Today we hear from Yusuf, in CT who just came back from working overseas. “I have been working abroad for many years (since 1990). I filled on time for the first 5 years. Then a friend informed me that as long as I was under the allowable income level there was no reason to file. I now know this was bad advice and would like to bring my tax returns up-to-date. Are there penalties involved? What is the best way to go about this?”
See what happens when you listen to friends instead of professionals.
Well, you’ve come to the right place. I can fix your problems in a snap! First of all, let’s check with IRS. IRS answers this very same question on one of their FAQ pages. They tell you to contact your consulate or embassy. http://www.irs.gov/publications/p54/ar02.html#d0e7799 Not a very helpful answer, is it?
OK, you need to file Form 2555, Foreign Earned Income Exclusion. http://www.irs.gov/pub/irs-pdf/f2555.pdf
Instructions to Form 2555 http://www.irs.gov/pub/irs-pdf/i2555.pdf
Although you must file the form on time to get the benefit of the Earned Income Exclusion, there is a special procedure you can use to claim the right, even if you file late. (I used to know the citation when I was working with foreign non-filers. But have lost it.)
Odds are, if you’ve had a job all this time, and been on payroll, you won’t end up owing a dime. Penalties are only assessed against balances due. If you owe no taxes, there will be no penalties.
However, if you are a contract employee, you’ll owe self-employment taxes, even when you owe no income taxes. Those will be 15.3% of your business profits, after all deductible expenses are used.
That could be costly. And after all this time, some of the penalties will be 25% or more, plus interest.
But I have the perfect person to help you. Roger B. Adams, EA. Roger can prepare all the back returns for you and ensure that you pay the lowest possible taxes and penalties. He’ll know the regulations and procedures to allow you to file late without penalties. In fact, he’ll know the special procedure to allow you to use the earned income exclusion late.
In fact, Roger manages the annual VECTA (Volunteer Embassy and Consulate Tax Assistance) program in Lisbon – and trains all the volunteers. http://www.american-embassy.pt/ConsDocs/ACS_TaxConsultantsPortugal.html
And remember, you can find answers to all kinds of questions about the foreign earned income exclusion and all kinds of other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
- Ask TaxMama :: Where taxes are fun and answers are free
- TaxQuips :: The number ONE tax podcast online
- IRS Publication 54 :: Tax Guide for U.S. Citizens and Resident Aliens Abroad, Additional Material
- IRS Form 2555 :: Foreign Earned Income Exclusion
- IRS Form 2555 :: Instructions
- American Embassy, Lisbon :: Tax Consultants in Portugal