TAXES
IRS warns millions of taxpayers of an approaching deadline that many are expected to miss
The IRS is warning millions of taxpayers about an approaching deadline that many are likely to miss, urging timely action to avoid penalties.
It’s crucial to note that more than eight million US citizens and green card holders live abroad, yet only a fraction, around 500,000, fulfill their tax obligations by filing a tax return with the IRS each year.
Who falls under this category of taxpayer?
The IRS employs the ‘physical presence test’ to determine whether someone was ‘present in a foreign country or countries’ for a period that qualifies them as a US taxpayer abroad. Importantly, this test offers flexibility as it does not require the 330 days to be consecutive; the tax authority is simply looking for individuals who have spent that amount of time outside of the country over a year.
Will passing the test hurt me in the future?
No. The test is not meant to keep tabs on taxpayers abroad, and it “doesn’t depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad,” reports the IRS.
Automatic extensions have been granted
Contrary to a common belief among US residents living abroad, they are not exempt from filing with the IRS. Failure to do so can lead to penalties and other legal issues. The IRS offers this group an automatic two-month extension each year. This year, the filing deadline was extended to 17 June, leaving under a month. However, unlike taxpayers living in the US, an extension through 15 October 2024 can still be requested by submitting this Form to the IRS. “If you are a US citizen or resident living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States,” warns the IRS.
Can foreign income be deducted from the US tax bill?
However, earnings in other countries are sometimes subject to different rules than those in the United States are taxed under. For instance, many living abroad may have foreign-earned income, meaning not associated with a US employer. The IRS provides a tax exemption for this type of income up to a certain limit. For the tax year [insert year], the IRS would tax up to $120,000 ($240,000 for married couples who file jointly, and both would report foreign-earned income) from their income. If your foreign-earned income is below this threshold, you may not be required to pay US taxes on it. However, it’s important to note that you still need to report this income to the IRS.