As the traditional tax filing date of April 15 draws near (it is April 18th this year because it is a holiday in Washington, D.C. on April 15 and the Internal Revenue Service is closed) special tax breaks only applicable to expatriates should be carefully followed.
Extended Filing Date
Taxpayers living outside the United States have an automatic extension of time until June 15, 2011 in which to file their 2010 U.S. Federal individual income tax return. Individuals who are preparing their own tax return should write the following notation on the bottom of page two “the taxpayer qualifies for an automatic extension pursuant to Treasury Regulation 1.6081.5.”
Extension of Time To File, Not Pay
However, the extension of time to file the 2010 tax return does not give you an extension of time to pay any tax due. If there is a tax due with the 2010 tax return it should be paid by April 18, 2011. If you wait until June 15, 2011 to pay the tax due the Internal Revenue Service will assess interest for late payment of tax.
2011 Estimated Tax Payment
Your 2011 1st quarter estimated tax payment must be paid on or before April 18, 2011. The extension of time to file the 2010 tax return does not give you an extension of time to pay your 1st quarter estimated income tax. While it is common practice to combine the 1st and 2nd quarter estimated tax payments and pay the estimated tax due on June 15, 2011, when you eventually file your 2011 tax return in June 2012 the Internal Revenue Service will assess an underpayment penalty for late payment of tax.
What if I Arrived in Bermuda in 2010?
Taxpayers who arrived in Bermuda in 2010 on a 2 year or longer assignment will not qualify for the foreign earned income and foreign housing exclusion until they meet one of the qualifying tests. To qualify for the foreign exclusions you either have to be physically present outside the United States for 330 out of 365 days or reside in Bermuda for a full calendar year which would be 2011.
So if you arrived in Bermuda on October 1, 2010 to meet the physical presence test you need to have spent 35 days or less in the United States during the period October 2, 2010 to October 1, 2011. If you will not meet that test than you need to reside in Bermuda for all of 2011 to qualify for the foreign earned income and housing exclusions.
On April 1, 2011 it is likely that you do not know if you would meet the physical presence test but are pretty sure that you will meet the bona fide residence test. But you cannot file your 2010 tax return until you meet either test. So what do you do? You go to www.irs.gov and open the Internal Revenue Service website. In the upper right hand corner there is a search box and you type “Form 2350.” Download Form 2350 and request an extension of time until January 30, 2012 in which to file your 2010 U.S. Federal income tax return. File Form 2350 along with a check for any tax due so that it is received by the Internal Revenue Service on or before April 18, 2011. The Internal Revenue Service will approve the extension request and send it back to you. You must attach a copy of the approved extension request to the 2010 tax return when you file it.
Foreign Bank and Financial Accounts
While you are on the IRS website you should also download Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts. If you have $10,000 or more at any time during 2010 in one or more foreign bank accounts you will need to file this Form with the Department of Treasury in Detroit, MI on or before June 30, 2011.
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