How to Avoid Late Tax Payments and Filings - Expatriate Tax Returns

Expats are not exempted from paying U.S. taxes. To avoid late tax payments, knowing which forms to file.

If you're an American citizen living outside the United States, then being away from your home country does not exempt you from paying your taxes. The U.S. is one of the two countries that impose citizen-based taxation instead of the geographical location. This means that expats are still within the U.S.'s grip wherever they may be based and are subject to tax requirements on their worldwide income.

Some do not pay Expatriation Tax returns due to the Foreign Tax Credit (FTC) benefits and Foreign Earned Income Exclusions (FEIE). However, it is still imperative to file annual taxes if your gross worldwide income exceeds the filing threshold.

Main Forms for Expats

 
The tax laws for U.S expatriates are the same as Americans living in the U.S with the same income tax rates. However, the Internal Revenue Service (IRS) has provided options for expats to avoid double taxation. You can either use FTC as a tax credit against U.S. taxes owed, exclude foreign earned income through FEIE, or use a valid tax treaty to exclude other income types. 

It is good to know that certain exemptions and deductions reduce the amount of tax to pay to ease up your worries. Some incomes eligible for exemptions are active incomes, which you receive either as a self-employed worker or from an employer. 

Expats who want to apply for the exclusion must pass the IRS' two residency tests: Bona fide Resident Test, which requires expats to live like a bona fide resident of another country for a considerable amount of time, and the Physical Presence Test, which requires them to spend 330 days outside the U.S. Despite these exceptions, the approval of the IRS is still on a case-to-case basis, so meeting the above standards doesn't guarantee an exception.

An important factor depends on your Form 2555 or FEIE. The FEIE allows qualifying expats to have a deduction of $107,600 from their U.S. taxable income. If you have low to no income tax in your current country, have minimal US-sourced income, or do not have children registered for U.S. Social Security Numbers, then you can file this form. 

Form 1116 or FTC is another benefit for U.S. expat payers. You can file it to prevent double taxation since you can re-use the dollar or euro that you pay in the host country's income taxes as a credit against your U.S. Tax liability. 

Another is Form 8833 for Tax Treaty Benefit, which depends on the tax treaty between the U.S and your host country. 

Penalties and Consequences for Filing Late


U.S tax rules may be overwhelming at first, especially that inevitable repercussions and penalties will be issued if you fail to file correctly or on time. The FATCA or Foreign Account Tax Compliance Act is a law enforced to promote tax compliance for payers who own foreign financial assets and prevent tax evasion by those who have offshore accounts. 

Here are two of the penalties that the IRS provides for filing taxes late:

  1. Failure to File Penalty - This penalty is charged if you file the form past the tax return deadline, which is calculated based on the days past due. The penalty is 5% per month, with a total maximum penalty of 25%.
  2. Failure to Pay Penalty - This penalty is based on the amount of taxes that you failed to pay on the deadline. It has an interest charge of 0.5% for each month of unpaid taxes. 

The best way to avoid any penalties is to stay compliant in filing your taxes. It is also good to note that you can opt to extend your deadline if you have reasons for filing past due. The IRS can grant you an automatic two-month extension to mid-June of the current year if you are eligible.

You also have to submit a statement as to why you were qualified for the extension. If the two months aren't enough, then you may also fill out Form 4868 or the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return to give you until mid-October to comply. 

Tips to Stay on Track


1. Mark your calendar and check official websites for updates


Nothing is set in stone, so it is essential to regularly check official websites for updates on schedule, especially since deadlines are subject to change due to different reasons (i.e., a pandemic). Due to the corona virus, IRS has extended the deadline for Americans (to May 17, 2021) to give more time to prepare taxes during the pandemic. 

Regular extensions are provided to expats on their tax filings, which is on June 15. If you wish to extend your tax return due date, you can file the IRS Form 4868 to extend the deadline to October 15. To avoid having it slipped your mind, take note of the important dates and mark them on your calendar to serve as a reminder. 

2. Set aside money for payment


When it comes to tax payment, one of the reasons why a lot of taxpayers file their taxes past due is because their money came up short for tax season. To avoid this, you have to start setting aside money throughout the year and refrain from spending it for other reasons. 

3. Contact a certified tax preparer


Taxes are complex. If you have the resources to do so, it is better to hire a certified tax preparer with good credentials to help you prepare expat taxes and manage and understand how to best go about it. Their accounting experience and management will make payments and filings smoother. 

The Best Course of Action


Filing and paying taxes is everyone's responsibility. Not following through with this responsibility is an offense that entails a hefty punishment. Moreover, the government may not have enough funds to offer its citizens the help they deserve if there are people who choose to sidestep their duties. 

Understandably, though, taxes are taxing, especially if you know little about them or you're an expat. To understand how best to comply with your tax responsibilities, you must keep in mind the tax forms to file, the penalties to avoid, and these essential tips to help you stay on track.


Author Bio: 

How to Avoid Late Tax Payments and Filings - Expatriate Tax Returns
Randall Brody 
Assistant Marketing Manager

Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax return.