The rules for filing US taxes are the same whether you are living abroad or in the US. Even if you are a permanent citizen of a foreign country, you have to report your worldwide income. But, if you are living abroad and fail to file your US taxes, then you can slap with a penalty even if you do not owe taxes. Keep in mind that the failure to file penalty could be thousands of dollars or even Jail or imprisonment.
Major Consequences of Not Filing a US Tax Return
- Penalties
The Internal Revenue Service may impose a “Failure To File” penalty. Remember the longer you wait to file your tax return the more money you are going to be charged. Your bill could increase by 25% if you continue to delay.
- Impending Legal fees & tax accounting fees
Global tax attorneys/ lawyers charge over 200 USD per hour. Also, if the IRS mandates that you file8 years of returns, the potential legal fees alone could be devastating.
- Loss of refund
If you do not file a return, then you are going to losing your tax refund to the IRS. If you owe a refund then you will not be fined. You cannot receive a refund without filing a return. You have 3-years to file your tax return and get a refund. Afterward, the IRS is not entitled to pay you.
- Jail or imprisonment
Imprisonment is a real potential outcome. Jail or imprisonment does happen and most often to people with a higher profile or those who completely refuse to comply with IRS laws.
- EITC
Are you entitled to the EITC (Earned Income Tax Credit)? If so, you must file a tax return to claim your credit even if you are not needed to do so. You have to file your return within 3 years of the due date to receive the credit, you are required.
When to File?
If you are a US citizen living abroad, then you are allowed a 2-month extension to file your return. For a calendar year return, the 2-month extension is to June 15th. But, you must pay any tax due by April 15 otherwise interests will be charged from April 15th.
If you do not file in hopes that the IRS won’t care or won’t find you, you are wrong. With upgraded technology, the world is getting smaller and smaller and the inefficiency of The Internal Revenue Service doesn’t mean that they won’t catch up to you, it could take them a year or two but surely they will catch you. In the meantime, interest and penalties are being increased.
The IRS does take filing US income tax for us citizens living abroad very seriously. Also, the system, cross checks W-2 statements, Information Returns Program (IRP) and 1099 reports against filed returns. In case they cannot find a match, they will immediately begin a Taxpayer Delinquency Investigation and they will finally locate the individual who has failed to file his or her tax return.