Last week, I wrote an article about the 2015 tax filing deadlines for domestic filers. As promised, here is the 2015 tax filing deadlines for foreign individual filers. I think you will see why it took me some time to draft this.
February 2: Deadline for Filing an Excise Tax Return for Certain Owners of Foreign Life Insurance Policies
Owners of life insurance policies issued overseas are subject to 1% excise tax on premiums they pay to a foreign insurer. Premiums are reported and tax is calculated based on a special tax return that has to be filed with the IRS on a quarterly basis (Form 720). If you paid a premium during October, November or December 2014, Form 720 for the last quarter of 2014 should be filed and tax paid by the above deadline. In case of a failure to do that, the IRS may assess “failure-to-file” and “failure-to-pay” in the same fashion as for income tax returns (see below). Form 720 is filed with a separate IRS office.
March 16: Deadline for Filing Informational Returns on Behalf of Certain Foreign Pension Plans
Ownership of a private foreign pension plan by a US person in most cases creates burdensome tax reporting consequences. The IRS treats those as foreign grantor trusts, and requires tax reporting not only from US owners, but from the trusts themselves too. By this the IRS, basically, imposes obligations on foreign financial institutions to file special US tax returns if they have a client from the US. Certainly, most, if not all, foreign institutions ignore such an obligation. That is why in cases where a foreign “trust” does not fulfill its US reporting obligation, the IRS imposes it directly on US owners. Again, since most foreign retirement plan providers ignore the requirement, US owners have no option but to file a return on behalf of such providers.
Minimum penalty for failure to file an informational return on behalf of a foreign trust (Form 3520-A) is $10,000. The form is filed with a separate IRS office. The filing deadline of March 16th cannot be extended by filing an income tax return extension.
By filing this form, taxpayers should also determine the amount of income generated by their foreign retirement plan in 2014. This income is taxable, unless a double tax treaty with a country where foreign pension plan is established provides otherwise (for example, US-UK treaty).
April 15: Deadline for Paying Taxes by US residents & US Expats (Not Necessarily Filing the Return)
There is one important thing to remember about the “Happy Tax Day”: it is a deadline for tax payments. So if you think of filing for an extension (Form 4868), you still have to at least prepare a rough draft of the return, and calculate the projected amount of your 2014 tax liability. If, after all the withholdings and estimated tax payments you’ve made, your calculation still shows an amount you owe, you’d rather pay it by April 15th.
If, however, you file for an October 15th extension with no payment attached to it, and then file the return after April 15th, the IRS will charge you the so-called “failure-to-pay” penalty, which can be as much as 25% of your unpaid taxes. The later you pay – the larger is the penalty. If you also fail to file for an extension, and file your return after April 15th, on top of the “failure-to-pay” penalty the IRS will charge you a “failure-to-file” penalty, which also can be as much as 25% of the unpaid taxes (depending on when you file the return).
US expats automatically have additional two months to file their US tax returns. However, even they should consider prepaying taxes before April 15th. If an expat files a return with a tax due by June 16th, the IRS will charge an interest on any tax not paid by April 15th. However, the “failure-to-pay” penalty will not apply in this case.
A spoonful of sugar helps the IRS deadlines go down, the IRS deadlines go down…wait. What's the sugar in this analogy? Fear of non-compliance? Hmmm. Still not buying it. Maybe I should have picked a song from Slayer's catalog for this post, as opposed to Mary Poppins.
April 15: Deadline for Making a First 2015 Estimated Tax Payment
Income tax is a pay-as-you-go tax, and the IRS does not want to wait until April 15th next year to get a share of your 2015 income. Most employed US residents, probably, do not even know what an estimated tax payment is, as income tax is automatically withheld from their paychecks, which satisfies the pre-payment requirement. However, self-employed US residents or US expats with high earned or self-employed income might want to consider making estimated tax payments in order to avoid paying an estimated tax penalty when filing their 2015 returns next year. In order to avoid the penalty, such taxpayers should make sure they prepay the lesser of 100% of their 2014 tax liability, or 90% of the projected 2015 one.
April 15: Deadline for Filing an Informational Return for Owners of Certain Foreign Pension Plans
As discussed above, ownership of foreign private pension plans in most cases creates burdensome tax reporting requirements. Failure to follow the necessary rules can cost a lot, but compliance with those will be a significant expense as well. Expect a higher than usual bill from a tax accountant who prepares your 2014 tax return and reports a foreign pension on it. A special informational return reporting ownership of a foreign trust (Form 3520) is filed by the regular tax date, but is extendable by submitting an income tax filing extension. Please also note a different IRS office address that is used to file Forms 3520. Taxpayers who received foreign gifts or bequests valued at $100,000 or more during 2014 should report those by filing the same form. Minimum penalty for failure to file a Form 3520 is $10,000.
April 30: Excise Tax Reporting and Payment Deadline for Taxpayers Who Paid Foreign Life Insurance Premiums During January, February or March 2015
Be sure and check if your insurer is making this payment on your behalf. You don't want to pay it twice, right?
June 16: Deadline for Paying Taxes by US Expats (Not Necessarily Filing a Return)
As mentioned above, US expats automatically qualify for a 2-month extension to file their US income tax returns. A special statement should be attached when filing a return using this procedure. The filing deadline can be extended until October 15th. However, taxes should be prepaid by June 16th deadline. The IRS will charge a “failure-to-pay” penalty in case an expat files an extension before June 16th, and then files a return a tax due on it after this date.
June 16: Deadline for Making a Second 2015 Estimated Tax Payment
Same date for domestic as well as foreign filers.
June 30: Deadline for Reporting Ownership of Foreign Bank Accounts
This deadline is completely separate from all other tax deadlines mentioned here. Special reporting is required when a US person had more than $10,000 at any time during the year on foreign bank accounts. The reporting form is called an FBAR and is abbreviated as Foreign Bank Account Reporting Form (official name of the Form is FinCEN Report 114). It has to be filed online through the Department of the Treasury’s website. Schedule B should be attached to a taxpayer’s income tax return in case such taxpayer is required to file an FBAR. Any income from a foreign bank account is usually taxable in the US.
Please note, that there is a separate tax form to report maximum balances on foreign bank accounts that gets attached to a tax return (Form 8938). Thresholds for filing this form are much higher than the one for an FBAR. However, in case both thresholds are met, taxpayers should file an FBAR and a Form 8938.
July 31: Excise Tax Reporting and Payment Deadline for Taxpayers Who Paid Foreign Life Insurance Premiums During April, May or June 2015
The IRS doesn't really like Foreign Life Insurance Policies. Why? Essentially, it's a protectionist measure — to protect the US domestic life insurance lobby.
September 15: Deadline for Making a Third 2015 Estimated Tax Payment
I never understood why your second quarter estimated payment is due before the quarter is up, as well as your third quarter (2nd & 3rd quarters end June 30th and September 30th, respectively). The good news, the fourth quarter won't be due for four months, not three, on January 15, 2016.
October 15: Extended Deadline for Filing Individual Tax Returns (Not Paying Taxes)
If you properly applied for an extension before April 15th (or June 16th for US expats), you have time until October 15th to file a tax return. Again, this is a deadline for filing a return, not paying taxes. If you are extending the April 15th deadline, and can’t compute the rough estimate of your 2014 tax liability, pay as much as possible, but, of course, not more than you reasonably think you might owe. This will significantly reduce your chances of getting the aforementioned “failure-to-pay” penalty. October 15th deadline can be extended for another 2 months in certain circumstances (see below).
October 31: Excise Tax Reporting and Payment Deadline for Taxpayers Who Paid Foreign Life Insurance Premiums During July, August or September 2015
And one more thing about Excise taxes on Foreign Life Insurance Policies, just because the IRS will claim a policy is subject to the excise tax on foreign life insurance, it does not mean that the IRS will treat the life insurance as life insurance for tax purposes. The IRS may treat it like an investment — and subject it to onerous compliance work. The domestic life insurance carriers are a powerful lobby indeed.
December 15: Extended Filing Deadline for Certain Taxpayers
Taxpayers who filed for an October 15th extension and are out of the US on the filing date, can request another 2 month extension, which is discretionary. A statement should be attached to an extension letter specifying the reasons for a second extension. Again, an extended deadline is applicable to filing a return, not paying taxes.
Tips to Get Prepared for Filing a Tax Return
Request Foreign Bank Account Statements in AdvanceNot all foreign banks provide an option to generate online year-end statements. Double check with your foreign financial institution on how to get a 2014 statement specifying highest account balance during the year and income earned on the account. Owners of foreign Certificates of Deposit should also keep in mind, that interest income from those according to the IRS is taxed on a year-by-year accrual basis (not upon maturity). Taxpayers might find that a foreign bank cannot provide accrual values having to do the estimate computations on their own.
Keep in Mind Special US Accounting Rules for Foreign Passive InvestmentsOwners of foreign mutual funds (PFICs) or foreign corporations with at least a 10% ownership (CFCs) should attach special IRS forms to their individual tax returns, which are Form 8621 and Form 5471 respectively. There are also special forms for reporting ownership of and income from foreign partnerships and foreign disregarded entities (Form 8865 & Form 8858 accordingly). Failure to file these forms may leave statute of limitations for tax year 2014 open forever.