Filing Late? What You Can Expect

You just moved to a new country and you are so excited to build your home. A couple years in and you realize in a conversation with a friend that you have still have to file taxes. If you find yourself in a situation like this where you are going to be filing late as an expat, do not worry! You are not alone. It is best to file as early as you can to avoid any fees and consequences. However, in the event that you do file late than you must be aware of the potential fees, penalties and risks of noncompliance that you may face.

Extension Opportunities for You

It is important for you to know the extension opportunities that are available to you. The deadline for filing taxes is April 15. If you live and work outside of the United States and are required to pay taxes then the IRS will grant you an automatic two month extension. This extension is to June 15. Sine it is automatic you won’t have to apply for it but you will have to submit a letter along with your tax returns in June stating why you qualified for the automatic extension.

Now, if you need more time to file your tax returns then you can file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This will give you until October 15 to file.

Consequences of Filing Taxes Late

More Wait, More Interest

So you’ve filed your taxes late and you notice that interest has already started accruing based on the tax you owe. This is a result of missing the deadline in April. Even if you do qualify for both extensions, June 15 and October 15, the tax you owe will accrue interest.

The interest rate for individual tax payers is equal to the federal short-term rate with an additional 3%. You can find the rate in their Newsroom, where the IRS announces a new short-term rate every three months.

Paying IRS Penalties

It is important to know the two kinds of penalties that the IRS can charge you.

  1. Failure to File – This penalty is charged if you file your return past the deadline (April 15). The penalty is equal to 5% of unpaid taxes for each month that exceeds the filing deadline which can lead to a maximum of 25% of your unpaid taxes due.
  2. Failure to Pay Penalty – This penalty is charged on all taxes due that are not paid by the filing deadline. The penalty is equal to an interest charge of 0.5% per month based on your total unpaid taxes. This can lead to a maximum of 25% of your total unpaid taxes. At least 90% of your taxes due is required to pay by the April 15 deadline regardless of the automatic two month extension. Failure to do so may result in the Failure to Pay penalty even if you do file your tax return before the deadline.

Losing Expat-Tax Benefits

Filing late might also cost you some of the benefits that you could’ve gained. As an expat, filing late means there is no guarantee of eligibility towards the Foreign Earned Income Exclusion. This exclusion could potentially save you over $100,000 on your tax bill. To claim this, you must file Form 2555. However, if you miss the deadline to file your taxes than the IRS could forbid you from using the Foreign Earned Income Exclusion (FEIE). Once this is revoked, you cannot claim it for at least five years. It is important for you to file on time because the FEIE can save you a lot of money per year.

Action Plans For If You Are Behind

If you do find yourself behind on tax returns, the IRS has programs in place for you to get caught up. There are 9 million expats or international filers globally, the likelihood that you are not alone this are pretty high. To your benefit, the IRS has implemented a program in place for expats did not know they had to file. You may be a candidate for Streamlined Filing Procedures— this will help you get caught up and not worry about any penalties or consequences that can happen as a result.

We urge you to contact our team of professionals to help you get assisted and understand the best solution for your circumstance!

Contact us today to get the help you need!

We are experienced tax associates who have years of experience who desire to help you understand and find the best solution for you. Don’t hesitate to reach out to us!