, you must file it electronically using the FinCEN BSA E-Filing System. The standard due date for the FBAR is the same as your tax return (April 18, 2023). However, if you miss that deadline, there’s an automatic extension to October 16. You won’t even need to file a request.
Failing to file an FBAR can result in severe penalties. If your failure to file is considered non-willful, the annual penalty is $10,000 per account. If your failure is considered willful, the penalty is $100,000 per account per year or 50% of the total amount in a given account, whichever is greater.
Americans living overseas can use Form 2350 to request a filing extension if more time is needed to qualify for the Foreign Earned Income Exclusion.
We hope this guide has helped you understand the expat tax extensions available for Americans living overseas. If you’d like help with your expat taxes, we’d be happy to lend a hand.
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