Jul 4, 2025
Tax obligations due in June 2025
In June 2025, several tax obligations for U.S. citizens with businesses in Costa Rica expired. These are the main ones:
Annual Return (Form 1040) : U.S. citizens and foreign tax residents had a June 16, 2025, deadline to file their 2024 federal income tax return. This is due to the automatic 2-month extension the IRS has granted to those living outside the U.S., moving the date from April 15 to June 15/16. It's important to note that this extension is only for filing, not for paying: any tax owed since April 15 accrues interest daily (at an annual rate of about 7% in 2025) until paid. Failure to pay or file by that date triggers late payment penalties.
FBAR (Foreign Bank Account Report): Any U.S. individual with foreign accounts totaling more than $10,000 in 2024 was required to report them to the Department of the Treasury. The FinCEN Form 114 (FBAR) filing date is April 15, 2025, with a possible extension to October 15, 2025, if not filed in April. There is no need to request this extension, as FinCEN grants it by default. Although the FBAR filing deadline was technically still open in June thanks to the extension, it is a mid-year obligation that many expats schedule along with their taxes. Failure to file carries severe penalties even if no taxes are owed: penalties for failing to file an FBAR can range from $10,000 for unintentional noncompliance (per year) to amounts greater than $100,000 or 50% of the account balance for intentional noncompliance. These sanctions reflect the authorities' emphasis on compliance with foreign asset reporting.
2nd Quarter (Q2) Estimated Tax Payments: Many self-employed individuals and investors are required to pay quarterly estimated taxes. The second payment for 2025 was for April and May income, due June 15, 2025 (moved to June 16 due to a holiday). Failure to make these timely payments may result in an underpayment penalty at year-end. The IRS reminds taxpayers that the U.S. tax system operates on a pay-as-you-go basis, meaning taxes must be paid as income is earned throughout the year, either through withholding or quarterly estimated payments. Those who missed the June payment could face late payment interest and potential underpayment penalties when reconciling their annual return.
Consequences of not meeting June obligations
Failure to comply punctually with these mid-year tax obligations triggers financial and legal consequences. The main ones are summarized below:
Late-Filing Penalties : If Form 1040 was not filed on time (and an extension was not sought until October), a failure-to-file penalty applies, typically 5% of the tax owed per month of delay, up to a maximum of 25%. Additionally, if the return is filed more than 60 days late, a minimum penalty of approximately $485 (adjusted annually) or 100% of the tax owed applies, whichever is less. This penalty for failure to file is significantly higher than the penalty for failure to pay, reflecting the seriousness the IRS assigns to failure to file.
Late Payment Penalties and Surcharges: While the IRS has given expats until June 15/16 to pay without penalty, late payment interest accrues on any outstanding balance starting April 15. Additionally, if the tax owed has not been paid by June, a failure-to-pay penalty of 0.5% of the tax per month of delay (up to 25%) begins to apply. These interest and penalties accumulate quickly: for example, the interest rate for non-payment of taxes was around 7–8% annually in 2024–2025, increasing quarterly based on federal rates. The result of not paying by June is a double burden: daily interest + a monthly penalty, which is added to the original tax amount. It's worth noting that if the taxpayer later enters into an installment agreement with the IRS, the monthly failure-to-pay penalty is reduced by half for the duration of the agreement, but the interest continues to accrue until the debt is paid off.
Penalties for failing to report foreign accounts: Failure to file an FBAR or Form 8938 (FATCA) can be costly. These reporting obligations do not require paying additional taxes directly, but failure to comply carries separate penalties. For the FBAR, as mentioned, the penalty for involuntary failure to file can reach $10,000 for each year not reported. Following a 2023 U.S. Supreme Court ruling (Bittner case), this amount is interpreted per unfiled form (not per account), but it is still substantial. If the failure is determined to be willful or fraudulent, the penalty can escalate to 50% of the account balance for each year, and even lead to serious criminal charges. For Form 8938 (which reports significant foreign financial assets under FATCA), there are also initial penalties of $10,000 for failure to file, which increase if the delay continues after notifications from the IRS. EAS LATAM warns that failure to comply with these mandatory reports can lead to "severe penalties" and raise alarm bells with authorities. Beyond fines, failure to report assets can lead to extensive audits and the loss of tax benefits.
Reputational Risk and International Scrutiny: Tax noncompliance by expats can go beyond the purely economic and affect the reputation of taxpayers and their businesses. In the era of global financial transparency agreements (FATCA, CRS) and cooperation between tax authorities, it is increasingly difficult to "fly under the radar." In fact, the IRS has invested unprecedented resources in identifying undeclared assets, leveraging international banking conventions and automated information exchanges. Costa Rica, for example, has a FATCA Model 1 agreement with the US, requiring Costa Rican financial institutions to report certain accounts held by US citizens to the IRS. This means that if an expat has not declared their accounts or investments in Costa Rica, it is quite possible that the IRS will still learn of this through official channels. The consequences range from the loss of trust among partners and investors (due to perceived risks of sanctions or legal action) to complications with banks, which may classify the client as high-risk or even withhold US-sourced funds (30%) if FATCA requirements are not met. In serious cases, a history of tax noncompliance could hinder immigration procedures, international loan applications, and even lead to criminal prosecution, all of which damages the professional image of the individual and the companies with which they are associated. Therefore, beyond the fines, the expatriate's financial credibility is at stake, something particularly sensitive for executives or entrepreneurs abroad.
Options available after default in June 2025
For those who failed to comply with any of these obligations in June, there is still a chance to correct course and mitigate the damage. Some options and recommendations for July 2025 include:
Extension to October 2025: If the taxpayer applied for an automatic extension to October 15, 2025, before June 15/16 (using Form 4868 or other electronic means), then they have that additional time to file their Form 1040. It's important to understand that this extended extension doesn't cover tax payments; it only avoids the late-filing penalty. Those who requested the extension can still file through October without a filing penalty, although they will continue to accrue interest (and possibly a late payment penalty) on any outstanding balance from April. On the other hand, those who didn't request the extension and let June 16 pass are already in default; for them, the recommendation is to file their return as soon as possible, even if it's late. Each month of delay adds a 5% penalty, so every day counts to reduce penalties. Filing spontaneously, even late, can also serve as a good-faith mitigation against potential IRS action.
Voluntary Compliance and Rectification: The IRS has programs for taxpayers in arrears, designed to encourage them to regularize their situation before facing an audit. In particular, many expats may qualify for the Streamlined Foreign Offshore Procedures program, which allows them to catch up by filing their last three tax returns and six FBARs, with an exemption from late-filing penalties if it can be proven that the failure to comply was due to inadvertence and not bad faith. This streamlined procedure has been a popular option for expats who, due to ignorance of their obligations, failed to file taxes in previous years; by opting in, they can avoid the most severe penalties. Furthermore, even outside of formal programs, the IRS often shows leniency to those who correct their omissions before being notified. That is, if you didn't file your 2024 FBAR by the deadline, you can still do so by October 15, 2025, without penalty, as FinCEN automatically grants that extension. And if you failed to pay estimated taxes, you can include the missing amount when you file your annual return or through a separate payment as soon as possible—thus reducing the window over which interest and penalties will be assessed. In short, the best strategy after a failure to comply is to get ahead of the IRS: acknowledge the error and correct it voluntarily. This not only minimizes penalties but also demonstrates an intent to comply, which can help you later apply for a reasonable-cause penalty waiver or qualify for first-time abatement if you meet the criteria.
Using Exclusions and Tax Credits (FEIE, FTC): Once the expat files their tax return (whether within an extension or late), they should take full advantage of available tax relief to avoid overpaying. Two mechanisms in particular are key for those who generate income in Costa Rica or another foreign country: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit. Through the FEIE (Form 2555), it is possible to exclude up to $126,500 of employment income earned outside the U.S. (amount for tax year 2024), provided that the foreign residency requirements are met (e.g., proof of physical presence for 330 days or bona fide resident status in Costa Rica). For its part, the foreign tax credit (Form 1116) allows you to credit income tax already paid in Costa Rica or other countries, deducting it from the US federal tax owed. Both benefits are designed to avoid double taxation on the same income. It is important to note that they can only be obtained if the return is filed—they are not automatic. An expat who does not file federal taxes deprives himself of these reliefs and may end up paying taxes that he could legitimately exclude or credit. Even if the filing is late, these benefits can still be claimed (in many cases through amended returns if they were not originally used). The recommendation then is: when catching up with the IRS, incorporate FEIE/FTC as appropriate, potentially reducing the US tax debt to zero—especially for those whose primary source of income already paid taxes in Costa Rica. This not only reduces the tax bill, but also the associated penalties and interest, which are calculated on the net tax owed. In short, filing using these tools can transform a potential debt-and-penalty scenario into one where there may be no net tax payable, making it easier to negotiate the forgiveness of late-payment fines. (Note: FEIE and FTC are not mutually exclusive, but both cannot be applied to the same dollar of income; the most appropriate approach must be evaluated on a case-by-case basis.)
Partial Payments, Agreements, and Plans: If, after calculating the 2024 tax liability, a taxpayer faces a significant amount that they cannot pay immediately (a common situation if they did not make estimated payments), it is critical to take action instead of letting the debt grow. The IRS offers flexible payment options to ease the burden. For example, an immediate partial payment of what is within reach can be made—this partially slows the accrual of interest and demonstrates compliance. For the remaining balance, it is relatively easy to request an installment agreement online. Currently, the IRS offers 6-month (short-term) plans if the total debt (tax + penalties + interest) is less than $100,000, or up to 72-month (long-term) plans if the debt is less than $50,000. Entering into a formal payment plan has two immediate benefits: it avoids coercive IRS collection actions (garnishments, liens) and reduces the monthly penalty for non-payment by half while the plan is in effect (from 0.5% to 0.25% per month). Interest continues to accrue, but at least the penalty is reduced. It's advisable to apply for the plan as soon as possible—ideally in conjunction with the late filing—since the 0.5% monthly penalty will continue to accrue in full until formalized. Likewise, if the financial situation is very tight, the taxpayer can explore requesting a temporary hardship deferral (currently not collectible status), although this is more complex and generally requires proof that basic expenses are consuming their income. In any case, ignoring the debt is not a prudent option: the IRS starts sending collection notices after the due date and can escalate the matter. It's better to propose an affordable payment plan—even if it takes several years—than to incur in indefinite default. It's worth noting that payments to the IRS can be made from abroad electronically (for example, via IRS Direct Pay with a U.S. bank account, or with a credit/debit card). Nowadays, geographic distance is no longer an impediment to fulfilling payment obligations.
Recommendations for Costa Rican companies with American partners or directors
Many companies in Costa Rica have US investors, directors, or expatriate staff. While the aforementioned tax obligations are individual to each taxpayer with the IRS, noncompliance by a "gringo" partner can generate collateral risks for the company. Below are some recommendations for anticipating and managing these risks:
Foster a culture of comprehensive compliance: The company should clearly state, through its corporate governance, the expectation that all its directors and partners comply with both local laws and their foreign obligations. Including clauses on tax compliance in internal policies or shareholder agreements can be helpful. For example, annually requesting from US partners proof that they have filed their US tax returns (and informational forms such as FBAR, FATCA, etc.) related to their investment in Costa Rica. This not only protects the individual but also ensures that the company does not have any key members under the IRS's radar. Ultimately, a company is only as strong as the reputation of its leaders; a director's personal tax scandal can tarnish the entity's image with banks, clients, or authorities.
Proactive advice and support: The tax obligations of expats can be complex, so the company could provide specialized advice to its foreign partners/directors. Having a tax advisor familiar with both US and Costa Rican regulations (such as EAS LATAM or another) can make a difference. This advisor can provide guidance on how to report interests in Costa Rican companies (e.g., Forms 5471 or 8865, which many foreign investors must file), use of tax treaties if they exist, and compliance with financial reporting. For example, if the company knows that a US shareholder owns more than 10% of the company's shares, it could remind the shareholder to file Form 5471 for a controlled foreign company, avoiding the $10,000 penalty for failure to do so. Similarly, if any US executives have authorized signatures on the company's bank accounts, it is advisable to notify them that these accounts must be included in their personal FBARs. Providing the necessary information (maximum annual account balance, official name of the entity, etc.) will reduce the likelihood of accidental omissions. In short, education and communication are key: the company should not assume that the partner knows all of their international tax obligations, but rather help them address them.
Monitor potential financial impacts: In cases of serious noncompliance, the IRS may eventually pursue the taxpayer's assets abroad. If a significant partner incurs significant tax debts, attempts could be made to seize dividends or equity interests held in the company (although legally it is difficult to do so offshore without local government intervention). It is important for the company to have a clear understanding of how much its operations depend on the contributions or role of that partner, and what would happen if it faced sanctions in the U.S. (Could it affect its future investment capacity? Or its focus on the business?). Anticipating contingency plans for the eventual forced departure of a partner/director due to legal issues can be prudent. Likewise, if the company makes payments abroad on behalf of that partner (dividends, fees), it must comply with the applicable Costa Rican tax withholdings for remittances abroad. However, it should also consider that such payments could be monitored by the IRS if the partner is in an irregular situation.
Impeccable local compliance: Although it may seem obvious, the best defense against any scrutiny is for a company in Costa Rica to have its local tax house in order. If the Treasury (the Costa Rican tax authority) or the IRS inquire about the structure, it will be less problematic if the company can demonstrate that it is up to date with all its declarations and obligations in Costa Rica. Remember that Costa Rica has a territorial system; income generated outside the country (for example, a shareholder's foreign income) is not taxed locally, but the company's local income is. If the Treasury shares information with other jurisdictions (Costa Rica has adhered to the OECD's CRS standard for the exchange of financial information), a compliant company reduces the risk that an investigation by a partner will lead to collateral findings. Furthermore, solid corporate tax compliance serves as a cover letter to any foreign authority that inquires: it demonstrates that the company operates legally and transparently, isolating the risk to the personal sphere of the offending partner.
Control and reporting mechanisms: Finally, it is advisable for companies to implement internal control mechanisms related to their foreign partners. For example, keep records of FATCA/CRS self-certifications requested by banks (if the company is a financial institution or if its shareholders were required to complete forms W-8BEN-E, W-9, etc.). If a local bank reports the company's account under FATCA because it has beneficial owners in the US, the company should ensure it knows what information was reported. Likewise, if the company makes significant payments abroad (services, royalties, etc.) to related parties in the US, it is advisable to properly document them to respond to any data cross-referencing. In short, the company should create a kind of early warning system: be alert for signs that something is wrong (e.g., a partner avoiding providing their US TIN to the bank, or having problems receiving dividends due to 30% FATCA withholdings). Detecting this early allows us to intervene—by offering help or taking internal measures—before the problem escalates.
In conclusion, June 2025 was a critical month for the tax obligations of U.S. expatriates in Costa Rica, with important deadlines that should not be taken lightly. Failure to file annual returns, financial account reports, or installment payments can lead to fines, interest, and other risks that go beyond the purely economic. However, even after the deadline, there are ways to regularize the situation: from requesting additional extensions to voluntarily correcting shortcomings by using tax exclusions and payment plans. The key lies in immediate and informed action. For their part, Costa Rican companies with U.S. partners would be wise to take a proactive role, creating an environment where international tax compliance is part of good corporate governance. With information updated as of July 2025, the universal recommendation is to avoid complacency: stay informed of IRS rules, rely on tax professionals, and comply with all responsibilities on time, as this will avoid costly penalties and protect both assets and reputation in the long term.
Source: IRS – Taxpayers living and working abroad must file and pay by June 16, 2025 (IR-2025-39, April 2, 2025).
IRS – FBAR guidance for foreign accounts (2024) .
Kiplinger – Estimated Tax Payment Deadlines 2025 .
IRS – Options for failure to file on time (failure to file/pay penalty).
Taxes for Expats – FBAR penalties in 2025 (non-willful vs willful).
EAS LATAM – Taxes for expats in Costa Rica 2025 (FEIE, credit, and reports).
MyExpatTaxes – 2025 Expat tax checklist (automatic extension and Streamlined).
IRS – Paying Your Taxes: Payment Plans and Interest.
IRS – Spanish Tax Tip 2025-32SP (extended to October).