US IRS rules, regulations and laws, for US Citizens, Americans, green card holders, and nonresidents living abroad or moving to the US or out of the US.... valuable information on IRS rules concerning U.S. expatriates and their tax returns, and tax planning.... by an experienced International Tax Attorney
Foreign owned US disregarded entities (LLCs) must now file form 5472 and report on their assets and activities. Previously this was not a requirement and a a nonresident individually owned US LLC with only income from outside the US did not in many situations have to filed anything with the IRS. The penaltty for not filing this form is $10,000. Read more below.
Not everyone is required to file a tax return. The requirement to file depends on a person’s income, filing status, age and whether they can be claimed as a dependent on someone else’s return. Even if you live and work abroad you must file a US tax return even though you earn nothing in the USA. Anyone not sure whether they need to file a return should see Do I Need to File a Tax Return or refer to Publication 17, If you are an expatriate read publication 54. Your Federal Income Tax for Individuals,on IRS.gov.
Extensions of Time to File
Taxpayers who are not ready to file by the deadline should request an extension of time to file. The deadline for thos living in the US is April 18 and if you live and work abroad June 15th. An extension using form 4868 gives the taxpayer until Oct. 16 to file but does not extend the time to pay. Penalties and interest will be charged on all taxes not paid by the April 18 filing deadline (and this includes expatriates even though their return is not due until June 15th. Expatriates can by letter secure an additional extension after applying for a regular extension until December 15th. They can also extend beyond that time using IRS form 2350 if they need additional time to qualify for the foreign earned income exclusion physical presence test.
IRS will automatically process an extension of time to file when taxpayers select Form 4868 and they are making a full or partial federal tax payment using IRS Direct Pay, the Electronic Federal Tax Payment System or by paying with a credit or debit card by the April due date. There is no need to file a separate Form 4868 extension request when making an electronic payment and indicating it is for an extension.
Taxpayers also can complete and mail in Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to get a six-month extension.
Taxpayers Who Can’t Pay
Taxpayers should file by the deadline, even if they can’t pay, or pay as much as possible and ask the IRS about payment options. By filing a tax return, even without full payment, taxpayers will avoid the failure-to-file penalty. This penalty is assessed when the required return is not filed by the due date or extended due date if an extension is requested.
The failure-to-file penalty is generally 5 percent per month and can be as much of 25 percent of the unpaid tax. The penalty for returns filed more than 60 days late can be $205 or 100 percent of the unpaid tax.
The failure-to-pay penalty, which is the penalty for any taxes not paid by the deadline, is ½ of 1 percent of the unpaid taxes per month and can be up to 25 percent of the unpaid amount. Taxpayers must also pay interest on taxes not paid by the filing deadline.
The IRS keeps secret what could cause your return to be audited (other than computer audits caused by omission of w2, 1099 or other items reported to the IRS separately from your return). However, after over 30 years of preparing tax returns and observing the results it does seem clear that extending your tax return using Form 4868 does appear to reduce your chance of audit.
Several years ago an IRS agent confidentially to us that returns are audited in the order they are picked for audit (filing early or on time would cause your return to be picked first) and those filed later under extension are not as likely to be audited because the limited audit staff might not get around to auditing those returns filed undertension because they are busy with returns filed earlier in the year.
If live and work abroad, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($92,900 for 2011, $95,100 for 2012, $97,600 for 2013, $99,200 for 2014 and $100,800 for 2015). In addition, you can exclude or deduct certain foreign housing amounts.
Pay received as a military or civilian employee of the U.S. Government or any of its agencies
Pay for services conducted in international waters (not a foreign country)
Pay in specific combat zones, as designated by an Executive Order from the President, that is excludable from income
Payments received after the end of the tax year following the year in which the services that earned the income were performed
The value of meals and lodging that are excluded from income because it was furnished for the convenience of the employer
Pension or annuity payments, including social security benefits
Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax. Also, the foreign housing deduction – instead of a foreign housing exclusion – may be claimed. Unless the country you work in has an agreement with the US Social Security Admnistration you will have the pay US self employment tax (social security plus medicare) on your net profit. The foreign earned income exclusion does not apply to the self employment tax.
Figuring the tax: Beginning with tax year 2006, a qualifying individual claiming the foreign earned income exclusion, the housing exclusion, or both, must figure the tax on the remaining non-excluded income using the tax rates that would have applied had the individual not claimed the exclusions.
Need more information or wish to discuss your situation, or need help with the preparation of your expat tax return or catching up for past unfiled years, then email us at email@example.com or go to our website at www.taxmeless.com for more information. We have been assisting expats with their US taxes for over 30 years.