Avoid Penalties by Filing Your 2022 Taxes by the June 15
Do you operate your freelance business while traveling or living abroad? If so, and you are a U.S. taxpayer, it is critical for you to file your 2022 federal income tax return by Thursday, June 15 or to file an extension if you are eligible for one. This deadline applies to both U.S. citizens and resident aliens abroad, including those with dual citizenship.
Do you qualify for the June 15 tax deadline extension for your freelance taxes?
You may qualify for the June 15 filing deadline if both your tax home and your residence are outside the United States or Puerto Rico, or if you are serving in the military outside of the United States and Puerto Rico on the regular due date of your tax return. If this applies to you, you will need to attach a statement to your return, stating which of these two situations applies to you.
Even if you are working abroad, you may be eligible for U.S. tax credits. Freelancers living outside of the U.S. may qualify for tax benefits, such as the Foreign Earned Income Exclusion and the Foreign Tax Credit. However, you must file a U.S. tax return.
If you have children or dependents, you may also be able to claim expanded tax benefits, such as the Child Tax Credit, Credit for Other Dependents and Credit for Child and Dependent Care Expenses. However, the amount you can claim will be partially influenced by whether you lived in the U.S. for more than half of 2022.
Own foreign bank accounts? Freelancers must claim those, too.
U.S. federal tax law requires citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.This will require you to complete and attach Schedule B, Interest and Ordinary Dividends, to your Form 1040 tax return.This form will enable you to report any foreign accounts you may have such as bank and securities accounts as well as the country in which each account is located.
You may also need to complete Form 8938, Statement of Specified Foreign Financial Assets and submit it to the IRS and/or Form 114, Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of certain foreign assets exceed $10,000 in the 2022 tax year, with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The FBAR form is available only through the Bank Secrecy Act E-Filing System. The deadline for filing the annual FBAR was April 15, 2023 but don’t worry if you missed the deadline. FinCEN grants an automatic extension until Oct. 15, 2023.
Both FINCEN Form 114 and IRS Form 8938 require the use of a Dec. 31 exchange rate for all transactions. The IRS accepts any posted exchange rate that is used consistently. Details on how to use exchange rates to calculate this portion of your freelance taxes when working abroad can be found here: Foreign Currency and Currency Exchange Rates.
Some other tax filing tips for freelancers who are working while traveling or living abroad:
- Report any income received or deductible expenses paid in foreign currency on your U.S. tax return in U.S. dollars.
- Any tax payments must also be made in U.S. dollars.
- To ensure tax payments are credited promptly, consider paying your U.S. tax obligation electronically through an IRS Online Account, IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS). These and other electronic payment options are available at gov/Payments.
Are you a U.S. expatriate in tax year 2022?
If you relinquish your U.S. citizenship or cease to be a lawful permanent resident of the U.S. during 2022 you must file a dual-status alien tax return and attach to it Form 8854 Initial and Annual Expatriation Statement. A copy of Form 8854 must also be filed with the IRS by the due date of the tax return (including extensions).
Can’t make the June 15 filing deadline? File an extension now! If you can’t meet the June 15 due date, you can request an automatic six-month extension by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You can make your request electronically at IRS.gov/Extensions.
If you need more time, you must also file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns.
DIgital nomads and other freelancers living and working abroad need to be aware of their tax obligations. If you believe these foreign residency and business tax obligations apply to you, it’s a good idea to determine your action steps to avoid missing the June 15 filing deadline and to avoid any penalties related to non-filing of the required tax forms. This is when connecting with a U.S.-based tax professionals can be extremely valuable and help you mitigate both your tax obligations and any related penalties.