US Expats Must Make Required Distributions From IRA, 401K and Pensions or Pay Substantial Penalites

WASHINGTON — The Internal Revenue Service today reminded taxpayers who turned 70½ during 2015 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Friday, April 1, 2016.

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, a taxpayer who turned 70½ in 2015 (born after June 30, 1944 and before July 1, 1945) and receives the first required distribution (for 2015) on April 1, 2016, for example, must still receive the second RMD by Dec. 31, 2016. 

Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.

The penalty for failing to withdraw the minimum required distribution by the required deadline is 50% of the shortfall. Therefore if the required minimum distribution were $20,000 and you failed to meet the deadline you will owe a 50% excise tax for your delay of $10,000.  There may be a way to get this waived if you have a reasonable excuse but do not count on that rules since the IRS can be tough.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulation  inPublication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

Have questions. Email us at ddnelson@gmail.com 

Taxes on Rental Properties in Mexico – Your Questions Answered

What are the taxes you must pay on your rental income in Mexico?

1. Value Added Tax IVA (excise tax)                         
   
2. Income Taxes paid to SAT on a monthly basis

When are these taxes payable?

• Monthly  filed electronically

What happens if you fail to pay these taxes on your rental income?

• Serious penalties and interest can be assessed by the SAT and other tax agencies as well criminal charges might be filed.  If you manage the property for the owner, you as the manager may have liability for failing to file and pay these taxes.

How can I pay these taxes as a nonresident of Mexico on my income from my Mexican real property?

• If you are a tax resident of Mexico you can use your resident tax ID number and you have your Mexican accountant use your taxpayer identification number (RFC) to file and pay these taxes. However, if you are a nonresident of Mexico it is necessary to contact a Mexican professional or Organization (such as the Settlement Company) to file and  pay these taxes. The Settlement Company in Baja Sur Mexico has developed  legal method where these taxes can be paid by nonresidents.

How are these taxes treated on my US tax return?

• You must report your rental income and expenses on your US tax return on Schedule E (if you are an individual taxpayer).  A Mexican rental is treated the same as US rental in most respects. You can as a rental expense deduct the  IVA tax and local lodging taxes. You can claim the Mexican income tax paid on your rental income as as credit directly offsetting your US tax on the same rental income dollar for dollar. You do not get double taxed on your US tax return

If you need assistance paying your Mexican income and value added taxes (IVA) on your Mexican rental property go to www.rentaltaxmexico.com for more information and assistance.

We can help you with you US tax planning and return filing requirements for your rental property in Mexico. If you fail to follow the best procedure and in many cases make a special US tax election, it can have adverse tax consequences.  Email us at ddnelson@gmail.com for more.