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April 16, 2014

9 Facts about Penalties for Filing and Paying Late - For Expats and Those Living in the USA

April 15 is the tax day deadline for most people. If you’re due a refund there’s no penalty if you file a late tax return. But if you owe taxes and you fail to file and pay on time, you’ll usually owe interest and penalties on the taxes you pay late. Here are eight facts that you should know about these penalties. 
1. If you file late and owe federal taxes, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.
2. The failure-to-file penalty is usually much more than the failure-to-pay penalty. In most cases, it’s 10 times more, so if you can’t pay what you owe by the due date, you should still file your tax return on time and pay as much as you can. You should try other options to pay, such as getting a loan or paying by credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up a payment plan with the IRS using the Online Payment Agreement tool on
3. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.
4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.
5. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.
6. If the 5 percent failure-to-file penalty and the 0.5 percent failure-to-pay penalty both apply in any month, the maximum penalty amount charged for that month is 5 percent.
7. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.
8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time.
9. While US expatriates get an automatic extension of time to file their return until 6/15 following the year end, that extension does not apply to any taxes due. Therefore, you should estimate any taxes you might owe and pay on on the regular 4/15 date to avoid the 1/2 percent per month penalty. Since this penalty is low, many expats just pay when they file the return and pay the penalty.

Additional Resources on Late Payment:

    April 15, 2014

    Obama and Bidens 2013 Tax Returns Reviewed


    April 14, 2014

    What You Should Know about the Additional Medicare Tax

    Starting in 2013, you may be liable for an Additional Medicare Tax if your income exceeds certain limits. Here are six things that you should know about this tax:  

    1. The Additional Medicare Tax is 0.9 percent. It applies to the amount of your wages, self-employment income and railroad retirement (RRTA) compensation that is more than a threshold amount. The threshold amount that applies to you is based on your filing status. If you’re married and file a joint return, you must combine your spouse’s wages, compensation, or self-employment income with yours to determine if you exceed the “married filing jointly” threshold.
    2. The threshold amounts are:
     Filing Status                   Threshold Amount
     Married filing jointly         $250,000
     Married filing separately   $125,000
     Single                            $200,000
     Head of household          $200,000
     Qualifying widow(er) with dependent child      $200,000
    3. You must combine wages and self-employment income to determine if your income exceeds the threshold. You do not consider a loss from self-employment when you figure this tax. You must compare RRTA compensation separately to the threshold. See the instructions for Form 8959, Additional Medicare Tax, for examples.
    4. Employers must withhold this tax from your wages or compensation when they pay you more than $200,000 in a calendar year, without regard to your filing status, wages paid to you by another employer, or income that you may have from other sources. Your employer does not combine the wages for married couples to determine whether to withhold Additional Medicare Tax. 
    5. You may owe more tax than the amount withheld, depending on your filing status and other income. In that case, you should make estimated tax payments /or request additional income tax withholding using Form W-4, Employee's Withholding Allowance Certificate. If you had too little tax withheld, or did not pay enough estimated tax, you may owe an estimated tax penalty. For more on this topic, see Publication 505, Tax Withholding and Estimated Tax.
    6. If you owe this tax, file Form 8959, with your tax return. You also report any Additional Medicare Tax withheld by your employer on Form 8959.
    Visit for more on this topic. Enter “Additional Medicare Tax” in the search box. 

    Need help. Visit us at and email 

    April 10, 2014


    The April 15 tax deadline is approaching. What happens if you can’t get your taxes done by the due date? If you are an expat you have until June 15 th to file. The IRS has given you an automatic extension. However if you live in the US and you need more time, you can get an automatic six-month extension from the IRS using form 4868. You don’t have to explain why you’re asking for more time. Here are five important things to know about filing an extension:

    1. File on time even if you can’t pay.  If you complete your tax return but can’t pay the taxes you owe, do not request an extension. Instead, file your return on time and pay as much as you can. That way you will avoid the late filing penalty, which is higher than the penalty for not paying all of the taxes you owe on time. Plus, you do have payment options. Apply for a payment plan using the Online Payment Agreement tool on You can also file Form 9465, Installment Agreement Request, with your tax return. If you are unable to make payments because of a financial hardship, the IRS will work with you.

    2. Extra time to file is not extra time to pay.  An extension to file will give you six more months to file your taxes, until Oct. 15. It does not give you extra time to pay your taxes. You still must estimate and pay what you owe by April 15. You will be charged interest on any amount not paid by the deadline. You may also owe a penalty for not paying on time.

    3. Use IRS Free File to request an extension.  You can use IRS Free File to e-file your extension request. Free File is only available through the website. You must e-file the request by midnight on April 15. If you e-file your extension request, the IRS will acknowledge receipt. You also can return to Free File any time by Oct. 15 to prepare and e-file your tax return for free.

    4. Use Form 4868.  You can also request an extension by mailing a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You must submit this form to the IRS by April 15. Form 4868 is available on

    You don’t need to submit a paper Form 4868 if you make a payment using an IRS electronic payment option. The IRS will automatically process your extension when you pay electronically. You can pay online or by phone.

    5. Electronic funds withdrawal.  If you e-file an extension request, you can also pay any balance due by authorizing an electronic funds withdrawal from your checking or savings account. To do this you will need your bank routing and account numbers.

    Need help? We are and have been doing expat returns for over 30 years. Email us at ddnelson

    How To Pay IRS Taxes Electronically Today Without Mailing a Check

    This link will guide you to the various methods .

    April 6, 2014

    20 Things Expat Taxpayers Do Not Know

    Great Article From Forbes Magazine...

    Let us be your Expat Tax Expert.  Don D Nelson attorney CPA      email.

    March 28, 2014

    11 Illegal Tax Deductions

    No, You Can't Deduct That: 11 Tax Deductions That Can Get You in Trouble

    Tips for U.S. Taxpayers with Foreign Income

    Did you live or work abroad or receive income from foreign sources in 2013? If you are a U.S. citizen or resident, you must report income from all sources within and outside of the U.S. The rules for filing income tax returns are generally the same whether you’re living in the U.S. or abroad. Here are seven tips from the IRS that U.S. taxpayers with foreign income should know:
    1. Report Worldwide Income.  By law, U.S. citizens and resident aliens must report their worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.
    2. File Required Tax Forms.  You may need to file Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts. See for more information.
    3. Consider the Automatic Extension.  If you’re living abroad and can’t file your return by the April 15 deadline, you may qualify for an automatic two-month filing extension. You’ll then have until June 16, 2014 to file your U.S. income tax return. This extension also applies to those serving in the military outside the U.S. You’ll need to attach a statement to your return to explain why you qualify for the extension.
    4. Review the Foreign Earned Income Exclusion.  If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $97,600 of your wages and other foreign earned income in 2013. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.
    5. Don’t Overlook Credits and Deductions.  You may be able to take atax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce the amount of taxes you have to pay if both countries tax the same income.

    You can get more on this topic in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. IRS forms and publications are available on 

    Additional IRS Resources:
    The best resource is Kauffman Nelson LLP. We prepare returns for expats and nonresidents and have done so for over 30 years.  We know the law and we know the the forms.  Want a consultation?  Email  and ask for Don Nelson, Attorney, CPA.

    March 25, 2014


    From USA TODAY IRS: Bitcoin is not currency The federal government will tax digital money such as Bitcoin like property, not currency, the IRS said Tuesday in its first significant guidance on the virtual coin. Although Bitcoin may operate like coin and paper currency and can be used to pay for goods and services, no country accepts it as "legal tender," the Internal Revenue Service said in its notice. "Virtual currency is treated as property for U.S. federal tax purposes," the notice said. "General tax principles that apply to property transactions apply to transactions using virtual currency." The guidance means that wages paid in Bitcoin are subject to federal income tax withholding and payroll taxes and must be reported on W-2 forms. Businesses that accept Bitcoin for goods and services will be taxed on the fair market value of the Bitcoin payment as part of their gross income, the IRS said. The fair market value would be calculated as the U.S. dollar value on the date payment was received. Get USA TODAY on your mobile device:

    March 24, 2014

    March 21, 2014


    You normally must pay income tax on your investment income. That is also true for a child who must file a federal tax return. If a child can’t file his or her own return, their parent or guardian is normally responsible for filing their tax return.

    Special tax rules apply to certain children with investment income. Those rules may affect the tax rate and the way you report the income.

    Here are four facts from the IRS that you should know about your child’s investment income:

    1. Investment income normally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

    2. Special rules apply if your child's total investment income is more than $2,000. Your tax rate may apply to part of that income instead of your child's tax rate.

    3. If your child's total interest and dividend income was less than $10,000 in 2013, you may be able to include the income on your tax return. If you make this choice, the child does not file a return. See Form 8814, Parents' Election to Report Child's Interest and Dividends. 

    4. Children whose investment income was $10,000 or more in 2013 must file their own tax return. File Form 8615, Tax for Certain Children Who Have Investment Income, along with the child’s federal tax return.

    Starting in 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax. NIIT is a 3.8% tax on the lesser of either net investment income or the excess of the child's modified adjusted gross income that is over a threshold amount. Use Form 8960, Net Investment Income Tax, to figure this tax. For more on this topic, visit

    For more on this topic, see Publication 929, Tax Rules for Children and Dependents. Visit to get this booklet and IRS forms.

    March 7, 2014


    Excellent article  from Forbes.

    February 27, 2014

    Bank deal fallout: ‘Chaotic’ US tax stampede overwhelms specialists -

    Bank deal fallout: ‘Chaotic’ US tax stampede overwhelms specialists -  We can help you no matter where you are in the world prepare past tax returns and enter the IRS Offshore Disclosure Program, Streamlined Program or Regular Disclosure Program.  Visit our website at for more information or email me at  When offer our clients the absolute confidentiality and privacy of Attorney-Client Privilege.

    February 24, 2014

    IRS Examining Foreign Life Insurance and Other Products to Discover Hidden Foreign Assets and Income

    The Wall Street Journal articles indicates the IRS is now getting smarter. They are starting to examine offshore insurance products owned by US taxpayers. These policies are often used to hide foreign assets and foreign income not being reported on the tax returns of their US owners.  If you have cash surrender value or assets in a foreign life insurance policy you are required to show that policy on your US FBAR each year and may be required to report the income. It would also go on form 8938 if you are required to file that form.  If the policy holds foreign mutual funds you may be required to file the form reporting Passive Foreign Investment Companies also to avoid adverse tax consequences.


    February 22, 2014

    Rules for each State on How to Stop Filing and Paying State Income Taxes when an Expat Moves Abroad.

    Great article from BNA including a chart listing tax laws and rules for each state in the US stating their individual rules (vary a lot from state  to state) on how to successfully terminate your state tax domicile when moving abroad. The chart at the end is a great reference tool to use when you want to stop paying state income taxes when you move to live and work abroad.  DOWNLOAD PDF ARTICLE HERE

    If you need guidance on how to avoid paying state income taxes after moving abroad we can put together a strategy for you.  Email us at

    February 21, 2014

    Where Offshore Tax Form Evaders Live and Keep Their Foreign Accounts

    From Forbes.  Looks like if you live in California or New York you are primary suspect based on IRS statistics.

    February 16, 2014

    5 Most Tax Friendly States For Expats or Nonresidents to Locate a U S Business

    Read the following link. Wyoming is no. 1. We recommend Nevada for ease of operation. Its no. 3.