The IRS’s October 15 tax deadline for expats
I know, I know, it’s still August. Hopefully you are trying to soak up all the delights of summer for just a little longer. But if you have had a fleeting thought that you might need to deal with that tax deadline in a couple of weeks, this post is for you.
No matter where you are living, if you are a US tax filer, your first tax deadline is April 15th (or the day after Patriot’s Day form my Massachusetts readers). So April 15th is when the last of those prior year taxes are due. Iff you are living abroad, however, the US government automatically assumes you won't get them the actual paperwork until June 15th. The reality is that many of you living in France will need to use the June date only to file a request for extension to October 15th. Why? Because you simply don’t have the information you need for that US return by June.
Let’s look at why this happens and what information you are looking for.
Who needs to use the October extension?
You need this extension if you are living in France and plan on using either the Foreign Tax Credit or in most cases, the Foreign Income Exclusion, in your US return. In other words, if you have income that gets taxed in France first under the US-France tax treaty. Some of the most common types of income in the category are:
Self-employment income for work you are doing from France.
Salary or wages from your job in France.
Rental income from a French property.
Interest, dividends or capital gains from non-US bank or investment accounts, even if they aren’t French.
Of course, if all you’ve got from that list above is 8 € in interest from your French bank account and are willing to forego the tax credit, you can go ahead and file by an earlier deadline. The tiny difference on your tax bill may not be worth worrying about.
Who does not need to worry about extending?
On the other hand, if you live in France and your only significant income is in the list below, you won’t be asking for a credit or an exclusion for foreign income on your US taxes, anyway. You will be filing the exact same form 1040 you would have filed if you still lived in the US except for the FATCA & FBAR reports of any foreign bank accounts.
Taxed in the US first:
Income you earned in the US while you were still resident there.
US Social security benefits.
US Disability benefits.
US private pension benefits or annuity payments.
US Retirement account withdrawals and Required Minimum Distributions
Most interest, dividend and capital gains income reported on your US brokerage account form 1099 (assuming the stocks, bonds or funds that based them were US-based).
Rental income from a US property.
Capital gains income from the sale of US real estate.
Many forms of income from a US partnership or limited liability company (but check your details).
Gifts and inheritance from US residents — these are reported separately from income filings in both countries.
Any and all of these forms of income will be reported in France, and you can ask for some sort of credit on your French taxes for all of them. But since you won’t get any breaks on these from US, you don’t need to wait to file.
So, what information am I waiting for?
If you have income in that first list, you probably don’t want to pay taxes on it twice. You need to pay those taxes in France, but under the tax treaty between the two countries, you have the right to ask the US to apply one of its methods for eliminating the double imposition of taxes.
You can use the Foreign Tax Credit (IRS Form 1116, included in your Form 1040) at any time and with any income, whether it is “passive” or earned. But to use it, you need to tell the US how much you paid the France. You can always take a stab at it — an estimate of your tax bill will appear in your impots.gouv account right after you file. But if you get the number wrong, you will need to amend the US return.
So in any case where you want that credit, your best strategy is generally to wait until July. At that time, the French government will send you in the mail or post in your account your official tax bill with the information you need for the US forms.
Technically, you don’t need to wait for the July bill if you want to use the Foreign Earned Income Exclusion (IRS Form 2555). As the name suggests, this allows you to exclude all or part of income you earned abroad from taxes. You still report this income in the US, and using the Form 2555, you will calculate how much of it you can exclude. There is an annual maximum you can exclude, and it can only be used for earned income, not for things like social security or investment income.
Some people know they will use the FEIE — most notably, those trying to deal with the US’s horrific student loan problems. But for everyone else, the question of whether to use the FEIE or just a tax credit for that income is a year-by-year calculation. Your run-of-the-mill US tax software will run the calculation for you, but you can’t do that without knowing what the tax credit would be. In other words, you need to know the specific amount of the taxes you paid on that income in France to figure out your best strategy.
How to request an extension in the IRS
If you are a US filer living abroad, you don’t need to do anything to get the June 15th extension — that is automatic. For the October 15th extension, here is a link to the IRS instructions for making that request: https://www.irs.gov/filing/get-an-extension-to-file-your-tax-return.
And one important note: IRS filing extensions give you more time to file but not more time to pay. If you believe you will owe money for the prior tax year, make an estimated payment on April 15th (or as soon as possible thereafter) to avoid monthly interest penalties.