Mexico News and Mexico Tax Tips
by JOHN GLAAB on April 6, 2018 No Comments
Welcome to our Fourth Edition of Tax Tips and Mexico News. In this edition, prominent U.S. Tax Attorney outlines items that can cause IRS audits. Since the rental tax item in the last edition prompted such great interest, it is being repeated. Two major take aways are: a) Taxes paid on your Mexico income can be deducted from U.S. and Canadian taxes and b) the Government of México is working with its tax department (SAT), immigration and international banks to detect tax evasion by those not declaring Mexico rental income.
ITEMS THAT CAN CAUSE US EXPATRIATE TAX RETURNS TO BE AUDITED BY IRS
By Don D. Nelson, International US Tax Attorney
Items can cause audits are listed below.
a. Ownership of a foreign mutual fund and failure to file the special forms required for foreign passive investment companies.
b. Ownership of foreign partnerships and foreign corporations in which you own the majority interest. (If you own 10% or more of a Mexican corporation you must file form 5471)
c. Large. Inheritances or gifts received from nonresident donors when you fail to file form 3520 to report those gifts or inheritances. Even if the property an assets are located abroad you must report them to the IRS. The penalties are huge for not reporting foreign inheritances, but there is no tax on foreign inheritances if you file this form in a timely manner.
d. Unusually large income from outside the US with unusually large deductions offsetting most of that income so little tax is paid. This might not cause an audit if your paid substantial foreign income taxes abroad and you are claiming a foreign tax credit to offset your US tax on that income.
e. Claiming the foreign earned income exclusion when you spend a lot of time in the USA but are claiming you earned all wages or earning in Mexico.
f. Failure to file FBAR form 114 when required. ALL of the banks in Mexico are reporting accounts owner by Gringos to the IRS each year. If you have not filed form 114, the IRS will charge you a penalty of $10,000.
The IRS Offshore Voluntary Disclosure Program is ending this coming September. If you have not been filing time is running out to enter this program and avoid extremely high penalties and criminal penalties for failure to report your foreign and Mexican income to the USA
Remember the IRS can audit your return up to three years after it is filed and up to six years if you omit 25% of your income. The statute of limitations never runs out if you should have filed a US tax return but failed to. Dual Citizenship has no bearing on the requirement that you file a US tax return each year. If you want to avoid IRS audits or need representation when the IRS does audit your expat or international tax return email us at : ddnelson@gmail.com. Our website is at www.taxmeless.com. Our US phone number is at 949-480-1235. In Mexico call
624-131-5228.
Fulfilling Your Obligation to Pay Taxes on Mexican Rental Property by John K. Glaab, CIPS
As with other countries the Mexican government expects nationals and foreigners alike to pay taxes on income in the country. Failure to do so can and has led to substantial actions and penalties. Even if the funds are received outside the country they are still subject to taxes here, because the income was generated in this country.
Below are two key questions with answers:
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.
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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 credit directly offsetting your US tax on the same rental income dollar for dollar. This is because Mexico has tax treaties with more than 30 countries, including the U.S.A. and Canada. You do not get double taxed on your US or Canadian tax return
Learn more about rental taxes in Mexico and how to pay them at: www.rentaltaxmexico.com —or —Email us for more information ddnelson@gmail.com info@settlement-co.com
