For the typical taxpayer, April 15 is the dreaded deadline of the annual tax scramble. (Actually, this year it is Monday, April 18, because of a legal holiday in DC.)
Americans abroad however have a little more breathing room.
2 months more to be exact.
Nomads can get an automatic 2-months extension
To get this automatic 2-months extension for expats you don’t even have to file any form. But you have to be living outside the US and Puerto Rico, and have your main place of business outside the US and PR on April 18, this year’s regular due date.
So you don’t have to file to get this extension but you must attach a statement to your return, when you file, explaining why you qualify for the extension.
Why you might want to use this extension
I mean, besides the obvious reason that taxes and procrastination go hand in hand?
This automatic 2-months extension can come in handy when you need more time in foreign countries to qualify for the FEIE, the foreign earned income exclusion.
For example, the 12-month period, in which you need to be at least 330 days abroad to qualify for the FEIE, could go from June 2, 2015 to June 1, 2016; perfectly in time to file by June 15.
But then, you may not want to wait until June
Hold on. Why would you not want to use the free extra time to delay your tax return, you may ask?
Well, if you think you will owe taxes, you may not want to use this extension. Because when you pay taxes late, there are two penalties you may need to pay, and the 2-month extension protects you from only one of the two.
Late payment penalty
Usually, when you pay taxes late, you may have to pay a fine called late payment penalty. (The specifics depend a bit on how much tax you paid the year before and other factors.) The automatic 2-month extension allows you to file and pay 2 month later than the regular April 15 date, so it protects you from the late payment penalty for 2 months. But it does not save you interest.
Interest on unpaid taxes
Even if you are allowed an extension, you have to pay interest on the money you owe the IRS. That interest is calculated from April 15, not from your extended date, so if you file and pay on June 15 you will have to pay interest for the 2 months.
So before you breathe a sigh of relief and go back to your more fun projects, take a moment to figure out if you may owe taxes. For example if your business or freelancing work made more money last year than expected (congrats!) but you forgot to adjust your estimated quarterly payments. Or if you didn’t pay quarterly estimated taxes at all. In this case, you may want to ignore the automatic 2-months extension for expats and get going on your tax return
On the other hand, if you owe just a little, then the interest for those 2 months is probably less than the cost for a cup of coffee and not worth a scramble.
