See how to file your late taxes. Say you are an expat living off the grid in Africa, or smack in the middle of the Amazon or on a mountaintop monastery in Tibet and you have no access to radio, or to TV or (horror of horrors!) to the internet. If this is the case, it would be understandable if you missed all the notices and numerous mentions in the media reminding people of the June 15th U.S. tax filing deadline for expats (2 extra months than if you were living in the States). But now, you are back in civilization and you realize that the IRS will not necessarily care that you were incommunicado for months. No matter where you have been living, or what your reasons are for not filing on time, if you are an American citizen, you are expected to file your taxes just like everyone else.
Filing your income tax return after the deadline is a great example of that old saying “better late than never”; much, much better, in fact. Although the scary men in black from the IRS won’t necessarily appear at your door on June 16th with battering rams and arrest warrants, you have to be aware that not filing at all is a crime. However, you also have to be aware that filing late does carry certain penalties and that the longer you wait to file, the bigger the penalties will be. So to quote yet another old saying: “the sooner, the better!”
By filing late and paying your taxes late, you are guaranteed of being assessed a penalty of 5%/month (up to 25%) of your unpaid balance. You will also be charged a late payment penalty of up to 0.5%/month of your unpaid balance (up to 0.25%). Furthermore, you will be charged additional interest (recent rates have hovered between 4% and 8%).
As an expat you may owe taxes on your US tax return if your foreign income was more than what you are able to claim under the Foreign Income Exclusion, if part of your excluded income was unearned, or if you have other sources of income which put you over your exclusion limits.
By the way, it is also important to note that if your reason for not filing run more along the lines of not being able to afford the late penalties, it is still better to file and not pay than to not file at all. Also remember that if you missed the filing deadline but you do not owe any money or if you have a refund coming, then chances are you will not even be penalized for a late filing.
In rare cases, if you fail to file, the IRS may file a “substitute for return” in your name. If that happens, you will not receive any federal exemptions, expenses or credits. Furthermore, if a substitute for return is filed, you could incur a bigger tax bill than if you had filed yourself. If that bill is subsequently not paid, it could result in the garnishing of your wages or your bank account.
If you need more incentive to file even if the deadline has passed, you should know that as an expat, you may be eligible to receive a Foreign Tax Credit if you are also paying income taxes abroad. A part, if not all, of tax paid abroad can be subtracted from whatever you owe to the United States. In fact, you are very likely to end up not owing any US income tax at all.
Now, for the slightly worrying news. If you happen to have foreign investments that require a 1040 form and accompanying filings (forms 114, 5471, 8938, 8858, 926 or 8865, for example) you face much more serious penalties (upwards of $10,000) for not filing those forms on time, so it is even more imperative that you file as close to the deadline as possible. The IRS is much more likely to waive even $10,000 in penalty fees if they feel that missing the deadline was simply an oversight on your part and not purposeful negligence.
Filing your tax returns before the deadline is the best practice. Filing late, but not too late is so-so practice. Not filing at all and making it a habit to not file, is the worst practice of all. The further behind you fall in paying, the larger the interest charges and penalties will be. You will fall into a vicious circle of not filing because you are afraid of the penalties, and those penalties will continue to grow, making you even more afraid to pay, and so on…
So if you are back from Africa or the Amazon or Tibet, first get in touch with your friends and family to let them know you are alive. Then, as soon as you can, contact a professional tax specialist to help you complete your tax return for good old Uncle Sam. He will be very happy to hear you have not forgotten all about him.
