US and Mexico Taxes for Americans Living in Mexico. If you have a fideicomiso, Mexican corporation, a foreign bank account in Mexico, or live in Mexico this blog will have data you need about the required forms 5471, 3520, 3520A, FBAR 114, 926, 8865, 2555, 1116, etc., which you may have to file if you live and work in Mexico.
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:
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.
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.
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
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.
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:
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.
The taxpayer doesn’t have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
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.
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.
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.
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: firstname.lastname@example.org 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.
Registering to Vote and submitting a ballot is fast, easy, and can be done from anywhere in the world - even Mexico!
Start by confirming your voter registration with your state. Some states require absentee voters to register annually so you may need to re-register. Go to FVAP.gov to connect to your state’s voter portal to register to vote, request a ballot, and more. Once you confirm your registration, follow a few simple steps to vote in the 2020 U.S. elections:
1. Request Your Ballot: Most states provide the option to request ballots through their state election portals, which you can easily access via FVAP.gov. You can also choose to complete a Federal Post Card Application (FPCA). The completion of the FPCA allows you to request absentee ballots for all elections for federal offices (President, U.S. Senate, and U.S. House of Representatives) including primaries and special elections during the calendar year in which it is submitted. FPCA forms that are correctly filled out and include a signature and date are accepted by all local election officials in every U.S. state and territory. FVAP’s easy online assistantcan assist you with completing the FPCA. Whether you request your ballot through your state’s portal or the FPCA, we encourage you to select the option for receiving your ballot electronically (by email, internet download, or fax) when available. This is the fastest way for you to get your ballot and ensures you have it in time to return a completed form before your state’s deadline.
2. Receive and Complete Your Ballot: States are required to send out ballots 45 days before a regular election for federal office and states generally send out ballots at least 30 days before primary elections. Most states allow you to confirm your ballot delivery online.
3. Return Your Completed, Signed Ballot: Some states allow you to return your completed ballot electronically and others do not. If your state requires you to return paper voting forms or ballots to local election officials by mail, you can do so through international mail, professional courier service, or through U.S. Consulate General Tijuana’s diplomatic pouch. The diplomatic pouch provides free mail service from embassies and consulates to a U.S. sorting facility. You will need to place your ballots in postage paid return envelopes or in envelopes bearing sufficient U.S. postage, in order for them to be delivered to the proper local election authorities. If using the diplomatic pouch, ballots can be dropped off to the American Citizen Services section by October 20, 2020, during normal operating hours between 7:30 am and 4:15 pm. Please note that all visitors to the Consulate are subject to security screening and you will not be permitted to bring electronic devices, including cell phones, inside the facility. Please note that it can take up to four weeks for mail to reach its destination if sent by an embassy or consulate via diplomatic pouch. All overseas U.S. citizens are advised to submit their forms and ballots accordingly.
Researching the Candidates and Issues: Online Resources. Go to the FVAP links page for helpful resources to aid your research of candidates and issues. Non-partisan information about candidates, their voting records, and their positions on issues are widely available and easy to obtain on-line. You can also read national and hometown newspapers on-line, or search the internet to locate articles and information. For information about election dates and deadlines, subscribe to FVAP's Voting Alerts (email@example.com). FVAP also shares Voting Alerts via Facebook (@DODFVAP), Twitter (@FVAP), and Instagram (@fvapgov).
Learn more at the Federal Voting Assistance Program's (FVAP) website, FVAP.gov. If you have any questions about registering to vote overseas, please contact U.S. Consulate General Tijuana at VoteTijuana@state.gov.
You can discuss your situation with a US expatriate international tax expert Attorney , with the protection of Attorney-Client privilege by requesting a "Mini Consultation." A Mini Consultation costs $300US for up to 30 minutes of Mr. Don Nelson's professional legal tax advice over the phone, or by skype or email. No need to visit his office. If you send us an outline of your factual situation and questions in advance, he can prepare in advance for the consultation which makes the consultation extremely effective and efficient and usually resolves all of your questions within the time allowed. Over 1,000 expat taxpayers and nonresidents located everywhere in the world have used "Mini Consultations" to solve their tax problems and issues with great success. Our US Phone is (949) 480-1235. US Fax (949) 606-9627 or you can talk on my skype at dondnelson (skype address) . Email don at : US International Tax Expert Attorney. Consultations are also available on WhatsApp. Payment can be made by credit card, echeck, paypal, or wire transfer. If your questions or problems are URGENT let us know and we can often schedule your mini consultation on the same day. DOWNLOAD A MINI CONSULTATION ENGAGEMENT AGREEMENT TO START NOW. Don D. Nelson, International Tax Attorney at Law Partner Kauffman Nelson LLP , Certified Public Accountants Huntington Beach, California, USA
SAT, the Secretary of Attention to Taxpayers, the equivalent of the US – IRS, Internal Revenue Service, and Canada’s CRA Canadian Revenue Agency, is reviewing social media sites, including Air BnB and VRBO, to determine who is offering property for rent and who is receiving unreported income.
Evasion of tax is a criminal offense. Articles 150 to 178 of the Fiscal Code provide for imprisonment of up to six years for evasion of taxes. Not only is it a criminal offense but the taxpayer must pay the past due taxes and very substantial interest penalties which amount to 1.3% per month, compounded. Unless taxes and accrued penalties are paid in a timely manner the property can be seized and put up for auction. Additionally, in a reform of Article 118 of the Fiscal Code, no landlord may demand payment of past due rent in the courts without submitting proof of tax compliance.
The Mexican government has decreed that income generated from the rent of a Mexican property is due and payable in Mexico, regardless of where the income is received. And it is getting very serious in its efforts to collect this tax and to punish those who evade payment, whether through intention or ignorance. SAT has determined ignorance is not a legitimate excuse. This growing issue and omission now represents a glaring 1% of Mexico’s Gross Domestic Product. Mexican authorities are anxious to correct this shortfall.
There are programs in place for both Residents in Mexico and Non-Residents of Mexico, to declare and pay the lawful taxes which include both the tax on income (ISR) and, in the case of a unfurnished rental, the 16% added value tax (IVA). Realistically there is no way to legally avoid declaring and payment of these taxes. To continue to evade this responsibility will put the affected property at risk.
And the good news, due to Mexico’s tax treaties with 32 countries, double taxation is never an issue.