As if the US Tax law wasn t complicated enough, working and/or livingin Mexico could add additional levels of complexity to your situation If you have incurred taxes on income earned in Mexico and you are a U.S. citizen or resident, you probably are required to file a tax return in the U.S as well Please see part one of this article here (Mexico Real Estate Blog / Paying Taxes from Mexico)
WHO MUST FILE
Requirements for filing a US tax return are the same as if you were living in the US For a single taxpayer, income levels above $8,950 require a return For those married and filing jointly, the minimum income level doubles to $17,900 If you receive income from self-employment however, you must file even if your income exceeds $400 At the very minimum, you may be required to pay self-employment taxes (Social Security, Medicare, etc.) on all self-employment amounts Since many of us in Mexico receive income from personal services, we fall under this category.
If you or your spouse in a non-resident alien, you can take advantage of the joint filing tax tables by declaring that you wish that both of you be considered as US residents for tax purposes This is a preferable option to filing married filing individually You most likely will wind up paying more taxes with this election To be able to file jointly, just add a declaration statement, signed by both of you, stating that the non-resident alien wishes to be considered a US resident for tax purposes and include it with your tax return While this election can be later revoked, if you do subsequently revoke it, you can never again reinstate it.
WHEN MUST YOU FILE
If you are living in Mexico on the regular due date of April 15, you can receive an automatic 2-month extension to file and to pay your taxes due If you file before June 15th, you will only need to mark on the top of your return that you were out of the country on April 15th You can receive additional extension time should you need it Everyone can normally receive a 6-month extension to pay taxes When your 2-month extension comes to an end, you can receive an extra 4 months by filing the regular request for an extension as normal If necessary, you might be able to receive a discretionary additional 2-month extension should you need it While this would allow you to file as late as December 15th, your taxes still would be due by June 15th, the end of the automatic 2-month extension.
FOREIGN INCOME EXCLUSION
If you are a bona-fide Mexican resident or have lived there for at least 330 days in the year, you can take advantage of the foreign income exclusion By including Form 2555 with your return, you and your spouse can each exclude up to $87,600 of foreign income earned (total of 175,200) If you are employed by a Mexican company and receive a housing payment, you may also exclude a portion of this income.
If you haven t spent enough time in Mexico to qualify for the income exclusion, you can take advantage of the foreign income tax credit or tax deduction The tax credit allows you to reduce your US taxes by the amount of income tax you paid to Mexico Since Mexico s tax rate is just 15% up to MXN 1 million, the taxes paid in Mexico will most likely offset any taxes you might owe in the US If you earn more than MXN 1 million, you will probably pay more taxes in Mexico than you would in the US since Mexico s tax rate increases to 30% after 1 million pesos (around $71,000) In the US, for those who are married, filing jointly, the tax rate rises to just 25% after $65,100 This provision allows you to escapedouble taxation
You can also itemize the tax paid in Mexico on your Schedule A as a tax deduction This generally does not work out as well though as the direct tax credit option It s often best though to work through each option to see which election would benefit you best
WHERE TO FILE
If you need to file a return or request an extension, you should send you materials to :
Department of Treasury
Internal Revenue Service
Austin, TX 73301-0215.
Disclaimer: Please keep in mind that this writing is intended to provide you with high-level information and is not intended as tax advice. Tax laws in most countries are complex. You should meet with your professional tax adviser to review your individual situation before acting on any suggestions made in this article.
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Gary Lewis' ideas incorporate more than 30 years working with investments including 20 years experience in the derivatives industry and 10 years as a fee-only comprehensive financial planner. He specializes in designing portfolios that meet the client s required rate of return with a minimum level of volatility.
Gary holds the CFPA, CFP and ChFC designations and earned a Master of Management (MM) degree in finance from Northwestern University. He currently resides in Mexico City(512)-879-6546 www.TOPmexicorealestate.com
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