NEW US TAX LAW MAY CAUSE YOU TO PAY ADDITIONAL TAX ON INCOME ACCUMULATED IN YOUR MEXICAN CORPORATION

Under pre-Act law, U.S. citizens, resident individuals, and domestic corporations generally are taxed on all income, whether earned in the U.S. or abroad. Foreign income earned by a foreign subsidiary of a U.S. corporation generally is not subject to U.S. tax until the income is distributed as a dividend to the U.S. corporation.

New law. Under the Act, U.S. shareholders owning at least 10% of a foreign subsidiary generally must include in income, for the subsidiary’s last tax year beginning before 2018, the shareholder’s pro rata share of the accumulated post-’86 historical E&P of the foreign subsidiary as of the ‘‘measurement date’’ to the extent such E&P has not been previously subject to U.S. tax. The ‘‘measurement date’’ is Nov. 2, 2017, or Dec. 31, 2017, whichever date produces a greater result.

The portion of the E&P comprising cash or cash equivalents is taxed at a reduced rate of 15.5%, while any remaining E&P is taxed at a reduced rate of 8%.

At the election of the U.S. shareholder, the tax liability is payable over a period of up to eight years The payments for each of the first five years equals 8% of the net tax liability. The amount of the sixth installment is 15% of the net tax liability, increasing to 20% for the seventh installment and the remaining balance of 25% in the eighth year.

The Act provides a special rule for S corporations. Their shareholders are allowed to elect to maintain deferral on such foreign income until the S corporation changes its status, sells substantially all its assets, ceases to conduct business, or the electing shareholder transfers its S corporation stock.

The Act excludes the post-’86 historical E&P from the REIT gross income tests. In addition, REITs are permitted to elect to meet their distribution requirement to REIT shareholders with respect to the accumulated deferred foreign income over an 8-year period under the same installment percentages as apply to U.S. shareholders who elect to pay the net tax liability resulting from the mandatory inclusion of pre-effective-date undistributed CFC earnings in eight installments. (Code Sec. 965, as amended by Act Sec. 14103)

KEY REASONS PEOPLE ARE RETIRING AND MOVING TO MEXICO FROM USA

Read the following article on the key reasons people are retiring or moving to Mexico to conduct their businesse while living a great lifestyle:  https://amarfriendsfoundation.wordpress.com/2016/07/04/key-reasons-why-people-are-relocating-to-mexico/

If you are thinking about such a move and wish to know more about the US tax consequences and the Mexican tax consequences, email us at ddnelson@gmail.com.  We have hundreds of clients in Mexico and spend six months a year there. We can give you the information you need.

IMPORTANT US TAX DEADLINES AND INSTRUCTIONAL VIDEOS FOR US EXPATS IN MEXICO

All U.S. citizens and residents (green card holders) must report worldwide income on their federal income tax return. If you lived outside the U.S. on the regular due date of your tax return, the extended filing deadline for your 2016 tax return is Monday, June 15, 2017.  Similarly, the deadline to report interests in certain foreign financial accounts is the same as your tax return (with some exceptions). Here are some important tips to know if these reporting rules apply to you:

• FATCA Requirements.  FATCA refers to the Foreign Account Tax Compliance Act. In general, federal law requires U.S. citizens and resident aliens to report any worldwide income. You must report the existence of and income from foreign accounts. This includes foreign trusts, banks and securities accounts. In most cases you must report the country where each account is located. To do this file Schedule B, Interest and Ordinary Dividends with your tax return.

You may also have to file Form 8938, Statement of Special Foreign Financial Assets with your tax return. Use the form to report specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds. See the form instructions for details.

• FBAR Requirements.  FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts. If you must file this form you file it with the Financial Crimes Enforcement Network, or FinCEN. FinCEN is a bureau of the Treasury Department. You generally must file the form if you had an interest in foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. This also applies if you had signature or other authority over those accounts. You must file Form 114 electronically. It is available online through the BSA E-Filing System website. The FBAR filing requirement is not part of filing a tax return. The deadline to file Form 114 is June 30.

• View the IRS Webinar.  You can get help and learn about FBAR rules by watching the IRS webinar on this topic. The title is “Reporting of Foreign Financial Accounts on the Electronic FBAR.” The presentation is one hour long. You can find it by entering “FBAR” in the search box of the IRS Video Portal home page. Topics include:

o FBAR legal authorities
o FBAR mandatory e-filing overview
o Using FinCEN Form 114; and Form 114a
o FBAR filing requirements
o FBAR filing exceptions
o Special filing rules
o Recordkeeping
o Administrative guidance

You can access IRS forms, videos and tools on IRS.gov at any time.

Additional IRS resources:

• Comparison of Form 8938 and FBAR Requirements
• International Taxpayers
• International Tax Topic Index
• FBAR Reference Guide
• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
• IRS Tax Map
• Treasury Department End-of-Year Exchange Rates

IRS YouTube Videos – International Taxpayers:

• Introduction to the International Taxpayers Webpage
• Filing Requirements
• Filing Status If Married to a Nonresident Alien
• Foreign Earned Income Exclusion
• Individual Taxpayer Identification Number (ITIN)

Our firm has specialized in expat, nonresident and international tax returns for over 30 years. Need help or further explanation, or your return prepared, contact us.  Email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com .  

MEXICAN TAXES ON RENTAL PROPERTIES IN MEXICO MUST BE PAID TO AVOID SEVERE PROBLEMS

 

THESE MEXICAN TAXES MUST BE PAID

 

• Mexico Income Taxes

 

• Mexico Value Added Taxes – IVA (16%)*

 

SI QUIERE LEER ESTO EN ESPANOL, FAVOR DE VER EL ANEXO.

•  
• Many nonresidents of Mexico have never paid any taxes on their rental income from properties they own in Mexico.  This is against Mexican tax law.  The Mexico tax code clearly states that these Mexican taxes must be paid on rental income from apartments, houses, and commercial property. Failure to do so can result (and has resulted ) in substantial penalties and legal problems with the Mexican tax authorities.

 

            It is now easy to pay these taxes and avoid problems  even if you or your foreign non-resident clients do not have a Mexican tax identification number (RFC).   The Settlement Company® has developed a simple and easy procedure which will allow you to be tax compliant on rental income. You do not have to suffer the consequences of failing to pay. Email us now to learn more and to get started. rentaltaxmexico@settlement-co.com

the settlement company®

(serving the Mexico real estate community since 1991)

www.settlement-co.com

www.rentaltaxmexico.com

 

Mañana is not  your best answer. Email us today so we can help you get started.

Visit our website for more information and to learn  the rules at: www.RentalTaxMexico.com

 

Note: We work with all property managers. the settlement company®  does not manage any properties.

 

The Good News:  The IVA you pay in Mexico is deductible on your US tax return and the income taxes you pay in Mexico can offset your US  taxes on the same income dollar for dollar.  You will not be double taxes.

 

*IVA is paid by tenant but collected and declared by owner.  Applies to furnished residential properties only.

US Income taxes must also be paid and a tax return filed with the IRS on your Mexican rental property. You can deduct IVA and you can take a tax credit for Mexican Income taxes.  If you rental property is owned by a Mexican Corporation, there are certain US tax elections which must be made to avoid double taxation of the rental income and double taxation of the gain on the sale of the property.  Visit our website at www.taxmeless.com or email us at US TAX EXPERT ON MEXICO REAL ESTATE ATTORNEYto learn more.

THREE WAYS TO PULL EQUITY OUT OF YOUR US PROPERTY TO BUY PROPERTY IN MEXICO WITH US INCOME TAX BENEFITS

By Don D. Nelson,  US International Tax Attorney

1. If you have lived in and occupied your US primary residence for at least 2 years out of the five years prior to the date it is sold, under US tax law $500,000 of any gain on sale ($250,000 if filing as single or married filing separately) is exempt from US taxation. This is one of the last big tax breaks left in the US tax code which can allow you to take the equity from your house tax free and purchase a property in Los Cabos.

This same rule applies to US taxes on the sale of your primary residence in Mexico.

2. Though there are limits on the amounts of interest you can deduct for personal  taxes on your personal residence mortgage (which is generally limited by the interest payable on  the current amount of the morgage you used to purchase the property plus the amount of  funds borrowed for improvements), you can always with a second mortgage or a  line of credit borrow an additional $100,000 and still have the right to deduct all interest paid on this loan on your tax return. You can use this $100,000 as part of the purchase price of your new property in Los Cabos.

 An additional limitation on the tax  deduction of mortgage interest on personal real property  is that the  total amount of mortgage loans on your personal residence, line of credit and perhaps a mortgage on your vacation home cannot exceed $1.1 million dollars.  If the mortgages on these properties exceed the limits set forth above the interest on any mortgages above $1.1 million cannot be deducted for tax purposes.

The tax deductible interest rules of personal real estate loans are complex. See IRS Publication  936  at www.irs.gov for a full explanation of the limitations.

3. Though there are limits on the amount of interest you can deduct on your US tax return on your personal  real property mortgages,  if you convert your residence to a rental property you can then refinance  the property to pull out the  equity  you have built up  to purchase property in Los Cabos . Most  often you can deduct all of that interest on your new mortgage as a rental expense on your tax return.  Unlike the limits on deductible interest which exist for personal real estate, there is no limit on deductible interest on rental properties.  And if allowed, you can use any tax losses produced by your rental property of offset other taxable income on your return.

So long as your modified adjusted gross inome does not exceed   $100,000 on a joint US tax return you can deduct up to $25,000 of rental property losses on your tax return to offset your other income if you actively manage your rental real estate.  If you  modified adjusted gross income  exceeds that amount the amount of losses you can use to offset other income is reduced.  Any disallowed rental losses (called passive losses) carry over and can be used in the future. Read IRS Publications 527  and 925 at www.irs.gov to learn the important details of this limit.

As a side note, if you purchase property in Mexico ( whether personal or rental) and use a mortgage for part of the purchase price, the same US tax rules previously discussed apply to your property in Baja Sur.

Don Nelson is a US Tax Attorney (and a retired CPA) who has assisted Americans with their US taxes  and returns in Baja Sur  for over 25 years.  He can be reached by email at ddnelson@gmail.com or at his US phone 949-480-1235  He is also in Cabo for about six months a year.

His website is at : www.TaxMeLess.com.  Blogs with the latest news on US expat and international tax developments are at www.usexpatriate.blogspot.com  and www.us-mexicantax.blogspot.com .

Congress Has Extended Tax Laws for 2015 and Beyond

Click on this Link to read some of the tax laws that were just extended by Congress that may effect you. Let us know when you need US tax help, planning and strategies.


TO DOWNLOAD A COMPLETE ITEMIZED LIST OF  ALL CHANGES CLICK HERE

EIGHT LITTLE KNOWN US TAX FACTS FOR GRINGOS IN MEXICO

By. Don D. Nelson, International Tax Attorney

• Though most foreign assets are reportable on various specialized forms filed with your US tax return,. If you own foreign real estate and title is in your own name (or a Fideicomiso) and do not rent out the property, there is no reporting required on your US tax return or for that matter any other reporting due the US Government.

• Foreign mutual funds (and most foreign money market funds) require filing of another special form with your tax return. If you do not file this form and make elections to report the income each year, you are penalized with higher taxes and interest when you finally sell your foreign mutual fund. These rules were put in many years when Congress was convinced by US Mutual Fund companies that there business would be hurt unless investment in foreign mutual funds was made unfavorable for tax purposes.

• The 2015 the $100,800 US foreign earned income exclusion applies to earned income (wages or self employment) income earned abroad if you meed the physical presence test or bonafide resident test. You can see if you qualify in IRS Publication 54. It is not automatic and can only be claimed on your US tax return. The IRS can deny this exclusion if you file your return more than 18 months late. This exclusion does not apply to rental income, dividends, interest or capital gains or any income other than earned income.

• You must report your rental net income in Mexico from your Mexican real estate on your US return and you also owe taxes on it in Mexico even if you are not a resident. In Mexico you must pay Mexican income taxes on it and also pay IVA tax. (read more on these rules at www.rentaltaxmexico.com )  If you are renting for only a short time, you may also owe local lodging excise taxes. The Mexican income tax can be claimed as a credit directly offseting any US income tax you owe on the rental income. The IVA and lodging taxes can be deducted on your US tax return as rental expenses.

• If you own 10% or more of a Mexican corporation you may have to file form 5471 with your US tax return if required by the rules governing that form. Failure to file that form in a timely manner may result in the IRS assessing a $10,000 US penalty for failure to file even if you owe no taxes.

• The US has a tax treaty with Mexico. It also has in the past year entered into an OECD agreement where the two countries have agreed to exchange income tax information with the other. At some point in the future what you do in Mexico will not stay in Mexico and visa versa.

• If as a US Citizen you have lived and worked in Mexico for a while and not filed your US tax return, the IRS currently has a “streamlined program” that may allow you to catch up by filing only the past 3 years US tax returns and past six year FBAR (foreign bank account reports). They will not penalize you under that program for failing to file FBAR forms or other foreign reporting forms. They have stated they may discontinue this program at any time. Now is the time to surface with the IRS and avoid potentially huge penalties.

• FBAR (foreign bank account reporting forms) must be filed each year with US Treasury if at any time during the calendar year your combined highest balances in your foreign financial accounts exceeds $10,000 US. This form must be filed on line. Foreign accounts include foreign pension plans, cash surrender value in foreign insurance, foreign brokers accounts, and even gold if held for you in a foreign country a custodian. Failure to file this form or filing it late can result in penalties of $10,000 US or more.

Don D. Nelson is a US tax attorney who has been assisting Americans in Mexico for over 25 years with their US tax returns and tax planning. He is also a partner in Kauffman Nelson LLP, Certified Public Accountants. His website is located at www.TaxMeLess.com. He has 2 tax blogs with the lastest tax developments of interest to those in Mexico located at www.usexpatrate.blogspot.com and www.us-mexicotax.blogspot.com His email address is ddnelson@gmail.com. He can be reached at his US phone number 949-480-1235.   Don spends about 7 months a year in Baja Sur, Mexico.

IRS To Start Sharing Tax Data with Mexico

The Internal Revenue Service has kicked off a new program under which it shares large amounts of individuals’ financial-account information with certain foreign countries, the agency said Friday.  One of those countries is Mexico

If you are a permanent resident of Mexico, or dual citizen and your are not reporting all of your worldwide income on your Mexican tax return (if you file one), the Hacienda (SAT) may soon be at your door with their yellow tape and asking about all of  the income on your US return that you have not reported on your Mexican income tax return.  If  you are in Mexico more than 183 days you are considered a full time tax resident and must report and pay taxes on your worldwide income in Mexico. That is not as bad as it sounds since you do get a tax credit on your US return for monies earned in Mexico which offsets your US tax on the same income. .... and on your Mexican tax return you can get a tax credit for taxes you paid on income from the US.  It gets complicated. 

The IRS said it received digital information about U.S. taxpayers’ foreign accounts from governments and firms around the world, and it sent information on foreigners’ U.S. accounts to government authorities in as many as 34 countries. While governments have exchanged such information in the past, the sharing wasn’t automatic and the scope was often far narrower. The deadline for the exchange to begin was Sept. 30.  Read more  below  and see what countries are on the exchange list in the linked Wall Stree Journal article. 

http://www.wsj.com/articles/irs-begins-sending-individual-account-information-to-foreign-countries-1443810584

ALMOST EVERYTHING YOU NEED TO KNOW ABOUT YOUR US TAXES AND THE OWNERSHIP OF REAL PROPERTY IN MEXICO

by Don D. Nelson, Attorney, CPA, International Tax Expert

If you own real estate in Baja Sur, almost everything you need to know about the US IRS tax reporting rules on that Mexican real estate are reported in this article.  The rules are complex, but if you plan ahead, your Mexican real estate can benefit you on your US tax return.

Owning a Full time residence in Baja Sur

The US tax rules are the same on your US return whether your primary residence is located in the US or in Mexico.  You can deduct the interest on the mortgage you incur to purchase the property on up to a 1.1 million dollar mortgage and you can deduct the property taxes you pay on the property.  Both of these are deducted on Schedule A as itemized deductions.  When you ultimately sell the property up to $500,000 of gain on the sale will be exempt from US taxes if it was your primary residence for 2 out of the 5 years prior to sale.  Your gain on sale may also be exempt from Mexican taxes if you fill all of Mexican tax law’s criteria.  You should consult a Mexican CPA to determine the Hacienda’s criteria.

Part time residence

Again the rules are the same as for a second home in the US.  You can deduct property taxes and interest (subject to the limitation of the amount for deductible interest on your first and second home under US tax law) on Schedule A as an itemized deduction.

Rental Property

Mexican rental property held through a Fideicomiso or in your individual name is treated the same as a rental property in the US and reported on Schedule E.  The only primary difference is that you must depreciate the property over a 40 year period versus 27.5 year period for a US residential rental property.  Of course if you pay Mexican income taxes on the net rental income  (and you are required to pay Mexican income tax on that income!)  you can take it as a credit offsetting any US federal  tax on the same income dollar for dollar.  Most states do not allow foreign tax credits.  You can also deduct IVA tax you are required to pay on rental income in Mexico on your US return also

If your Mexican property is used part time by you and is rented out part time as a vacation rental, the US tax vacation rental limits may reduce the amount of deductions you can take on the property.  Read more about Vacation Rental rules and limitations  in IRS publication 527.

IRS Disclosure

Though there are special forms which must be filed with the IRS to report on foreign bank accounts and foreign financial assets (form 8938) real estate held in your own name (or through a fideicomiso) is not required to be reported anywhere on your tax return.  If the real estate is held by a Mexican partnership or corporation that entity may have to be reported on the foreign financial assets form.   The fact that there is no required IRS reporting may account for many of the very expensives homes in Baja Sur that seem to be used very rarely.

Mexican Corporations

If you own commercial property and it is in the restricted zone (which is a large part of Baja Sur) and you follow Mexican law you must as a foreigner own it through a Mexican Corporation.  You are required to file form 5471 and sometimes form  926 reporting that ownership with your US tax return and capital contributions made to that corporation..

It may be to your benefit to make sure the Corporation is a  Sociedad de Responsabilidad Limitada, S. de R.L.  Only with this type of  Mexican corporation can you make an election for US tax purposes to treat the corporation’s net profit or loss  as a flow through to your US tax return which gives you several benefits including  (a) claiming foreign tax credits on your US return for Mexican income taxes paid by the corporation; (b) deducting losses from the corporations rentals on your US return to offset other income; and (c)  avoid double taxation of the gain on sale (or deducting a loss) when the corporation ultimately sells the property.

Mexican and other foreign  Bank & Financial Accounts

You may in connection with your real estate ownership in Baja Sur open a Mexican Bank account or account with a money exchange company. If the combined balances in those accounts at any time during a calendar year are $10,000 US you must file form 114 (filed on line and separate from your tax return) to report those accounts. Failure to file this form can result in a penalty of $10,000 or more.  The form must be filed by June 30th following the end of the calendar year and cannot be extended.  The Mexican banks are reporting your balances to the IRS.

____________________________________

About the Author:

Don has been preparing US Tax Returns and providing US tax planning for US Citizens living in Baja Sur for 25 years.  He offers his clients the absolute privacy of “attorney-client privilege.”  He has assisted numerous Baja residents with the procedures necessary to catch up with past unfiled US tax returns and Foreign Financial Account Disclosure (FBAR and FATCA).  His website is at www.TaxMeLess.com  and his email  is at ddnelson@gmail.com.   Phone him in Mexico at 624-131-5228 and in the US at 949-480-1235 .

Individual Tax Rules Including Allowable Deductions to Use on your Mexican tax filings for 2014

In the prior post we included a graphic showing the various rules in spanish which apply to your Mexican individual tax return for 2014.  It appears many of our friends and clients in Mexico are not that good with Spanish. We have therefore provided the following information on the Mexican income tax rules very roughly translated into English:

If you are from those taxpayers who this month must submit its annual statement to avoid problems with the Mexican IRS, lose fear, as there are tools to help in the process, and may even apply their personal allowances and, where appropriate, get a refund.

Aristotle Nunez Sanchez, head of the Tax Administration Service (SAT), explained that until April 30 taxpayers, individuals enrolled in the register of causes are required to submit their annual return; otherwise, will be entitled to a fine.

The obligors to fulfill this responsibility are all natural, except Incorporation Fiscal Regime (RIF) people; those receiving income from fees, leasing, business, sale and purchase of goods, dividends, premiums and other revenues, and employees who earned revenues of 400,000 pesos, as well as additional income earners salary.

He recalled his right as a taxpayer to make personal deductions. He explained that from this year individuals can deduct their personal expenses up to 10% of their income or four high minimum wages per year (up to 98.243 pesos), whichever is less.

Applications that facilitate the process

To facilitate compliance, Aristotle Núñez said you can use the applications available on the website of the SAT.

In case of an individual who receives income from wages can only access the application within the minisite Employees Annual Statement. To enter only requires RFC, password and personal deductions.

While if it is registered as an individual whose income comes from leasing, interest, business, and does not belong to the tax regime Incorporation must be submitted through the DeclaraSAT application, available on the same site. In this case, you should have on hand the RFC, password, personal deductions and monthly statements to date (in case you have any pending, you must file before making your annual statement).

The head of the SAT noted that applications are preloaded data identification, income and deductions in the case of wages, plus interest income to the information provided by financial institutions.

No income individuals also have obligations

Finally, he said, if you are discharged in the RFC for any of the above items, but not received income during the year, you need to report this situation, presenting the annual return to zero. This it can do online or call Infosat (01 800 46 36 721).

The SAT advised

To avoid complications with his fiscal SAT recommended:

• Fill each and every one of the fields of the statement.
• Declare all income which have been collected in the year.
• In the case of being obliged to have the current interim payments in 2014.
• Check the validity of electronic signatures.
• Submit your annual statement as soon as possible and no later than April 30 to avoid penalties.

Expenses you can deduct

In order to obtain a credit balance you may file tax receipts of the following expenditures:

• Payments for educational services (school) with the following buffers.Preschool 14,200 pesos; Primary 12,900 pesos; secondary 19,900 pesos; professional technician 17,100 pesos, and baccalaureate or equivalent, 24,500 pesos.
• Medical and dental fees. Drugs are included in hospital bills, analysis and clinical studies. No vouchers are from pharmacies.
• Insurance premiums medical expenses.
• Funeral expenses. Only the amount not exceeding the minimum wage of the geographic area of ​​the taxpayer, raised annually.
• Donations granted to authorized institutions. The amount of donations deducted must not exceed 7% of the taxable income of the previous year to which it is declared.
• Actual interest paid on the mortgage of house room whenever the credit granted does not exceed 1 million Udis 500,000.
• Deposits in special personal accounts for savings, premiums for insurance contracts that are based pension plans and acquisition of shares of investment companies.
• Additional contributions for retirement. The amount of this deduction shall not exceed 10% of its taxable income for the year, without those contributions exceed the equivalent of five minimum wages of its high geographic area annually.
• School transport (mandatory) of children or grandchildren.
• Payments for educational services with the following buffers: Preschool 14,200 pesos; Primary 12,900 pesos; secondary 19,900 pesos; professional technician 17,100 pesos, and high school or equivalent, 24,500 pesos.

INTERCAM PRESENTATION IN IXTPA AND ZIHUATANEJO MEXICO RE US EXPATRIATE TAXATION, FBARS, ETC.

See Don Nelson's presentation for INTERCAM  in Ixtapa and Zihuatenajo Mexico on FBARS, and US taxes in Mexico for Americans Living in Mexico below:

Don D Nelsons, Attorney CPA presentation in Ixtapa Mexico

Visit his informative websites full of valuable and  informative information at www.TaxMeLess.com and www.expatattorneycpa.com 

US Expatriate and International Tax Expert to Speak in Puerto Vallarta, Mexico on February 12, 2014

FATCA AND IRS REPORTING FOR DUMMIES - INVESTING IN MEXICO MADE EASY

INTERCAM GRUPO FINANCIERO will Present a Seminar on February 12, 2014 in Puerto Vallarta at the Hotel Marriott Casa Magna featuring Don D. Nelson, US Attorney and CPA.  He is a US expatriate and international tax expert who has been assisting Americans in Mexico for over 23 years.  The seminar will be at 6pm.

He will speak on:

• IRS filing requirements for reporting Mexican and other foreign financial accounts and how to avoid penalties for failing to file in a timely manner.
• The new form 8938 required to report Mexican and other foreign financial assets
• The new on line filing requirements for FBAR (foreign bank account reporting).  Yes you can no longer file on paper.
• IRS Reporting for Mexican Businesses, Corporations, and real estate.
• What to do if you have not been filing your US tax returns or foreign assets reporting forms and how to reduce or avoid the high penalties that may be imposed.
• Current IRS audit procedures and policies for expatriates.
• And he will answer your other questions on US taxation of those who live and work in Mexico

Don's informative and useful tax websites are located at www.TaxMeLess.com and www.Expatattorneycpa.com

Contact intercam at 52-322-2090696 to reserve your space.

Mr. Nelson will also be presenting a seminar in Melaque  on February 13th at 6pm in the Hotel Cabo Blanco.  Call (315) 3556341 to make reservations or learn more.

Mexico introduces tax amnesty program – U.S. businesses with pending tax disputes in Mexico should consider immediate action

2013 Mexican Tax Reform Law

Mexico introduced a comprehensive tax amnesty as part of the 2013 tax reform published in the Mexican official gazette on December 17, 2013. Under the program 80 to 100 percent of federal tax debt and related penalties incurred by companies and individuals are forgiven upon request of the taxpayers. Tax penalties for 2012 and 2013, other than penalties for failure to pay the tax, are also reduced by 60 percent.

General conditions. Under the tax amnesty program initiated by the Mexican tax authority (Servicio de Administración Tributaria - SAT) 80 to 100 percent of tax debt of individuals and entities will be forgiven based on the taxpayer's request to the extent the tax debt originated from tax obligations incurred before January 1, 2007.

The amnesty program also allows for a 60 percent reduction of penalties, other than penalties for failure to pay the tax, for the years 2012 and 2013 to the extent such penalties are paid within 30 days of receiving the tax authorities' notification about the penalties.

The amnesty program is part of the 2013 tax reform law (Ley de Ingresos) that was approved by the Mexican parliament on December 13, 2012.

Scope of the amnesty. The tax debt that is covered by the amnesty may be due to omission of income; failure to pay federal income tax or trade import duties (cuotas compensatorias); inflationary interest and penalties regarding either the federal tax or trade import duties; and penalties due to the failure to comply with federal tax obligations other than the payment of the tax (e.g. reporting obligations).

Taxpayers, that have been under SAT audit for tax years 2009, 2010 and 2011 and where the SAT determined as a result of the audit that there had been no tax deficiency or where the taxpayer paid the tax deficiency found by the SAT, will be granted a 100 percent forgiveness of the pre-2007 tax debt.

Mechanics for requesting tax forgiveness. Taxpayers may request the forgiveness of their tax debt by submitting a written application to local office of the SAT corresponding to the taxpayer's domicile or corporate seat.

U.S. corporations or owners of Mexican corporations with operations in Mexico should carefully review their federal tax and trade import duty situation in Mexico for the years involved. Applying for the tax amnesty may result in significant tax savings. The tax amnesty seems to also apply to tax amounts that are under dispute with the Mexican tax authority including amounts that are being litigated in court. Obtaining forgiveness for disputed amounts may bring further savings as it would eliminate dispute and litigation costs.

Tax Aspects of Dual US and Mexican Citizenship

One of the most frequent questions we receive is, What tax returns and need to be filed with the IRS when I have become a dual citizen of the US and Mexico?  So long as you keep your US Citizenship your US tax return filing obligations does not change at all!  This is true even if you are filing tax returns with the Mexican Hacienda. THERE IS NO CHANGE AT ALL.  Regardless of your dual Citizenship, you must still report your worldwide income and financial assets to the IRS each year.

You may get some benefits though under the US/Mexican tax treaty provisions and you can claim foreign tax credits on your US tax return for any income taxes you had to pay on the same income in Mexico. But you must also remember to file some additional forms which may be required such as form 5471 for your Mexican corporation or Form TDF 90-22.1 for your Mexican bank and financial accounts.  For 2011 there is a new form 8938 which may have to be filed to report your foreign financial assets.  We are experts at preparing these complex forms for Gringos living in Mexico.  Visit our website at www.TaxMeLess.com to learn more and download our 2011 tax questionnaire. 

AMERICANS MUST FILE SPECIAL US TAX FORMS TO REPORT FIDEICOMISO'S OR RISK HIGH PENALTIES

As you know, properties along the Coast of Mexico owned by Americans must hold title through Fideicomisos which are foreign trusts. This means certain special tax forms must be filed each year with the IRS to report your Fideicomiso holdings. Though a few tax commentators have written learned articles saying Fideicomisos are required to file these forms, the IRS has never so stated in writing and the IRS has further stated it does not intend to exempt Fideicomiso owners from filing these forms forms.

These forms do not result in any additional tax, but are informational only. Starting in tax year 2011, you may also have to file Form 8938

Failure to file these forms in a timely manner, or filing the required forms late can result in the IRS imposing penalties up to 35% of the value of the real property held in the Fideicomiso. The IRS has stated that if a late filing excuse is attached penalties may be waived. In fact they have waived penalties in the past though it is not certain how long this will continue into the future.

• Form 3520A is due on March 15^th, but can be extended if an extension is filed by that date.

• Form 3520 must also be filed for your fideicomiso. This six page form is due on the same day as your personal tax return but is mailed to a separate address.

We have prepared hundreds of Forms 3520 and 3520A for our clients in Mexico over the past ten years. If you want to prepare the forms yourself, we also offer a review service so you can be assured you prepared them correctly. Let me know how we can help.

Click here to download our Fideicomiso/3520/3520A Tax Organizer. After you fill it out, return it to us by fax or email and we can provide you with a fee quote. (File is in msword format for easy completion)

We will be in  Los Cabos and La Paz to assist our clients  there from March 16th thru May, 2012.  Please email or contact us for an appointment.

Don D. Nelson, C.P.A., Attorney at Law

Kauffman Nelson LLP

Dana Point, CA 92629 USA

US Phone: 949-481-4094 US Fax 949-218-6483 Skype: dondnelson

Email: ddnelson@gmail.com

Websites: www.TaxMeLess.com www.expatattorneycpa.com

Blogs:  www.USExpatriate.blogspot.com