Everybody knows that April 15th is the tax filing deadline in the United States. Many people ask, do I need to file a tax return by April 15th even if I live outside of the United States? If you live outside of the United States, your tax filing deadline is June 15th, not April 15th. To qualify for this, you simply need to write on the top of the tax return that you are living abroad and qualify for an automatic extension.
But do you need to file a tax return at all? In most cases, we advise people to file a tax return, especially if they are living overseas. The IRS website has different pages that can help you determine whether you need to file a tax return, but these pages miss crucial information for those living abroad.
Typically, a person who has less than $10,000.00 in wage income doesn’t have to file a tax return. However, a person who has a 10% or more ownership in a foreign corporation, or a person who is an officer in a foreign corporation, may have to file form 5471, and must complete a tax return to go with it. This will occur even if that person has less than $10,000.00 in income.
How many people in Costa Rica own an S.A. or S.R.L. corporation that exists only to hold a house, car, bank account, firearm, or other asset? It’s an incredibly common way to structure things here. If you are a U.S. citizen or permanent resident and you have a corporation to hold some personal property, you will probably have to file an income tax return. Luckily, you have a few months to get it organized for this year.
Many U.S. citizens living overseas have heard of the foreign earned income exclusion. This is a provision in the tax law that allows a U.S. citizen working abroad to exclude from their income up to $99,200.00 in earned income. Some people who are aware of this provision believe that if they earn less than this $99,200 exclusion amount, they do not need to file at all. Nothing could be further from the truth. In order to get the benefit of the foreign earned income exclusion, one must file their tax return along with form 2555. If you do not file the tax return with the supporting form, you can lose the benefit and owe tax to the U.S. on the income.
Self employed individuals also need to be careful. The ordinary income limit of $10,000.00 doesn’t apply to them. If you make more than $400.00 in self employment income, you must file a tax return. Self employed individuals must also be aware that that are required to pay self employment tax even if they exclude their self employment earnings from regular income tax.
There are many reasons that a U.S. citizen or permanent resident living abroad should file a tax return. Even if none of the above reasons apply to you, it may still be worth filing. This is because once you file a complete tax return, a three year countdown starts. Once that countdown is over, the IRS cannot go back and look into the tax return. However, if you never file a return or file an incomplete return, the IRS can investigate you for that year whenever they like, even fifteen or twenty years later.
Mr. Lindner is an Enrolled Agent, licensed directly by the United States Treasury Department to represent clients before the IRS.