If you are a US taxpayer (citizen, Green Card holder or resident) living abroad, this time of year can be taxing in every sense.

Tax Filing Due Date

Individual Income Tax Returns are normally due on April 15th. However, if the 15th falls on a weekend or national holiday the deadline is extended. For 2023 the 15th fell on a weekend, and the following Monday was a Holiday in Washington DC, so the filing date for 2023 was April 18th.

Tax Return Filing Extension

If you are a US Taxpayer living outside the US on April 18th you receive an automatic extension for filing your Federal Income Tax return until June 15th this year to get that all-important documentation to the IRS.

If you are unable to file your return by the June 15th extended deadline you may request an additional extension through to October 16th and with IRS approval to as late as December 15th if necessary.

Penalties

The IRS imposes penalties for late filing, by extending your tax filing deadline you can avoid these penalties.

Tax Payments

The IRS imposes a penalty for late payment of the income tax you owe. While this penalty can be avoided by timely filing an extension you will owe interest on any late payment. And earlier this year, “borrowing” from the IRS became more expensive for late payers. In January, the Service announced that interest rates would increase for individuals to 7%, compounded daily. So, while you may be avoiding a penalty by using an extension, you are paying for the privilege of delaying payment from the April deadline onwards.

State Taxes

You may also owe State Income tax and have a tax return filing obligation either because you have income sourced from one of the US States, or because you are still treated as a tax resident of the State.

You will need to check the filing and payment deadlines for each state where you have a filing or payment obligation, as some States do not follow the filing/payment rules for Federal Income Tax purposes.

Tax Tips

To recap, here are some tax tips to consider for US Taxpayers:

• Extension to file does not avoid interest payments: 15 June is an extension to file returns, not an extension to pay what you owe, so the clock is ticking on 7% interest from the usual April deadline.
• Further extensions are available: Mid-June need not be the final cut-off before penalties are incurred – there is an opportunity to extend your filing obligation further, if there is a lack of available information.
• It pays to understand your tax liability: In good time before next year’s deadline, understand what your tax liability is, including all Federal, State and local taxes, and ensure you are saving the right amount throughout the year to pay your bill. Ideally, you will at least pay an estimated amount before mid-April to avoid interest payments.
• Beware the deadlines for State taxes: Do not overlook that there may be a different deadline for your State tax return(s). If a client has not informed us of state-sourced income in a timely fashion, then relying on the automatic extension to June could mean a missed deadline at the State level.
• Consider your children’s tax liabilities: Do they have any investments that need to be reported? A filing requirement will be triggered if there are capital gains in their names, for example. Incentivised schemes are available, which allow you to put funds in a pot tax-free, for example, if the money is used for education.
• Seek specialist US tax advice: Experience tells us that investing in expertise to help you file your US taxes is likely to save you handsomely in the long run.

The US tax system has caught out many US taxpayers living abroad, but it need not be feared. If you have a full understanding of your liability, maintain discipline with saving what you owe, and seek specialist advice when filing your returns, being a US Taxpayer living overseas does not have to give you a tax headache.

For further advice please contact us.