The Tax Man cometh, and quickly. The deadline for American citizens to file their Federal Income Tax Returns is the 18th of April for 2023, and for some this brings more stress than dealing with your in-laws. Luckily for those of you with too much to do and not enough time to do it in, the IRS allows for extensions on the standard tax filing deadline, although any estimated taxes owed must still be paid on time. So, what are the rules and how does it all work?
How Do I File an Extension?
First and foremost, remember that you must file your extension BEFORE your regular tax deadline. Any estimated tax liability must be paid on time, but you can designate that it's being paid while your filing is being extended. Lastly, file the extension form from the IRS. Here’s where it gets fun.
Contrary to what the tax preparation companies would have you believe, you can actually file your federal income tax return for free on the IRS website, and some state filing as well if you qualify. Once you get to the IRS website, create an account, as that will be necessary to begin and maintain your forms. Then an extension is as easy as going to the IRS Free File, and clicking the “Use Free Fillable Forms” button about four times on four pages. Once inside, the extension form is straightforward and can be filed electronically.
How Long is the Extension?
October 15th in the year you are requesting. Essentially six months, give or take a few days.
Are there any special rules?
We’re talking about the government and money, so of course there are, but some can be in your favor. The two most common special rules involve Americans overseas.
Americans serving in the armed forces in a combat zone have an automatic extension both to file and to pay their taxes. This extension begins on the first day of service in that combat zone and extends for an additional 180 days after the last day of that deployment.
Americans who live and work in foreign countries but retain their citizenship are still required to file a tax return with the federal government, but there is a catch; you can deduct taxes paid to the country you live in from the amount owed the United States.
Also available is the 2555 Foreign Earned Income Exclusion, which allows for the first $112,000 of income to be tax free based on one of two tests. The Physical Presence Test requires that you be outside of the United States for 330 full days during the filing year, (but there are some stipulations as to what “outside” means, so be careful) The Bona Fide Residence Test is a bit more complicated, but basically says that if you live full time in a foreign residence, then visits to the US don’t count against you.
Hopefully having this ammunition for your range bag can help take off a little strain from the government boot, but a word of caution; the more complex your returns become, the more it is a wise choice to get a tax professional involved. Not the teenager at the mall kiosk, but an actual accountant.
Take it from me, there is little worse than thinking you’re getting a fat check back from Uncle Sam, only to end up having to cut a check yourself because math isn’t your strong suit.