Tuesday, January 12, 2021

2020 US EXPATRIATE TAX INFORMATION FOR AMERICANS LIVING AND WORKING IN MEXICO

 If you are a US Citizen or green card holder you must file a US tax return every year unless your taxable income is below a certain threshold. Even if your income is below that threshold, you may still be required to file certain forms to report foreign assets, etc. Failure to file these forms can result in severe IRS penalties.

 If you do not itemize your health, tax, interest, charitable and miscellaneous deductions you get a standard deduction of $12,400 if single or filing as married filing separately or $24,800 if you file jointly with your spouse.

As a US expatriate living and working abroad 4/15/,21 your 2020 tax return is automatically extended until 6/15/21 but any taxes due must be paid by 4/15/20 to avoid penalties and interest. The return can be further extended until 10/15/21 if the proper extension form is filed. An even further extension until December may be available if the proper letter is sent to the IRS.


✦ For 2020 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $107,600, but this exclusion is only available if you file a tax return. You must qualify under one of two tests to take this exclusion: (1) bonafide resident test or (2) physical presence test. You can read more about how to qualify in IRS Publication 54. This exclusion only applies to income taxes and does not apply to US self-employment tax (social security plus medicare). You spouse who lives and works abroad with you will also be able to use this exclusion against any earned income they have abroad. You can lose this exclusion if you file your return more than 18 months late. The exclusion can only be claimed on filed tax return and does not apply if you fail to file a tax return.


✦ If you receive a gift of $100,000 or more during 2020 from a nonresident individual or nonresident corporation you must file form 3520 to report that gift. If you fail to file that form you will incur substantial penalties. .


✦ If your foreign earnings from wages or self -employment exceed the foreign earned income exclusion you can claim a housing expense for the rent, utilities and maintenance you pay if those amounts that exceed a minimum non-deductible amount. There is a limit to the housing amount and certain “high-cost” locations there is a higher amount of housing expense which can be considered. (For “high-cost” country limitations see Form 2555 instructions).


✦ You get credits against your US income tax obligation for foreign income taxes paid to a foreign country but you must file a US tax return to claim these credits. This avoids double taxation of the same income.


✦ If you own 10% or more of a Foreign corporation or Foreign partnership (LLC) you must file special IRS forms, or incur substantial penalties which can be greater including criminal prosecution if the IRS discovers you have failed to file these forms.


✦ If you create a foreign trust or are a beneficiary of a foreign trust you may be obligated to file forms 3520 and /or 3520A each year to report those activities or be subject to severe penalties. Foreign foundations and non-profits which indirectly benefit you may be foreign trusts in the eyes of the IRS.


✦ Your net self-employment income in a foreign country (earned as an independent contractor or in your own sole proprietorship) is subject to US self-employment tax (medicare and social security) of 15.3% which cannot be reduced or eliminated by the foreign earned income exclusion or foreign tax credits. The one exception is if you live in one of the very few countries that have a social security agreement with the US and you pay the equivalent of social security in that country.


✦ Forming the correct type of foreign corporation and making the proper US tax election (to cause the income and foreign taxes the foreign corporation pays to flow through to your personal US tax return) with the IRS for that corporation may save you significant income taxes and avoid later adverse tax consequences. You need to take investigate this procedure before you actually form that foreign because it can be difficult to make that election later and only certain types of foreign business entities are eligible to make this election.


✦ If at any time during the tax year your combined highest balances in your foreign bank and financial accounts (when added together) ever equal or exceed $10,000US you must file a FBAR form 114 with the IRS by October 15, 2021 for the 2020 calendar year or incur a penalty of $10,000 or more including criminal prosecution. Foreign financial accounts often include accounts in you sign on for a foreign corporation, foreign partnerships foreign pension plans, stock brokerage accounts, and cash surrender value of foreign life insurance. This form does not go in with your personal income tax return and can only be filed separately on the web at: http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html


✦ The IRS gets lists of Americans applying or renewing for US passports or entering the country. They will compare these lists with those who are filing US income tax returns and take action against those who do not file US returns but are US residents or citizens.


✦ Often due to foreign tax credits and the foreign earned income tax expats living abroad who file all past year unfiled tax returns end up owing no or very little US taxes. The IRS has a special program which will help you catch up if you are in arrears which will reduce or possibly eliminate all potential penalties for failing to file the required foreign asset reporting forms. We can direct you to the best program for your situation, prepare the returns and forms and represent you before the IRS.


✦ Beginning in 2011 a new law went into effect which requires all US Citizens report all of their worldwide financial assets with their personal tax return if in total the value of those assets exceed certain minimum amounts starting at $50,000. Failure to file that form 8938 on time can result in a penalty of $10,000. The form is complex and has different rules that apply to you if you live abroad or live in the US. This form is required in addition to the FBAR form 114.


✦ Certain types of income of foreign corporations are immediately taxable on the US shareholder's personal income tax return. This is called Subpart F income. The rules are complex and if you own a foreign corporation you need to determine if these rules apply to you when you file the required form 5471 for that corporation. For 2018 a new tax was enacted with the acronym of GILTI tax. This may or may not cause an owner of a Controlled Foreign Corporation (CFC) to owe taxes on the income it does not distribute to its owners. This GILTI tax applies to 10% or more owners of CFCs.


✦ If you own investments in a foreign corporation or own foreign mutual fund shares you may be required to file the IRS form 8621 for owning part of a Passive Foreign Investment Company (PFIC) or incur additional, taxes and penalties for your failure to do so. A PFIC is any foreign corporation that has more than 75% of its gross income from passive income or 50 percent or more of its assets produce or will produce passive income.


There are many more special tax laws too numerous to mention here that apply to expatriates, green card holderd. nonresidents and US taxpayers with foreign assets, businesses, etc. Please need to consult with Kauffman Nelson LLP if you have other offshore matters to be certain what is required to be filed.


Download your 2020 Expatriate Tax Questionnaire HERE Send us your completed questionnaire and we will immediately provide you with a flat fee quote for preparing your return(s).


Don D. Nelson, US Tax Attorney, Charles Kauffman CPA, Kauffman Nelson, LLP, CPAs

Visit our International Tax Blog for the Latest Expat and International Tax Developments at www.usexpatriate.blogspot.com / http://us-mexicantax.blogspot.com/


We have been preparing tax returns and assisting US clients located in over 123 countries around the the world for over 35 years. We also assist US Nonresidents meet their US tax obligations and return filing requirements. Email, skype or phone us for immediate assistance.


ARE YOU NOW CONFUSED? WE OFFER MINI TAX CONSULTATIONS BY PHONE, SKYPE OR EMAIL: The mini consultations (with attorney client privilege) to answer your tax questions and resolve your tax issues. Email ustaxmeless@gmail.com to learn more or request a consultation


Don D. Nelson, Attorney at Law, Kauffman Nelson LLP, CPAs
Huntington Beach, California USA
US Phone: (949) 480-1235, US Fax: (949) 606-9627
Email:ddnelson@gmail.com or ustax@hotmail.com
Skype address: dondnelson  Whatsapp: 1-818-519-9219

Monday, June 1, 2020

Excellent Contadore Accountant For Your Mexican Tax Returns

Many expats living in Mexico ask us for referrals to excellent Mexico accountants to help them with their Mexico income taxes and other Mexico Tax Matters.   We  have worked for years with  Lance and Sarahi and strongly recommend them to assist you. English is spoken. If you need help, contact:

Lance E Niederhaus, CPA
CP Sarahí Soto
LS Accounting & Tax Services SC
Mex Cell: +52 (624) 157-6605
Google Voice: +1 (949) 436-7737
Email: lanceniederhaus@icloud.com

If you need assistance with your US tax needs contact us at 949-480-1235 US or at our email address at taxmeless  We have been doing US taxes for Gringos in Mexico for over 30 years. We are experts at helping our clients catch up with the IRS and resolving problems resulting from not filing returns.


Tuesday, May 19, 2020

Mexico IVA and Income Taxes Will be Witheld from Payments made to VRBO, ARBNB, by vacation rental renters

Mexico vacation rental through VRBO
The Hacienda or SAT has reached a deal with VRBO, ARBNB and other web based vacation rental companies to withhold Mexico income taxes and IVA from payments made by renters on vacation homes. If you are using one of these services to rent your property stating June 1, 2020, these taxes will be withheld from your rent receipts prior to the balance being remitted to you as the property owner.

When you rent out yourself or a long term rental  or do not use one of web vacation rental companies you still must pay rental income tax and the tenant must pay IVA which you must collect.  If you are a premanent resident and have an RFC number you must file a tax return monthly and if you are a nonresident who owns the real property rented in Mexico you need to use one of the services such as the Settlement Company to pay those taxes. The tax rates are different for residents with RFC numbers versus others. Read more about it here.

The good news is that you get a credit for the Mexico income taxes paid against the tax you pay in Canada or US on that rental income and get to deduct the IVA. If you need assistance claiming the credit email us.  Many US accountants do not know how to claim a foreign tax credit while we have been doing for our clients for over 30 years. Email Kauffman Nelson LLP  .....US CPAs






Friday, May 8, 2020

CHANGES COMING IN THE COLLECTION OF MEXICAN TAXES ON RENTAL INCOME!


It has always been necessary to declare and pay tax on any and all income generated
by rental of Mexican properties. No news there! What is new is that the Mexican tax
authorities are taking an aggressive stance in tax collection and are requiring all
technological platforms (think VRBO, AirBnB, etc) to withhold and pay tax from income
generated.
This new law is slated to take effect on June 1, 2020. Due to the slowdown from CO-
VID 19, regulations and procedure have not been published and this may delay things a
bit. It IS coming however! Be prepared! More details to be published in the Gringo
Gazette in the May 25 edition.  Also watch this blog for further information or write us at

Friday, March 27, 2020

Covid Tax Return Deadlines and Other IRS and State Covid Tax Changes


First case of COVID-19 confirmed in Kandiyohi County | West ...


Current government and IRS pronouncements are not clear whether the automatic extension of time to file your tax returns and pay taxes without penalties apply to US expatriates living and working abroad (normal tax return due date for expatriates is 6/15/20). This may be clarified in the future, but in the interim if you are an expatriate you may want to pay all taxes by 4/15/20 to avoid interest.

The automatic extension until July 15,2020 under the COVID tax bill does not currently appear to include an automatic extension of time to file certain special reporting forms such as 5471, 3520, etc. Therefore, it is best until this is clarified that you file an IRS extension request for any returns that include these forms or the forms by the previous regular due date.

1040-NR returns which were previously due on April 15 (i.e. if there were wages paid) those returns have been extended to July 15, 2020.

The recent COVID tax bill includes outright payments of amounts to each taxpayer if their 2019 earnings (or 2018 if 2019 has not yet been filed) do not exceed certain amounts. SEE THE EXACT RULES FOR THE PAYMENT

If you have not filed your US return for 2018 and 2019 yet, you may want to file them immediately so the stimulus payment referred to in the previous paragraph will be made to you. If you have not filed for 2018, no payment will be made. If you wait too long, the stimulus might not be available. Note that if your 2019 income is lower than 2018 you may want to file in order to show eligibility.

Whether tax income limits for these cash payments apply to your expatriate income after deducting the foreign earned income exclusion or before is not certain at this time

For those who file state returns, many states including California have extended the due date your 2019 state tax return to match the July 15, 2020 federal deadline. Many also do not require payment of the taxes due until that date.

Wednesday, March 25, 2020

NEW TAX FILING DEADLINES AND RULES - COVID-19 US TAX LAW CHANGES

Dear  Mexico Expat, Clients and Friends

Right now, your highest priority is the health of those you love and yourself. But if you have time to read about some non-medical but important matters related to the health crisis, here is a summary of IRS action already taken and federal tax legislation already enacted to ease tax compliance burdens and economic pain caused by COVID-19 (commonly referred to as Coronavirus).
I’ll be sending you summaries of additional developments as they take place. 
Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all taxpayers—meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:
  1. For a taxpayer with a Federal income tax return or a Federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
  2. The taxpayer doesn’t have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
  3. The relief is for (A) Federal income tax payments (including tax payments on self-employment income) and Federal income tax returns due on April 15, 2020 for the person’s 2019 tax year, and (B) Federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the person’s 2020 tax year.
  4. No extension is provided for the payment or deposit of any other type of Federal tax (e.g. estate or gift taxes) or the filing of any Federal information return.
  5. As a result of the return filing and tax payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income taxes. Interest, penalties and additions to tax will begin to accrue again on July 16, 2020.
Favorable treatment for COVID-19 payments from Health Savings Accounts. Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the required deductible levels. But IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don’t affect the status of the account as an HSA (and don’t cause a tax for the account holder) even if the HSA deductible hasn’t been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount.
Tax credits and a tax exemption to lessen burden of COVID-19 business mandates. On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses. The Act includes the four tax credits and one tax exemption discussed below.
...Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.
The tax credit corresponding with the EPSLA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit amount generally tracks the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by (1) the amount of certain expenses in connection with a qualified health plan if the expenses are excludible from employee income and (2) the employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave). The credit applies to wages paid in a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.
...Income tax sick leave credit for the self-employed (self-employed sick leave credit). The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by the IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020. 
...Payroll tax credit for required paid family leave (the payroll family leave credit).  The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable. Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee.
The tax credit corresponding with the EFMLEA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.
...Income tax family leave credit for the self-employed (self-employed family leave credit). The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit. However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020. 
...Exemption for employer’s portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments. Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.
IRS information site. Ongoing information on the IRS and tax legislation response to COVID- 19 can be found here.
I will be pleased to hear from you at any time with questions about the above information or any other matters, related to COVID-19 or not. I wish all of you the very best in a difficult time.  Email us at TAX ASSISTANCE BY CPAS AND ATTORNEYS   Also visit our website at www.taxmeless.com for a wealth of information. 

Wednesday, February 5, 2020

Mexico Corporations - Which are best for your US Income Tax

When you need to form a Mexican Corporation for your business or real estate rental needs, it is very important if you are a US tax filer that you chose the right kind of Mexican corporation.  Only one type of Mexican corporation allows you tile an election to which will cause the corporations net  taxable income and any Mexico income taxes it pays  to flow through to your personal US income tax  return.  You can take a credit on your US return for the Mexican tax offsetting your US tax on the same income and avoid double taxation. That type of corporation is a Sociedad de Responsabilidad Limitada  (SRL).   Depending on the number of owners it will show up on your tax return either as a disregarded entiy or LLC/Partnership.

You must make the election with the IRS to have the Mexico SRL to be treated as a flow through shortly after it is formed in Mexico.  The election form is filed with the IRS.  It is much more complex if you try to do it after the SRL is included the first ime in your US return.  

SRLs are very commonly used by US person with Mexico real estate and that own Mexico businesses.

The other type of Mexico corporation is a Sociedad Anonima or an S.A. De C.V. If you use this type of corporation the income does not flow through to your personal return and you cannot claim a credit for any taxes it pays.  It may also cause you to pay the Section 951a GILTI on nondistribruted net income if its income is in excess of a certain amount. When you distribute the income as dividends you pay taxes again on the same income.

If  you want assistance in forming a Mexico Corporation, and its taxation in Mexico and in the US (and electing flow through status) contact us. Email us at: ddnelson@gmail.com and visit our website at www.taxmeless.com for more information. We are a US firm with over 30 years experience in Mexico/US taxation.