Americans Living in Mexico – Filing a US Expat Tax Return Explained
Perhaps you’re already living in Mexico, or perhaps you’re thinking about moving there. Mexico certainly has plenty to recommend it, including beautiful landscapes and beaches, a fascinating culture, delicious food, and relaxed, friendly people. With the US dollar currently strong, it’s a good time to move to Mexico, so read on to find out what you need to know about filing your US tax return as an expatriate American living in Mexico.
All US citizens and green card holders living abroad still need to file a US federal tax return every year reporting their worldwide income. So if you’re American and you live and work in Mexico for a Mexican company, you still have to file a US return declaring your Mexican income. In theory, you’re liable to pay US taxes on it too, however in practice most people don’t end up paying any US tax as they claim either the Foreign Earned Income Exclusion (which excludes up to around $100,000 of foreign earned income from US tax liability), and/or the Foreign Tax Credit, which allows you to claim a dollar tax credit for every US dollar equivalent of tax paid in another country. Both of these exemptions need to be claimed though.
Filing Dates for Expats
While any tax you may owe to the IRS still should be paid by April 15th, expats get an extra two months to file form 1040, until June 15th, with a further extension available to October 15th upon request. While this extra time may seem like a bonus, the reason for it however is that there’s often more to file as an expat. Read on to find out more!
Extra Filing Requirements for Expats
“Picture this: Sunshine and low to mid 80s nearly every day, low humidity, free healthcare and affordable housing that includes a maid and someone to clean the pool.” – CBS News
American expatriates have to declare any assets abroad worth over $200,000 per person (excluding their home) on form 8938. Furthermore, if you have an aggregate total of over $10,000 in one or split between several foreign bank or investment accounts at any time during a tax year, you are required to file an FBAR (foreign bank account report) declaring the account details and balances. If you have been living in Mexico for a while but weren’t aware of your US filing requirements, don’t worry though, as there’s penalty-free program that lets you catch up called the IRS Streamlined Procedure.
What about Mexican Taxes?
Expats are liable to pay Mexican taxes on their worldwide income if they have a permanent home in Mexico. If they also have a home in another country, they must file Mexican taxes if more than half of theier annual income is sourced in Mexico, or Mexico is the primary place of their professional activities. Mexican taxes are due by April 30th. You can find current Mexican income tax rates here. The Mexican tax authority is the Servicio de Administración Tributaria.
Need some help?
Expat tax requirements are more complex than for Americans living in the US, and they also potentially need to be filed alongside a Mexican tax return. We recommend that for your American taxes you consult an expat tax specialist who will ensure that you employ the right strategies and claim the right exemptions to save you money with respect to your individual situation.