A Look at Penalties for Not Filing your Expat Tax Returns

A Look at Penalties for Not Filing your Expat Tax Returns

The number one question that runs through the “expat mind” at tax time is: what happens if I don’t file my US taxes?  Would the IRS even notice?  What are the consequences if I get caught?  We are here to tell you what to expect.

Failure to File

Generally speaking, if you owe no tax there will be no assessed penalties or interest even if you file late.

If you owe tax, not filing by the deadline or the extension deadline, you will be penalized with a failure-to-file assessment which is 5% of the amount of unpaid taxes. Each month that the return is late you add another 5% to the amount owed, but it cannot exceed 25% of the amount unpaid tax.

Not Paying your Taxes

If you filed your tax return on time but you could not pay your taxes, the assessed penalty is .05% monthly of the unpaid amount not to exceed 25% of the amount owed.

If you wish to make a payment arrangement with the IRS, the process is usually pretty user friendly, but penalties and interest still accrue until the debt is paid in full.

As a US Expat you will get a slight break if you pay your tax by the June 15 due date.  From the period between April 15, when the tax is due and June 15, you will be assessed interest only if you pay the balance in full by the June due date of the return.

If you are a self-employed  or owe more than $1,000 of tax, you must pay quarterly estimates that cover your prior year’s tax liability. Neglecting to pay estimates will mean immediate assessment of penalty and interest even though you may pay all of your tax by the April 15^th due date.

If you need to file a State income tax return, most follow the same rules as the Federal.    Since each State can be a little different, once we start your Federal return we will inform you of any State requirements at that time.

Non Filing American Expats

Not filing your tax return can lead to criminal charges! If you are afraid that you owe the IRS money and do not want to file because of it, we advise you to rethink your position.  In addition, if you wait and the statute of limitations for the foreign income exclusion is passed, you could find yourself paying a lot of tax that you would not have owed had you filed on time.

All refunds are waived on returns filed after 3 years from the due date.  So, if you have money coming back be sure to file within that 3 year time frame or lose it!

The kinder, friendlier IRS is there to help you by offering extensions, payment arrangements, and offers in compromise.

The IRS

The days of hiding from the IRS are slowly coming to an end! With global technology and the new foreign bank disclosure rules it will be easier for the  IRS to contact you.

If your tax situation is out of hand …we’re here to help.  Find us before they find you!

Foreign Accounts Tax Compliance Act (FATCA)

Foreign Accounts Tax Compliance Act (FATCA)

In 2009, Swiss banks reported earnings to all American Citizens with offshore accounts.  As a result, UBS paid $780 million to the Internal Revenue Service.  Since then, more international banks have provided income information about American Citizens and Green Card Holders with foreign accounts to the IRS than ever before. If you have numerous years of unfiled U.S. Expat taxes and/or have foreign accounts that had a balance of over $10K that you have not reported, you will want to catch up and file!

The IRS and Department of Justice have been working hard at finding US citizens who have ignored their filing responsibilities. As a result, they have released a number of amnesty programs that are available for you if you are not in compliance with the IRS or FATCA regulations. At this time, coming forward can help you since the amnesty programs offer lighter consequences than if you get caught by the IRS.

All foreign financial accounts with a $10,000 USD balance at any time during the year should be reported on Form TD F 90-22.1. The statute of limitations on the filing of this FBAR (Federal Bank Account Report) is six years, whether or not the account is still open.

Reporting your Worldwide Income

All U.S. Citizens and Green Card Holders must report all of their worldwide income to the IRS. There are many tax benefits and deductions available to American expats so that you are not subject to double taxation. In order to receive these benefits, you must file your tax return!

Foreign Bank Accounts Reporting (FBAR)

All foreign financial accounts with a $10,000 USD balance at any time during the year should be reported on Form TD F 90-22.1. The statute of limitations on the filing of this FBAR (Federal Bank Account Report) is six years, whether or not the account is still open.  The FBAR is due June 30.

Statement of Foreign Financial Assets

New for 2011, is Form 8938: Statement of Foreign Financial Assets. Use this form if you have offshore assets valued at $200,000 or more in total at the end of the year or $300,000 for single filers. Joint filers use this form if the balance at the end of the year is $400,000 or $600,000 at any point in the year.

Voluntary Disclosure

Voluntary disclosure programs are available that enable you to catch up with missed filings and unpaid taxes with limited penalties.  If you are in that situation, give us a call to discuss your options.

Make sure you take advantage of every program there is for American Expats that can help you with your taxes. If you need help with your next move, do not be afraid to contact us, we are here to get you on the right track!