If you are a U.S. taxpayer living outside the country and frantically working to meet this year's April 18 tax-filing deadline, take a breath. Then mark your calendar for June 15.
The Internal Revenue Service grants taxpayers who are overseas, including members of the armed forces stationed abroad, and automatic two-month extension to file.
You don't have to send in Form 4868 to get it the extra filing time.
Note, however, that this automatic extension to file is just that, an extension to file. If you owe tax for the 2021 tax year, you must pay it by this year's regular April 18 Tax Day, or Uncle Sam will start adding interest, currently at a 4 percent rate compounded daily, to your bill.
But at least you won't face any late-payment penalties.
Taxpayers who qualify for the postponement: The extension is provided to American citizens and resident aliens who live and work outside the United States and Puerto Rico.
As noted, that covers members of the military who are posted outside the United States and its nearby island territory, and who don't qualify for the longer combat zone extension.
For married taxpayers who file a joint return, either spouse can qualify for the automatic extension. However, if a married couple opts to file separate returns, this automatic filing extension applies only to the spouse who qualifies.
Income considerations and tax breaks: Generally, all U.S. taxpayers' income regardless of where in the world a person makes or collects it is subject to federal taxation.
You might be able to exclude most or all of your foreign-earned income thanks to the Foreign Earned Income Exclusion, or FEIE. This tax break allows those who meet certain requirements to legally avoid paying U.S. tax on some of their foreign wages. For the 2021 tax year, that earnings exclusion amount was $108,700. For planning purposes, it's $112,000 for 2022, thanks to an inflation adjustment.
You also might be able to use any taxes you paid to a foreign country to offset your U.S. tax liability. This is done one of two ways.
There's the Foreign Tax Credit, which could substantially reduce or eliminate U.S. tax liability. Here, if you paid or accrued foreign taxes to a foreign country or U.S. possession and are subject to U.S. tax on the same income, you may be able to claim a credit against your U.S. taxes.
Or you might opt to claim those foreign taxes as an itemized deduction on Schedule A.
A tax credit usually is the preferred tax break since it is a dollar-for-dollar offset of any tax you owe. But to be sure, figure your tax both ways, running the numbers for the credit and deduction. Then complete your tax return the way that benefits you most.
And do so by June 15, which is this weekend's By the Numbers figure. Or join the rest of the millions of U.S. tax procrastinators by submitting Form 4868 by that day to get until Oct. 15 to finish your filing.
You also might find these items of interest:
- U.S. expatriations dropped dramatically in 2021
- 2021 housing cost tax break amounts for U.S. expatriates
- April 18 also is deadline to file FBAR foreign assets report
- SCOTUS refuses tax-related passport case, letting the travel document revocation law stand