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 15th 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 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!