Sunday, March 12, 2023


Expatriate taxation for US citizens living and working in Mexico are complicated. You must file a US expat tax return no matter where you live and work in the world each year so long as you earned in excess of a certain amount. Failure to file can result in substantial penalties and interest and possible criminal prosecution.

Learn all of the rules and regulations at our website   At our website you can download a 2022 tax questionnaire which you can use for the current year and any past unfiled returns. Contact us with your questions and inquiries by email HERE.   Our whatsapp number in the US is 818-519-9219.  

One more thing, if you owe the IRS more than $50,000 they can seize your US passport when you enter back into the US at the border or airport. We can help you resolve this problem before it happens.



Friday, February 24, 2023

3 Examples of How Taxes on Mexico Rental Properties Work

If you rent your real estate in Mexico full time or part time when not using it the income you make is subject to several rental taxes in Mexico. This applies to owners who are residents and nonresidents. These taxes also apply to rental of No Problems With Taxes on My Mexican Rental Propertyyour timeshare.  Failure to pay all applicable taxes can result in severe penalties. The following examples explain the taxes and penalties you will incur for ignoring Mexican tax laws:

Example 1.  Bill and his wife Sarah rent out their  condominium in San Jose for 5-6 months out of the year on a weekly or monthly basis to tourists.  Though they report their rental income and expenses on their US tax return, they have never paid any taxes on that rental income to the Mexican tax authorities.  Their neighbors have told them not to worry, since no one ever pays taxes on vacation rental income in Mexico and probably do not have to.

Is this actually true?  No!  Definitely not!   Bill and his wife must pay taxes on their income which is generated in Mexico!

What kind of taxes should they be paying and how much?.  They must pay the ISR tax, a type of income tax, in the amount of 25% of the gross rents and, if the unit is furnished,  a 16% Value Added Tax (IVA).

An important point  The ISR TAX they pay can become a tax credit in the US, so double taxation is avoided.   The 16% IVA tax is generally paid by the tenant and is simply declared by the landlord.

What are the penalties, interest, etc. they might incur?  The penalty for not being enrolled as a taxpayer is 2,740. to 8,230 pesos.   The penalty for not making declarations as required range from 1,100. pesos to 13,720. pesos per month in addition to interest for not paying on time and as required is 1.13% per month.

Are there any other possible legal consequences for failing to pay taxes on rental income from their condominium?   If the tax authorities have not discovered the illegal rental income and notified the landlords, back interest and penalties may be waived..   It is important, however,  to begin declaring and paying prior to discovery.

Example 2.  Phil owns a home in Cabo San Lucas.   He leases it to a Timeshare salesperson on a yearly basis.  The renter pays the monthly rent directly to Phil’s US bank account and no money is paid in Mexico.

Does Phil have to pay taxes on that income in Mexico?. Absolutely!  Phil has an obligation to pay taxes on any income generated on property located in Mexico.

What are the taxes and when are they due?.  Phil must pay the ISR tax, a type of income tax, in the amount of 25% of the gross rents and, if the unit is furnished,  a 16% Value Added Tax (IVA).

What are the consequences of failing to report the rental income in Mexico? Much the same as Bill and his wife in the example above, Phil will be liable for not being enrolled as a taxpayer which can cost him 2,740. to 8,230 pesos.   The penalty for not making declarations as required range from 1,100. pesos to 13,720. pesos per month in addition to interest for not paying on time and as required is 1.13% per month.  The amount of the penalty may depend upon whether or not this is a first violation for Phil.

Should he go back and pay in those taxes for past years when he failed to pay the taxes?   If the Mexico tax authorities have not notified Phil he is in violation of the tax code, he probably will not need to file back taxes.   The important point is to begin and to be consistent in the future.

Since Phil is a nonresident and does not have a factura number, how can he pay taxes?  Phil must appoint a Mexican company or an individual to be responsible for the retention and the filing of these taxes.    His official representative will issue the correct invoice or factura.

Example 3.  The Smiths normally do not rent out their home in Todos Santos.  But since they are taking a 2 month tour of Europe they are renting it out for $3500 per month for two months.

Do they have an obligation to report this rental income to the SAT?  Yes, they have an obligation to report and pay taxes on any income generated from property located in Mexico.

.  They are permanent residents of Mexico, and Canadian Citizens.  They also do not report any of their other income earned in Canada in Mexico.  It is now a year later and they have learned that rental income must be reported and taxes must be paid on it.

How much tax will they owe?     Technically they owe $875. USD, plus 16% IVA.

What will be the penalties for failing to report that income on a timely basis?

Penalties could be as listed above.

Tuesday, February 21, 2023

2022 Tax Facts for US Expatriates and Green Card Holders Living and Working in Mexico

 2022 Fast Tax Facts  for  US Expatriates and Green Card Holders

  Living and Working in Mexico

Kauffman Nelson LLP CPAS - Don D. Nelson , Attorney,   Charles Kauffman  CPA

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 $12,950 if single or filing as

married filing separately or $25,900 if you file jointly with your spouse. 

As a US expatriate living and working abroad 4/18/2023 your 2022 tax return is automatically

extended until 6/15/23  but any taxes due must be paid by 4/18/23  to avoid penalties and interest.

The return can be further extended until 10/15/2023 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 2022 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from

wages or self employment) of $112,000 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) bona fide 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).  Your spouse who lives 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 or inheritance of $100,000 or more during 2022 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 and taxes. .

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 in 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. Value added taxes paid to foreign countries are not eligible

for this credit.

If you own 10% or more of a Foreign corporation or Foreign partnership (LLC) you must

file special IRS form 5471 or 8865,  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 of $10,000 US or more Foreign foundations and nonprofits 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 agreements 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 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, 2023 for the 2022 calendar year or incur a

penalty of $10,000 US or more including criminal prosecution. Foreign financial accounts

often include accounts when 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:

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 eliminateall 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 holders. nonresidents and US  taxpayers with foreign assets, businesses, etc.

  Please consult with Kauffman Nelson LLP  if you have other offshore tax planning or return

filing questions.

Download your   2022 Expatriate Tax Questionnaire at

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
Huntington Beach, California USA Cabo San Lucas, Baja Sur, Mexico

US Phone: (949) 480-1235, US Fax: (949) 606-9627 or
Skype address: dondnelson   whatsapp:  818-519-9219 (US)

Visit our International Tax Blog for the Latest Expat and International Tax

Developments    /

We have been preparing tax returns and assisting US clients located in over 123

countries around the world for over 30 years. We also assist US Nonresidents

meet their US tax obligations and return filing requirements. Email, skype or phone

us for immediate assistance. 



consultations(with attorney client privilege) to answer your tax questions and

resolve your tax issues. Email to learn more or request a


For additional useful information and tax assistance go to our website at.

Disclaimer and Conditions: The information contained herein is general in nature and is not to be construed

or relied on as tax or legal advice with respect to you individual tax situation or questions. Your use of this

does not create an attorney/CPA client relationship between you and this firm. You must retain competent

CPA and Attorney counsel to advise you on your particular situation.

US Tax Factors When Forming a Mexican Corporation

 There are two main types of Mexican corporations.  Both are taxed in the same way in Mexico but only when  of those two are  eligible for often advantageous tax treat on your US tax return if the proper election is made for US tax purposes. That US tax election must be made with the IRS within a certain time period after your Mexican corporation is formed.  If you do not make the election in that period making it later may cause you to pay unnecessary US and Mexico income taxes.

The two primary types of Mexico corporations are (a) Sociedad Anonima or (2) Sociedad de Responsabilidad Limitada.

We can help you chose the best type of Mexico corporation for your Mexico business or real estate ownership or rental property.  This of course depends on the net profit you project the corporation to make. We can also help you file the election  (if you have the correct type of corporation in Mexico) with the IRS which will allow you to take a tax credit on your personal US return for taxes paid by the corporation in Mexico. That tax credit will reduce your US taxes you might have to pay on that corporate income.

We can help you chose the best type of Mexico corporation to achieve the optimum savings on your US tax return.  Email US to set up a mini- consultation before you form your Mexico corporation. CONTACT US HERE

Monday, February 13, 2023

14 Important US Tax Rules and Laws that Apply to US expatriates living or working in Mexico

Most of the special tax rules and breaks (14 items in all) that apply to US expatriates are listed in the the following summary:  DOWNLOAD HERE.  These rules can be applied to your situation, as a Mexico resident or property owner with our expertise.  We have been serving US expatriates living in Mexico with our tax return preparation and planning for over 30 years. 

Contact us with your questions at    Visit our website at    You can text of whatsapp us at 818-519-9219 (US No.)

We are Attorney and CPAs with the knowledge and experience that will save you money and if you are behind in filing with the IRS help you enter their catch up programs which reduce or eliminate penalties.  We look forward to making this an easy and simple experience for you.  All services provided virtually.  We are license in California and located in Huntington Beach and Cabo San Lucas.

Saturday, July 16, 2022

Mexicoś income tax rates personal and corporate income earned in Mexico

Go the following link to read about Mexicoś personal income tax rates on individuals. 

Cabo San Lucas - a Tax Haven?

Mexican corporations pay a flat rate of 30% of net profit.

Most Mexico dividends and interest paid by banks are taxed at 10% which is the amount the payor withholds when that income is distributed to you.

Need further advice or return preparation  on your US taxes with respect to you rental, business or other income from Mexico?  Email us at 
Mexico -US tax informaton

Sunday, May 29, 2022


 Nonresidents of Mexico who own rental property there must pay Mexican income tax and in many

instances Mexican IVA (value added taxes) on their rental income.  Failure to do so can result in huge penalties when caught by the SAT (Mexican IRS).  If you rent out through VRBO or ARBNB they will

pay the taxe for you but if you have a long term rental or do short term rentals on your own, you must file the required tax returns. Now even those with FMM (tourist permits) can get an RFC (tax id number) so they can pay their Mexico income taxes. 

Read more about how Mexico rental taxes work here:

We have been assisting Gringos living and owrking in Mexico with their US taxes for over 20 years. Write us for more information:  Kauffman Nelson LLP, Certified Public Accountants  Email us for more information and assistance.