Tax season is a stressful time for many, but it can be especially daunting for U.S. expats living abroad. Navigating the complexities of foreign income, tax treaties, and deadlines can be overwhelming. If you’re an expat stressing about the upcoming October 15 tax deadline, you’re not alone—and we’re here to help.
The purpose of this article is to simplify the process for you. We’ll provide a straightforward, step-by-step guide on how to prepare your own additional extension letter to the IRS, effectively extending your filing deadline for your federal tax return to December 15. And the best part? If you find yourself stuck or in need of professional guidance, our firm offers this service absolutely free of charge.
So, let’s dive in and demystify the process, shall we?
WHEN ARE TAXES DUE WITH AN EXTENSION?
The regular deadline for filing individual income tax returns for U.S. expats is June 15. However, if you file for an extension, you will have until October 15 to submit your tax return. Additionally, you can file for a second extension that will extend the deadline to December 15.
WHY IT MATTERS
Missing the October 15 deadline can result in a late filing penalty, which is separate from any late payment penalties that may have started accruing from the original April 15 payment deadline. Here’s what you need to know:
Late Filing Penalties: The IRS imposes a penalty for filing your federal income tax return after the October 15 deadline. This can be as much as 5% of the unpaid taxes for each month your return is late, up to a maximum of 25%.
If you’re a US expat earning income abroad, it’s important to understand the Foreign Earned Income Exclusion (FEIE) rules and eligibility criteria. The FEIE allows eligible expats to exclude a portion of their foreign earned income from US federal taxation. However, failing to meet the eligibility criteria or violating the FEIE rules can result in hefty penalties and additional taxes owed. In this article, we’ll provide a comprehensive overview of FEIE rules and eligibility criteria for US expats, including information on how to apply, common mistakes to avoid, and additional considerations to keep in mind.
HOW MUCH INCOME CAN A US EXPAT EXCLUDE?
As of the tax year 2022, a US expat can exclude up to $112,000 of their foreign earned income from US federal income tax under the Foreign Earned Income Exclusion (FEIE).
WHO QUALIFIES FOR THE FOREIGN EARNED INCOME EXCLUSION?
To qualify for FEIE, US expats must meet certain eligibility criteria. The two main tests used to determine eligibility are the physical presence test and the bona fide residence test.
WHAT IS THE PHYSICAL PRESENCE TEST FOR FOREIGN-EARNED INCOME EXCLUSION?
The Physical Presence Test requires the taxpayer to be physically present in a foreign country or countries for at least 330 full days during a 12-month period. The 330 days do not need to be consecutive and can be spread out over the 12-month period.
If the taxpayer meets the Physical Presence Test, they may be able to exclude up to $112,000 of foreign earned income for the tax year 2022 from their US federal income tax return.
HOW MANY DAYS CAN AN EXPAT BE IN THE US?
The American Expat Financial News Journal reliably reports information about the “Name and Shame List”. The report generally includes information about the number of people on the list and people who are reported more than once. The report often attempts to determine whether those on the list are citizenship relinquishers or green card abandoners.
The purpose of this brief post is to explain the statutory basis for the reporting obligations, identify the relevant statutes and clarify some common misconceptions.
A summary of the analysis is that:
1. All individuals renouncing (whether “covered expatriates” or not) US citizenship during the relevant period are to be included on the “Name and Shame List”.
2. Green Card holders that are “long term” residents” are required to be included on the list
It is common knowledge that the lists contain many inaccuracies on the list.
Which statutes are relevant to determining the reporting obligations?
IRC 6039G – https://www.law.cornell.edu/uscode/text/26/6039G
IRC 877 – https://www.law.cornell.edu/uscode/text/26/877
IRC 877A – https://www.law.cornell.edu/uscode/text/26/877A
This post is based on my Quora answer to the question: “Do you agree with the policy of not issuing checks to US citizens who jointly file taxes with someone who has an ITIN?”
The Quora answer was rewritten with the generous technical assistance of CPA Olivier Wagner of 1040 Abroad.
Part I – Objective Analysis
This post focuses on the class of individuals entitled to relief. It does not discuss how the relief is administered.
The statute authorizing the relief is found in Section 6428 or Subtitle F (the Procedure And Administration section of the Internal Revenue Code). The following sections specify WHO is entitled to the relief:
TaxConnections is posting this thoughtfully written comment on an article titled “Treasury Exempts Applicable “Tax-Favored Foreign Trusts” From The Form 3520… And Therefore Form 3520A Requirement” written by John Richardson. Here is a recommendation for Treasury to consider as posted by a David Johnstone.
Excellent post. Based on my reading of the Revenue Procedure, as well as feedback from practitioners in the UK or Australia, I have grave reservations about the claim that this Revenue Procedure will help “many” Americans abroad. Perhaps this is an example of an attempt to simplify things from a legal perspective that in practice – once one does the math – may lead to greater complexity and help a very small number of people at best.
We bring your attention to the commentary on the post this week written by John Richardson of Citizenship Solutions in Toronto, Canada called “The United States Imposes A Separate And Much More Punitive Tax On U.S. Citizens Who Are Residents Of Other Countries”.
We appreciate the commentary to Johns post and ask our readers to add their own stories to educate the public of the impact of these laws have on dual citizens. The real financial impact is causing hardship and stress for many Americans who live and reside in other countries and have done so for years.
You can read the story and commentary at this link.
We continue to receive commentary on the article written by TaxConnections Member John Richardson of Citizenship Solutions. His blog post on USA Of The 21st Century Is Like Britain In The 19th Century has hit a nerve with many expatriates around the world. The blog post and the 120+ comments that follow explain what is happening to those who happened to be born here but do not live in the United States. There is more to learn that will leave you at the edge of your seats so stay tuned to this post.
Read this post that has 120+ comments and growing by the day and please forward to expatriates you know to add commentary.
Please add your commentary below to continue to educate others on the consequences of United States FATCA tax laws on your life.
Written By TaxConnections CEO, Kat Jennings
Do you want to take advantage of the Foreign Earned Income Exclusion, the Foreign Housing Exclusion or the Foreign Housing Deduction? As a U.S. citizen or Green Card Holder living abroad, you still need to file annual U.S. federal tax returns. There are many different options, which American abroad has in order to cut the tax bill. However, the 3 above-mentioned ones are based on Foreign Earned Income.
So what is a Foreign Earned Income?
It’s crucial to understand what FEI is for US expats. We prepared this easy infographic to provide more clarity on this topic. The definition by the IRS states that it’s income you receive for services you perform in a foreign country:
Check out the infographic below to understand the classification of types of income and what is considered to be NOT earned income. We also included what the IRS doesn’t count as a Foreign Earned Income.
If you’ve paid attention to the news lately, you’ve no doubt heard the term “negative gearing”. It has become somewhat of a political football – with the Liberal and National parties supporting current arrangements, while Labour intends to change it. But what exactly is negative gearing and how do the rules apply to Australian expatriates?
Negative Gearing 101 Read More
American expats are still required to file a US federal tax return to the IRS. As expats also have to comply with the tax rules in the country where they live, it’s counterintuitive but nonetheless important that they file US taxes too.
Taxing US citizens abroad, or Citizenship (rather than Residence) Based Taxation, dates back to the Civil War, but until recently the IRS was powerless to enforce expat taxes, so few expats filed.