WHAT HAPPENS IF I AM LATE FILING TAXES?
As most people know, the tax filing deadline of April 15 has become a sort of anti-holiday. This is not a hard and fast deadline as there are a few exceptions. Generally speaking the April deadline applies to all U.S. citizens, resident aliens, and non-resident aliens with certain interests in the U.S. that create a tax reporting obligation.
If an American citizen is a resident of a foreign country, that person is entitled to an automatic two-month extension to June 15. This extension does not apply to Non-resident aliens with tax consequences in the U.S.
There are two methods for filing an extension to October 15 if the person hangs their hat beyond U.S. borders. The first method is by filing the typical Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (form 4868).
However, if you are living abroad you might use Form 2350 to ask for an extension of time to file your tax return, but only if you expect to file Form 2555 or 2555-EZ and you need the time to meet either the Bona Fide Residence Test or the Physical Presence Test to qualify for the foreign earned income exclusion and/or the foreign housing exclusion or deduction.
What is the Bona Fide Residence Test?
In order to qualify for filing form 2555 or 2555 EZ, one must satisfy the following criteria:
- A U.S. citizen who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return), or
- A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return).
What is the Physical Presence Test?
To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.
To figure 330 full days, add all separate periods you were present in a foreign country during the 12-month period shown on line 16. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. See Pub. 54 for more information and examples.
ARE THERE PENALTIES FOR FILING LATE?
Yes.
The IRS may charge a penalty for failing to file by the applicable deadline. If you owe taxes and fail to file by the applicable deadline, then the IRS may charge a penalty for failing to make timely payment. Regardless of the applicable deadline for filing, all owed taxes must be paid by April 15.
The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
The most the IRS will charge as a penalty per month is 5 percent even if you are at risk of both the failure to pay and the failure to file penalties.
You may be able to avoid the failure to pay penalty if you submit at least 90 percent of the tax due with an extension request. The remainder of the tax due must be paid by the extension deadline.
If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.
HOW DO I FILE AN EXTENSION?
There are two methods for filing an extension. Additionally, U.S. citizens who are outside of the country during the April 15 deadline are entitled to an automatic extension to June 15. However, they must include a statement with the return citing the availability of the extension.
The most common method for filing an extension is through Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.
If you are living abroad but are awaiting satisfaction of the time requirements for authority to file Form 2555 or 2555-EZ, you may apply for an extension using Form 2350, Application for Extension of Time to File U.S. Income Tax Return.
If you have any additional questions, or need assistance with preparing your taxes please click here.