Automatic two-month extension for individuals living outside of U.S. to file tax return and pay taxes; however, beware!

OK.  You have been living outside of the United States for nearly a year, and are going to claim the exclusion of foreign earned income.  You have read on the internet or heard from co-workers or that tax preparer from Cleveland that you do not have to file an extension by April 18, 2011 because of your foreign residency.  Not always true!

If you have met the physical presence test or the bona fide residence test by April 18th, then you are eligible for the automatic two-month extension to file your tax return as well as pay your taxes; however, you will be charged interest on any taxes due.  If you take this automatic extension, you must attach a statement to your tax return explaining that on the due date of your tax return you did live outside of the United States and that your tax home is outside of the United States and Puerto Rico.

However, a problem occurs typically in the first year of taking the foreign earned income exclusion.  If by April 18, 2011, you have not yet fulfilled the physical presence test or the bona fide residence test, then you would either need to file for an extension of time to file your tax return or file your return and amend it later.

If you choose to file an extension of time, you would need to file Form 2350, Application for Extension of Time To File U.S. Income Tax Return. If you are given an extension, it will generally be to a date 30 days after the date on which you expect to meet either the bona fide residence test or the physical presence test. But if you must allocate moving expenses, you may be given an extension to 90 days after the end of the year following the year you moved to the foreign country.

Form 2350, however, does not extend the time to pay taxes. If you do not pay the amount due by the regular due date, you will owe interest. You may also be charged penalties.

Of course, you can always file your return by the 18th without taking the foreign earned income exclusion and then amend your return later after you have met the physical presence test or the bona fide resident test.  But taxpayers are customarily unwilling or unable to afford to pay Uncle Sam taxes unnecessarily, requesting their refund later and waiting months for their receipt.  But who knows, you may be the exception!

For information on whether you meet the physical presence test and how to maximize your exclusion of foreign earned income, please see my article, Maximize Your Exclusion of Foreign Earned Income Under the Physical Presence Test.

The Barefoot Accountant

Accountants CPA Hartford, Connecticut, LLC

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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