Posted by Dennis Jao

What To Avoid As An International Taxpayer

What To Avoid As An International Taxpayer

While filing income tax can be difficult for expats, we have good news. Extensions are available for your foreign tax return, and some are even automated! As an American, you're used to factoring in the April 15th deadline into your calendar at the end of the year, though this year the Tax filing deadline has been moved to May 17th, due to the ongoing Pandemic, but those living overseas need to consider more data for an expatriate tax extension.


Automatic extension until June 15th for out of country tax

If you live abroad, you automatically receive a tax extension of more than two months to file your U.S. tax return, which expires June 15th. This applies as of April 15th if you are a resident, have your main place of business or served in the military/naval service, outside the United States and Puerto Rico.

It is necessary to note that the automatic extension does not apply to you if you are currently residing in the United States. Your tax return and all payments due must, usually, be filed by April 15th.


Request an extension until October 15th

However, if you are not ready to apply by June 15th, you can request another extension by completing Form 4868 in a timely manner with the IRS. The deadline would therefore be October 15th.


Additional U.S. tax extension until December 15th

The last option available is an extension that would further extend the tax deadline to December 15th for expats. The process for applying for this additional U.S. tax extension involves sending a letter explaining why you still need two more months to complete your overseas tax return. This document must be submitted to the IRS by October 15th. At that point, the IRS would have approved the extension; however, you will not be notified. The Internal Revenue Service does not send confirmation of approval. Therefore, in order to keep records, you will need to keep proof that you sent the letter.


On the other hand

If you are in debt on your returns, the payment deadline is, usually, April 15th, regardless of deposit extensions. From this date, interest will be calculated on the sums due, even if the declaration of income abroad will be completed within the time limit. Failure to comply with the applicable extended deadline may result in penalties for non-application and payment, in addition to interest due.

Fortunately, most expats owe nothing in the United States, but if you're one of the few that does, you need to pay by the April deadline to avoid accruing interest. A good rule of thumb is that if you owed your taxes last year and your situation is similar this year, you are likely to owe them again and need to make a payment to be safe.


Sanctions, interest rates, and extensions

The penalty for not submitting the return is 5% for each month the return is late, up to a maximum of 25%, depending on the filing date. The fine for non-payment is based on the amount owed and is 0.5% for each month in which the tax is not paid in full. Finally, interest is accrued daily on the amount based on the IRS interest rates, set quarterly for extension rates.

There are also penalties for non-compliance with estimated payments during the year. Therefore, if you know that your income will be subject to income tax in the United States, we recommend working with an expatriate tax professional to calculate your taxes and prepare your estimated tax payments accordingly.


And the FBAR?

The FBAR (Foreign Bank Accounting Report) is a must filing for anyone in the United States with combined overseas account balances over $10,000. The deadline for the FBAR is April 15th, with an automatic extension until October 15th. There is also a penalty for non-compliance with the FBAR. The civil penalty for each unintentional violation is $10,000. However, suppose the violation is found to be intentional. In that case, the fine will be greater than $100,000 or 50% of the account amount for each violation, and each year that no violation occurs is a separate violation. You can also face criminal charges.


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Dennis Jao
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