Americans living overseas may not be aware of a key rule: all US expats are required to file a US tax return.
If you’re an American expat living abroad, Tax Day, June 15, 2022, is approaching fast. But, if you’re not quite prepared to file your tax return, you have some options. While you can get organized now to make filing a little smoother in June, if you need more time, you can request a tax extension.
Extensions for expatriates explained
Technically, every American expat already receives an initial automatic extension every year. While taxes are due mid-April for citizens living in America, expats living abroad receive a two-month extension, without having to file to obtain it.
With the June 15 deadline just around the corner, if you need a little more time to get your documents in order, you can request a tax-filing extension with the IRS.
Reasons for filing an extension
There are many reasons why you might want a little extra time to file your tax return. For expats, here are some of the common tax scenarios where it may make sense to file an extension.
1. You had a child in 2021 and are waiting on their Social Security Number
If you had a baby overseas last year, you may not have all of their US documentation yet – like their Social Security Number. Since children of US expatriates are considered American citizens, this means you may be eligible to claim the Child Tax Credit which is a partially refundable tax credit for families with qualifying children.
To take advantage of this provision, you may need to file a tax extension, since you’ll need a US Social Security number for your child. Receiving a Social Security number while outside the country can take time, so filing an extension can help ensure you receive your full refund, once you have your paperwork ready.
2. You have foreign investments
For expats with investments in foreign accounts, filing your tax returns can be more complex and require more time. While US investment companies deliver your yearly summaries and statements ahead of the tax deadline, foreign financial institutions may not provide you with the forms you need in time to file.
If you’re still waiting on investment paperwork, it may be smart to file an extension.
3. You’re missing tax documentation
When you live abroad, you may decide to work for yourself or contract with different companies throughout the year. For each of these jobs, you’ll need to compile 1099s to reflect your earned wages. But when you live overseas – for example, if you’re a digital nomad who moves frequently – it can take longer for this paperwork to make it to you. And in some cases, it may get lost in transit.
You can give yourself some breathing room to get your paperwork in order with a tax extension.
4. You weren’t aware you had to file US taxes
As a US expat, you may not be aware that you’re on the hook for US taxes. Many American expats may be behind on tax returns, not because of a refusal to pay, but rather because they were unaware of their US tax filing obligations at the outset.
If you fall into this category, the IRS offers a streamlined amnesty program to help expats catch up on their previous tax returns, while still letting you take advantage of any deductions or credits you may be eligible for. To qualify for the Streamlined Procedure, you’ll need to file your last three past due tax returns and the past six foreign bank and financial account reports (FBARs).
How to file a tax extension
You can request a tax extension with IRS Form 4868. As an expat, this will extend your tax return deadline to October 15th, 2022.
While filing this form is straightforward – you’ll need basic personal information such as your name, address, and Social Security Number – you will also need to provide an estimate of your tax liability. This means estimating the amount of taxes due if you expect any US taxes are owed.
You can fill out form 4868 and mail it to the IRS directly or request an extension through your online tax software. As a heads up, expats should know that some online tax software options in the US do not offer return services for US expatriates. In this case, working with a qualified tax provider who can help you maximize your tax deductions and reduce your tax bill is recommended.
If the October extension still doesn’t give you enough time, you can request one additional extension through December 15th, by sending a letter to the IRS with your name, Social Security Number, and reason for the extension.
A word of caution
While filing an extension to October 15th or December 15 does delay the filing deadline, if you owe taxes to the IRS they are still due on June 15th to avoid Failure to Pay penalties and interest. If your tax return is not yet prepared, it’s likely you don’t know exactly how much you owe the IRS either. That’s ok, as making a reasonable estimate of the amount due with your tax return and paying by June 15th will ensure you avoid penalties and interest. The estimate paid will be reported in your tax return, and when you do file, you’ll either pay more or receive a refund back depending on the final outcome of your return.
Bright!Tax is here to help!
Taxes can be complicated – particularly when living abroad. And if you aren’t aware of all of the credits and deductions you may be eligible for, you could end up paying more than you owe (or missing out on money owed to you!). Bright!Tax CPA can help you file an extension, answer any of your tax questions, and help you file your return when you’re ready.