For many taxpayers, filing and paying taxes is a time of the year that they dread. The individual may dread tax time for a variety of reasons, but the most common reasons for uncertainty and anxiety regarding taxes is often related to accuracy-related fears. Taxpayers may worry that they have failed to file accurately, have not paid their full tax burden, or have otherwise made mistakes or errors that can lead to significant penalties and interest. For taxpayers who live outside of the United States as American expats, these worries are often amplified due to the multitude of complex filings that many expatriates are required to file.
Thus, it is fairly common for many taxpayers to file for an extension. By filing for an extension taxpayers can give themselves significantly more time to file their taxes. This can provide momentary relief from the stress and anxiety of having to file immediately. However, you will still need to address the tax issues you faced and may face additional complications if you had a duty to file FBAR and have yet to do so.
When Must I File My Taxes If I Filed for an Extension?
Taxpayers who are living abroad can qualify for an automatic extension even when they do not take any action. That is any U.S. taxpayer who is living abroad or in the military on active duty outside of the U.S. receives an automatic two-month extension of time to file taxes. That means most expats aren’t’ required to file until June 15 of the tax year. However, June has come and gone and taxpayers who did not file for an additional time are now delinquent in their filing obligation. However, taxpayers who filed Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return prior to the automatic two-month extension have an additional extension to October 15.
However, it is essential to note that in most cases an extension of time to file taxes is not equivalent to an extension of time to pay. Thus, if the taxpayer filed Form 4868 for an automatic extension and did not make an estimated tax payment, he or she may be subject to penalties for an underpayment of tax. Working with an experienced tax lawyer can help you plan for tax obligations and avoid paying additional penalties and interest on top of the taxes that are legally owed. If you have not yet filed your taxes, we can assist you in meeting your obligations as a taxpayer or correcting past mistakes to come back into compliance with the law.
What if I Filed for an Extension but Didn’t File FBAR?
If you filed for an extension of time to file taxes you may think that you have done everything required of you to maintain your current compliance. Unfortunately, many expats also have an obligation to make disclosures regarding offshore accounts and assets. One of these disclosure obligations is satisfied by filing a Report of Foreign Bank Accounts (FBAR).
The problem that is introduced when filing for an extension of time to file taxes when FBAR is also due is that the extension of time granted automatically or via a Form 4868 filing applies to taxes only. In fact, there is no way to file for an extension of time to file FBAR in 2016. (Note: Starting in 2017, taxpayers will be able to file for an extension of time to file FBAR.) Therefore, taxpayers who filed for an extension of time to file taxes and then failed to file FBAR are in violation of their FBAR disclosure duty. For even inadvertent nondisclosures, these individuals are technically subject to penalties that could include a fine of up to $10,000 for each year where the obligation went unsatisfied.
Failure to file FBAR can often be corrected if the taxpayer engages in one of the IRS’s voluntary disclosure programs. Both Streamlined Disclosure and the Offshore Voluntary Disclosure Program (OVDP) can correct FBAR errors. However, taxpayers should consult with an experienced tax professional prior to entering into either program.
CPA Handles International Tax Issues for Expats
CPA Ted Kleinman is proud to serve the expat community assisting with tax filings, offshore disclosures, and other international tax concerns. To see how Ted and U.S. Tax help can help you maintain or achieve tax compliance call Ted at (541) 923-0903 today or contact us online.