What to Know About Filing Late Taxes as an American Living Abroad

US taxes are the responsibility of all American citizens, even those who live abroad. The US has a citizenship-based taxation system, meaning all US citizens need to file annually if they exceed a certain threshold. A late tax return(s) is not the end of the world, but it will come with IRS tax penalties. With that being said, this article will provide an overview of what a US expat needs to know when tax responsibilities go under the radar.

Key US Expat Tax Deadlines

Most Americans are aware of the April 15th deadline—also known as the payment deadline for owed taxes. April 15th is the standard filing deadline, but when living abroad, there are a few additional deadlines. As a US expat, there is an automatic two-month extension until June 15th, with the possibility of an additional extension for October 15th with Form 4868. Lastly, additional time beyond October 15th is needed; it is possible to file for December 15th, but it’s unpredictable whether it’ll be granted.

Please note that all extensions are only for filing US taxes, not paying any owed taxes. Owed taxes must be paid by April 15th to avoid IRS tax penalties.

Consequences of Filing Taxes Late

There are two common IRS tax penalties for missing a deadline: failure to file and failure to pay

The Failure-to-File penalty applies to those who file late or forget to submit an extension form. When this occurs, a penalty of 5% on unpaid taxes each month (a maximum of 25%) applies. Even if the deadline is missed by one day, there will likely be a penalty.

The Failure-to-Pay penalty applies to those who did not pay their owed taxes by April 15th. This penalty accrues 0.5% of the taxes owed per month until they are completely paid or reach 25%.

It is especially important for US expats to remember tax deadlines, as filing late could result in the loss of certain tax benefits, such as the ability to claim the First-Time Abatement. The First-Time Abatement is a chance to abate or relieve certain IRS tax penalties for first-time offenders.

Filing Late Taxes: The Streamlined Procedure

For those who haven’t filed since moving, there is a procedure known as the Streamlined Procedure. The Streamlined Procedure allows US expats to catch up on the last three years of tax returns and six years of Foreign Bank Account Reports (FBARs). Even if the US expat has lived abroad longer than three years, only the last three tax returns are required. This procedure also allows all qualifying expats to file free of IRS tax penalties!

Solutions for Paying Late Taxes

If paying taxes becomes a financial struggle, options include making partial payments. Partial payments help reduce IRS tax penalties, which are calculated based on the remaining unpaid balance. Paying even the smallest amount will help lessen the overall penalties. Taxpayers can even arrange a payment plan by submitting Form 9465.

Do US Expats Owe US Taxes?

Often, US expats do not owe US taxes because they qualify for tax credits, which lessen their tax liability to zero. You will not owe US taxes when you have zero liability. However, filing on time is important to ensure the correct usage of certain tax benefits, such as the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC).

The FEIE allows US expats to exclude up to $126,500, while the FTC allows expats to reduce their US tax liability with the amount paid to a foreign country. Both help to eliminate the potential for double taxation meaning you won’t owe US taxes.

It is best practice for US expats to file on time and claim the FEIE or FTC benefits. Filing on time will also ensure eligibility for future years.

Reminder: Even as a US expat living abroad, any owed taxes must be paid by April 15th, despite the two-month automatic filing extension.

MyExpatTaxes: Simple, Fast, and Affordable

MyExpatTaxes offers a fast and user-friendly way to manage expat tax filing, whether you’re catching up on past years or filing current-year taxes. Our software supports both do-it-yourself filing and expert guidance, making it simple to maximize tax benefits and avoid IRS tax penalties.

If you have any questions or need extra support, our team is ready to provide assistance. With MyExpatTaxes, you can stay compliant and handle your taxes efficiently, allowing you more time to enjoy life abroad.

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