If you are a US Citizen you must file a US tax return every year unless your income is less than $ 9,350 (for 2009 and lower for earlier years) or have self employment-independent contractor net income of more than $ 400 US per year. You are taxable on your world wide income regardless of whether you filed a tax return in your country of residence.
As an US expatriate living abroad on 4/15, your 2009 tax return is automatically extended until 6/15 but any taxes due must be paid by 4/15 to avoid penalties. The return can be further extended until 10/15/10 if the proper extension is filed.
For 2009 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $91,400, but this exclusion is only available if you file a tax return.
If your spouse works and lives abroad, and is qualified, she can also get at $91,400 foreign earned income exclusion.
You get credits against your US income tax obligation for taxes paid to foreign country but you must file a return to claim these credits.
If you own 10% or more of a foreign corporation, LLC or partnership or are a beneficiary of a Foreign Trust such as a Fideicomiso in Mexico, you must file special IRS forms each year or incur substantial penalties which can be greater including criminal prosecution if the IRS discovers you have failed to file these forms.
Your net self employment income or independent contractor income is subject to US self employment tax of 15.3% (social security) which cannot be reduced or eliminated by the foreign earned income exclusion unless you work in one of the few countries the US Social Security Administration has a social security agreement with. If you live in one of those countries you must secure a required certificate to prove your exemption from US self employment tax.
If at any time during the tax year your combined highest balances in your foreign bank and financial accounts such as brokerage accounts, etc. (when added together) ever equal or exceed $10,000US you must file a FBAR form with the IRS by June 30th for the prior calendar year or incur a penalty of $10,000 or more including criminal prosecution. This form does not go in with your personal income tax return and is filed separately at a separate address.
We understand the foreign income tax laws and can coordinate your US taxes with those you pay in your foreign country of residence to help you achieve the optimum tax strategy.
In the past year the IRS has hired more than 800 new employees to audit, investigate and discover Americans living abroad who have failed to file all necessary tax forms.
Often due to foreign tax credits and the the foreign earned income exclusion expats living abroad when filing all past year unfiled tax returns and end up owing no or very little US taxes.
Beginning in 2010 a new law is in effect which requires all US Citizens report all of their world wide financial assets if in total the value of those assets are $50,000 or more. Congress has left it up to the IRS to define what is a “financial asset.”
Income from certain types of foreign corporations are immediately taxable on the US shareholder’s personal income tax return. If your corporation only provides your personal services to customers you may have a Foreign Personal Holding Company which would cause all income to be immediately taxable to you.
If you own investments in a foreign corporation or own foreign mutual fund shares you may be required to file the IRS forms for owning part of a Passive Foreign Investment Company (PFIC) or incur additional, taxes and penalties for your failure to do so. A PFIC is any foreign corporation that has more than 75% of its gross income from passive income or 50 percent or more of its assets produce or will produce passive income.
The IRS is now matching up your US passport with your US tax records and now knows if you have not been filing all required US tax returns while you are living in Mexico. The IRS recently sent Agents to Australia and China to locate bank accounts owned by Americans who are not reporting the income and ownership on the required IRS forms.
Download your 2009 US tax return questionnaire drafted expressly for Americans living in Mexico at http://www.taxmeless.com/07_Expat_Questionnaire__v2.doc
About the author: Don D. Nelson, Attorney, CPA has been assisting US Citizens and Permanent Residents in over 40 countries around the world with their US tax planning, tax return preparation, and other tax / legal matters for 20 years. He offers his clients attorney-client privilege which is not available from other tax accountants. He has helped hundreds of US expatriates around the world “catch up” filing their past late returns most often with little or no tax cost to you the delinquent taxpayer. Don has written expatriate and International tax articles for the Gringo Gazette and for EscapeArtist.com for the last eight years. His main office is at 34145 Pacific Coast Highway #401, Dana Point, California 92629 USA. Visit his website at www.TaxMeLess.com or www.expatattorneycpa.com . Email Don at firstname.lastname@example.org. US Phone 949-481-4094 or US fax 949-218-6483. Our phone in Mexico is 52 624 131-5228, Skype address: dondnelson.
Our Tax Services Include
- Tax Return Preparation – current and past years
- All state returns
- US Tax Forms for Fideicomisos and Mexican Corporations
- IRS Collection and Audit Representation
- International Tax Planning & Strategies
- US and International Estate Planning
- Formation of US Corporations, LLCs, Limited Partnerships and Trusts in Nevada, California and other states
- US Citizenship Expatriation (Never have to pay US income taxes again)
- IRS and State Offers in Compromise and Payment Plans
For the latest developments in US expatriate taxation visit our blog at www.usexpatriate.blogspot.com
Mini Tax Consultations are available for you to discuss with Don your personal tax situaton and secure his counsel resolving your tax problems by phone or email. No personal visit is required.