Dateline: Kuala Lumpur, Malaysia
Did you ever take a sick day when you were a kid?
Perhaps conveniently on the day a big assignment was due?
Chances are if your illness was going to keep you at home for a while, your parents had to stop by the school to pick up your homework, books, and other assignments because — while your merciful teacher understood that you couldn’t give your big report the day it was due — you still had to do it.
They would just extend the deadline a little bit.
Just for you.
The process for filing US taxes for anyone living outside the United States on April 15th works basically the same way. While everyone else has to file their taxes by April 15th (or the following Monday if the 15th falls on a weekend), the IRS gives those living overseas an extended deadline to deal with any of the possible obstacles that may pop up while trying to file their taxes from a distance. They get that it’s harder to do, but you still have to do it.
So, they extend the deadline a little bit.
Just for you… and every other US expat in the world.
In the case of US expats, the extended deadline to file your taxes each year is June 15th. The extension is yet another one of the many benefits of living outside the United States but, unfortunately, it’s not quite as simple as it sounds. Nothing ever really is with the US tax system.
You won’t have to file anything with the IRS to get the two-month extension — it’s automatic — but there are an awful lot of ifs, ands, and buts to the whole process that you’ll need to be aware of if you want to avoid paying interest on any taxes due or stiff penalties for missing the deadlines written in fine print.
The various due dates for all the federal, state, and local level tax returns you are liable to file in the US are too complicated to cover completely here. As always, I strongly recommend getting professional help with your expat tax situation. That said, the following are the most common filing dates you are dealing with on the federal level.
Filing Requirements – Who Has to File?
US taxpayers include US citizens, lawful permanent residents, and anyone who meets the substantial presence test. The rules for filing income, estate, and gift tax returns for US taxpayers are the same no matter where you currently live thanks to the US system of citizenship-based taxation on worldwide income.
For the 2017 tax year, you must file your annual tax return if your gross income from worldwide sources is at least the amount listed below for your filing status (as taken from the IRS Publication 54.)
· 65 or older
|Head of Household
· 65 or older
· 65 or older
|Married Filing Jointly||$20,800|
|MFJ – Not living with spouse at the end of the year||
|MFJ – One spouse is 65 or older||$22,050|
|MFJ – Both spouses are 65 or older||$23,300|
|Married Filing Separately||$4,050|
Gross income not exempt from tax includes all income you receive in the form of money, goods, property, and services – basically anything you can exempt under the FEIE and the foreign housing exclusion.
If self-employed, your gross income also includes any Profit or Loss from Business reported on the gross income line of your Schedule C or the Net Profit from Business reported on the Gross Receipts line of your Schedule C-EZ.
You should also take into account your foreign financial assets. If they are above the corresponding threshold for your status, you will have to file Form 8938 (more on FATCA in a minute).
The good news is that, if you are overseas, you are given the automatic two-month extension and can file any time up until June 15th without needing to worry about filing an official request with the IRS or receiving a penalty.
State Tax Returns
Most states will allow you to use the same extended deadlines allowed on the Federal level, but some states have different due dates so you should check your specific state guidelines. You’ll also need to determine which states will require you to file taxes there depending on the ties you have kept to the state like property ownership, a driver’s license, or having dependents who still live in the state.
How Living Abroad Changes Your Tax Situation
We talk a lot here at Nomad Capitalist about how you can reduce your tax bill substantially, and sometimes even to $0, by living outside the United States for most of the year. However, even if you cut your US tax bill down to zero, you still have to file your US tax return.
For those who are new to all the tax filing changes and benefits that come with living abroad, here is a quick overview with links to some of our more in-depth articles on the topics.
The Foreign Earned Income Exclusion (Form 2555) allows you to exclude a certain amount of your earned income from US tax. For the 2017 tax year (filing in 2018), that amount is $102,100. The exclusion only applies to earned income, so income from pensions, interest, dividends, capital gains, etc. cannot be excluded via the FEIE.
If you paid taxes to a foreign country and must pay US tax on the same income, you can either take a tax credit or an itemized deduction on the amount you paid. You can claim the itemized deduction on Schedule A, Form 1040 or the foreign tax credit on Form 1116, which allows you to subtract tax paid to a foreign country from your US tax.
However, if you choose to use the FEIE or the Foreign Housing Exclusion (discussed below), you cannot use the tax credit on the income you have excluded. Foreign tax credit laws are complex and you could risk losing access to the FEIE for up to six years if you use them incorrectly. This isn’t a tax strategy you want to try out on your own.
Foreign Housing Exclusion
The Foreign Housing Exclusion allows you to exclude housing expenses that result from living abroad such as rent and other household items.
If your move abroad is connected to your work and your moving expenses are directly tied to the income earned in the foreign country where you have relocated, you can deduct those expenses. However, if all or part of the income you earn at the new location is excluded under the FEIE, the moving expenses are not deductible.
There are many other factors involved with filing taxes abroad that make the situation incredibly complicated, from handling passive income to how to report the earnings of a non-US spouse to self-employment taxes. This is why you need to work with a professional well-versed in US expat tax.
One change that many people don’t take into consideration when moving abroad is that living overseas means you will have different filing deadlines. For the most part, the extended due dates are beneficial, but they can also be a bit confusing. Let’s take a closer look…
Filing & Payment Dates for US Expats
The following are the main filing and payment dates that affect US taxpayers living abroad:
January 31 – Quarterly Installment Payment
For self-employed individuals and others whose taxes are not withheld, tax payments are divided into quarterly installment. January 31st is the fourth quarterly installment payment for the previous tax year.
The other quarterly payments are made in April, June, and September. As the fourth quarter payment, if you have not already, January 31st is the final date to pay the entire amount of tax due for the previous year.
March 15 – Offshore Structures
March 15 is the due date for non-personal returns including foreign trusts as well as S-Corp and LLC tax returns.
A trust must file IRS Form 3520-A by March 15 of each year. If you are the grantor/settlor of an offshore trust or a beneficiary who received a distribution from the trust in the previous year, you must file IRS Form 3520.
US corporations must also file their US tax returns by March 15, this includes both US LLCs as well as S-Corporations.
If you file for an extension, the filing deadline for trusts, S-Corps and LLCs can be extended another six months to September 15, but you must file the paperwork. This extension is not automatic.
April 15 vs. June 15 – Payment vs. Filing Deadlines
Note: For all Americans living in the US, the filing date is usually on April 15th. However, for the 2017 tax year, the filing date is actually April 17, 2018, because April 15th falls on a Sunday this year and is followed by the Emancipation Day celebration in Washington DC on the 16th. The result is that this year’s Tax Day is officially on Tuesday, April 17th, 2018.
Since US expats can extend their filing deadline to June 15th, you may be wondering why the April 17th date even matters to expats. But it does!
While you can receive an extension for the filing deadline, there is no extension on the time when you must pay the taxes you owe. If you owe the US government any tax, you must pay the amount in full by April 17, 2018 (or April 15th in other tax years).
If you do not pay in April but do pay by June 15, you will not be charged the Failure to Pay Penalty, but you will be charged interest on any unpaid amount. Interest will begin to accrue starting April 18, 2018.
If you do take advantage of the June 15th filing deadline, you must attach a statement to your return stating that you have filed on the given date because of the extension. And, if filing by mail, as long as your package is postmarked or dated on or before the due date, it is considered to be filed on time.
October 15 – Six Month Extension
All Americans, whether they live abroad or in the United States, can file the IRS Form 4868 to request an additional extension of the filing deadline to October 15. Once filed, the IRS automatically grants the extension.
Again, the extension only moves the filing deadline and not the April tax payment deadline. You must send the payment with your 4868 request; if not, any amount due will accrue interest and you will be assessed more severe penalties for late payment after the extended June 15th filing date.
December 15 – Final Two Month Extension
If you cannot file by October 15th for some reason, you can apply for one final extension that will push the deadline to December 15th. To apply, you have to write a letter explaining why you need additional time and send it postmarked on or before October 15th to the following IRS address:
Dept. of Treasury
IRS Service Center
Austin, TX 73301-0045
One extremely valid reason to use this final extension is to qualify for the FEIE as a first-year expat. For example, if you moved overseas on November 1, 2017, you would qualify for the FEIE if you remained outside the US for 330 days before October 31, 2018… which would push your filing date past the October 15th extension. The IRS allows new expats to apply for this special extension so that they can take advantage of the FEIE.
FBAR Filing Deadline
The FBAR and FATCA reports that you must file are not necessarily in place so the IRS can charge you more tax, but as a way for them to know about any money you may have in foreign bank accounts, how it got there, and if it produces income via interest or capital gains.
The Foreign Bank Account Report (FBAR) has been in existence since 1972 and requires anyone holding an aggregate of $10,000 or more in foreign banks at any time during the tax year to report those holdings. The different types of accounts include savings, checking, mutual funds, trusts, business accounts, and brokerage accounts. You must report whether you own or have signature authority over any of these non-US accounts.
Since 2014, you must file the FBAR electronically through the BSA E-File System as Form 114. And, since 2016, you must file the report at the same time, but separate from your Form 1040. This means that all the same deadlines and extensions apply. If you live in the US, you must file the FBAR by April 15th, by June 15th (formerly June 30) if you live abroad, and by October 15th if you missed both of those dates.
Even if you do have foreign bank accounts, if the combined assets are less than $10,000 for the entire year, you do not have to file the FBAR at all. However, if you have not filed when you should have, you must file delinquent FBARs for each of the most recent six years under the Streamlined Foreign Offshore Procedures or face penalties.
FATCA Filing Deadline
Since 2009 when FATCA (the Foreign Account Tax Compliance Act) came into existence, the US has required that folks whose foreign financial accounts exceed a specified amount also file Form 8938. The different types of accounts you must report include bank accounts, foreign stock, and more.
As with the FBAR, your FATCA report must be filed at the time of your regular US tax return, extensions included. And, similar to FBAR, you only have to file if your accounts exceed the established thresholds. Those thresholds are:
|Status||File If Holdings Worth __ on the Last Day of the Year||File If Holdings Worth ___ Any Time During the Year|
|Living in the US – Unmarried or Married Filing Separately||$50,000||$75,000|
|Living in the US – Married Filing Jointly||$100,000||$150,000|
|Living Abroad – Unmarried or Married Filing Separately||$200,000||$300,000|
|Living Abroad – Married Filing Jointly||$400,000||$600,000|
Streamlined Foreign Offshore Procedures
The IRS is aware that not all US taxpayers understand or are even aware of the filing requirements for individuals living abroad. If you have non-willfully failed to file your US federal income tax returns, FBARS and/or FATCA reports on time, the IRS offers procedures by which you can file your delinquent returns without penalty.
To qualify for the Streamlined Foreign Offshore Procedures, you must be a US non-resident, meaning you did not have a US abode and were physically outside the United States for at least 330 days during the tax year in question.
When you file (the past three years for tax returns and the past six years for FBARs), you must submit a complete and accurate return and write “Streamlined Foreign Offshore” at the top of the first page of each return and information sheet. This is a critical step to ensure that your returns are processed correctly.
You must also fill out Form 14653 with an official statement explaining that you are eligible for the Streamlined Foreign Offshore Procedures, that you have now filed all missing returns, and that your failure to file was due to non-willful conduct. You must then sign the statement and attach a copy of it to each tax return and information return you submit. You do not have to attach a copy to your FBARs.
You must also submit any payment due and physically mail all documents to the IRS at the address below:
Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined Foreign Offshore
Austin, TX 78741
This address is ONLY for delinquent returns filed under the Streamlined Foreign Offshore Procedures. For all other returns, read below to know where to file.
Where to File
If you claim the FEIE, the foreign housing exclusion or deduction, or your tax home is in a foreign country, you must file your return using one of the following:
If you are requesting a refund or have not enclosed a check or money order:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
If you have enclosed a check or money order:
Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303
If your adjusted gross income is less than the established threshold, you can file your return electronically using the Free File Fillable Forms. For those whose income is greater than the established threshold, there are additional e-filing options that you can find here.
If you have a US bank account, you can pay via the Electronic Federal Tax Payment System (EFTPS). If your foreign bank has a relationship with a US bank, you can do a same-day wire transfer to the Federal Tax Collection Service. You can also send a check or money order payable to the United States Treasury for the full amount due or pay with a credit or debit card. You cannot send cash and should not attach the payment to your return.
How to Report Your Income (Currency)
When filling out your return, you must report all amounts in USD. If you received all or part of your income in a foreign currency, you must translate it from the foreign currency to USD. The IRS has no official rate and will generally accept any posted exchange rate that is used consistently, but if you do not have the information about the exact exchange rate that applies to your specific circumstance, you can do one of the following:
Use the yearly average currency exchange rate for all income that was received on a regular basis throughout the year. For all other income or paid expenses, use the spot rate from the day you received, paid, or accrued the item.
Consider Professional Help
There are numerous tax benefits to living abroad, including the extended deadlines for your US tax and other filing requirements. Those benefits do not, however, eliminate the need for professional help. In fact, if you wish to file correctly, the complexity of US expat tax will almost always require that you get professional help.
You do not want to take any unnecessary risks when ensuring that you are in tax compliance with the United States, especially if you are filing delinquent returns. If you would like help with your personal expat tax strategy, you can apply here.