One of the most frequent questions we receive from American expats is what to do about taxes when you become an expat. When it comes to U.S. taxes, the answer is never simple! Today, we have a guest post by Inez Zemelman, EA, the founder of Taxes for Expats, a firm specializing in tax preparation for U.S. taxpayers who are living overseas.
Taxes for US citizens residing abroad is always a tricky subject. The following information is provided by Taxes For Expats -- They are a professional tax firm that work directly with expats in Mexico and taxpayers across the globe (they have clients in 175 countries) and they often get asked to break down the clunky IRS tax code & explain filing requirements for Americans who live outside the U.S. For more in depth info, please see their U.S. Tax Guide for 2017 for complete info.
(Note: Taxes for Expats is not affiliated with Expat Fever and has not paid a fee in order to be posted here.)
If you are self employed or have a job, you likely need to file a U.S tax return. If you are a US citizens or Green Card holder, you must (assuming you meet the minimum filing thresholds) file an annual tax return reporting your worldwide income from all sources. The minimum requirements are $4k USD for those who are married filing separately (generally those married to a non-US citizen), and $400 for those who are self employed. If you are single the threshold is $10k USD.
You must file - but you likely won’t pay (if your return is prepared correctly). There is a general misconception that you do not need to file if you earn under $100k. This is incorrect. You must file, but if you take advantage of the proper exclusions, most expats won’t end up paying any taxes to the IRS. To take advantage of these exclusions, you need to file; they are not automatically granted. Each year, you must continue to file if you meet the minimum filing requirements. Failure to do so can lead to penalties.
How do expat returns differ from a tax return when you live in the states?
Deadlines: For those residing abroad, tax due is June 15 (automatic two month extension is granted). Note - if you owe any tax, it is still due on April 15th, so get your returns done early in the year to avoid any unpleasant surprises. An additional extension until October is also available - this must be filed before June 15
Many deductions/exclusions available only to those residing abroad: The tax man giveth, but Uncle Sam does not give automatically. In order to benefit from the tax saving methods available - the Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit, Foreign Housing Exclusion, Treaty exclusions, and many more - your tax return must be prepared correctly and tax saving tools utilized properly.
No W-2 (country equivalent) sent to the IRS: Unlike a U.S. employer which will issue a W-2 or 1099, which will be sent to the IRS and to you, your foreign employer will not provide you with such a form (and even if there is a local tax declaration, it does not get forwarded to the IRS). As such, you should keep accurate records of your finances. The U.S. calendar year remains Jan 1- Dec 31, and your local tax declaration may be on a different fiscal year (ie; Apr 1 - Mar 31); we have a special income calculator in our questionnaire that helps normalize your earnings to the U.S. calendar year.
Overall complexity: Living abroad has many benefits, but increased complexity of your U.S. tax return is not one of them. Chances are you have non-US pension, you may be self-employed or own a non-US corporation, or invest in non-US mutual funds - dubbed PFIC (foreign passive investment corporations). Finally, you likely contribute to a non-us social security system, and you need to read up on what totalization agreements are, along with calculating how to treat your employer contributions to your superannuation account and understanding the various tax treaties- it’s no fun; let us make this annoying process less painful.
Reporting your financial accounts - does not generate tax due: Aside from the filing of your returns, you also need to declare your non-US financial accounts (such as bank accounts, superannuation and any other non-US pension) to the U.S. treasury. Note - this does not cause you to owe tax - but you must report these balances. This reporting consists of two main forms --- FBAR (FinCEN 114) and FATCA (form 8938).
These two forms are similar, but have different filing thresholds (10k USD for FBAR - 8938 depends on your filing status and where you reside (see link above). 8938 is filed with your tax return, FBAR is filed separately.
Ines Zemelman, EA is the founder of www.taxesforexpats.com.
The Bisbee Black and Blue Marlin Tournament begins on October 24, 2017 in Baja California, and is open to all! What better way to get away from the cold and enjoy fabulous fishing in the pristine blue waters of Baja California.
To register, go to the official website for the tournament.
Bisbee Tournament Dates: 10/25/2017 - 10/27/2017
If you attend this event, send us your stories and photos, we would love to share them with our readers!
The celebration of the Mexican War of Independence on September 15 is a big event all over Mexico! We spent the day purchasing traditional candies and costumes for our kids. Here is our youngest son all decked out in his traditional garb.
There is fun and fireworks and lots of great tradition on this day. All over Mexico, the politicians come out en masse to celebrate the day, making long speeches while famous bands play in the background. We always look forward to watching "La Paquita Del Barrio" who is considered a national treasure for her salty, heart-felt lyrics ("Paquita from the neighborhood" is the stage name of Grammy-Award winning singer, Francisca Viveros Barradas)
For those of you who are here as expats, enjoy the day and enjoy the fun! It's ten times bigger and better than Cinco de Mayo in the U.S., and you're sure to have a blast.
Reader Question: I live in Calif with my wife and young son. 5 years old. I'm so burned out on Calif it's for this reason I'm trying to persuade my wife to expatriate to Cabo San Lucas.
My wife is concerned about the schools; however, all of the info I've gathered the private schools seem to be terrific. Are you concerned about safety at all?
Secondly how do you create income ? What's a monthly budget in Mexico ? Lastly, are there sports for kids. Basketball Etc?
Manny's Answer: Hi Todd,
Like you, we are also California "escapees", and we love living in Mexico. The month before we moved, the quote we got for our family coverage was almost $3,000 per month (to continue with Aetna). So we knew something had to change, and drastically.
There are good schools and plenty of ways to live and make money down here. A lot of Americans buy real estate and just do the Airbnb or sell timeshares, or find some other job that caters to tourists.
We liked San Jose Del Cabo the best, there are lots of expats from Texas there ans it's more laid back and friendly. The entire state of Baja Ca Sur has a lot to offer and I suggest exploring a bit if you have the budget to do so.
You can go down for a week and even rent a cheap condo right on the beach for less that $1,000 if you don't mind a 1-bedroom or a studio. Then you can explore and find out if Cabo is for you.
As for a budget, it's really all over the place. The average Mexican family lives on $400-$500 USD per month, but I doubt that is the lifestyle that you want. But you can easily live a comfortable life on 2K a month in Mexico, and that's why so many retirees flock down here once they become eligible for Social Security.
As for private schools, I can't speak for all of them. But we've had great luck and have found them to be very affordable. Our eldest son is now bilingual after only 2 years, when he was struggling with just learning English at the terrible California school he was attending before.
As for sports, there are many children's sports. Baseball and Soccer are HUGE down here, and there are plenty of other sports that he can enjoy, too. It's been a great move for us.
So I left my American Express card at home on accident and had to use my Wells Fargo Visa card at a doctor's office in Mexico for the first time in over a year. Wells Fargo charged me almost EIGHT DOLLARS in fees for a SINGLE TRANSACTION!
So I did save hundreds of dollars by going to a Mexican doctor but Wells Fargo took their chunk which is infuriating, especially since it was a single purchase.
God, no wonder people warned me against using their cards. From now on, no more purchases with the Wells Fargo card, ever! It's staying at home for emergencies. I don't have any affiliation with either of these companies, but American Express doesn't charge me any of these stupid fees AND they give me points towards travel.
Wells Fargo could take a few pointers from them. I suggest to everyone, if you are coming to Mexico, bring an American Express card. They don't charge foreign transaction fees and you earn points for future travel. No more Wells Fargo for me.
The next destination on our wish list is the breathtakingly beautiful island of ISLA MUJERES in Quintana Roo, Mexico.
Isla Mujeres (Island of Women) is a small Caribbean island located a few minutes away from Cancún, Quintana Roo, México, was officially appointed as a Pueblo Mágico (Magic Town).
To acquire this title, a place (city, village) must have some peculiarities, a special history, a unique essence, cultural richness, it must possess its own soul, the inherent power of leaving an unforgettable experience in those who walk their colorful roads and enjoy the company of the warm people who live there.
And, Isla Mujeres definitely has all these features. It’s a piece of land surrounded by crystal-clear waters, white-sand beaches, a diversity of sea species living in its barrier reefs, a quaint town with friendly locals, coffee shops, an underwater museum, restaurants that offer a variety of original dishes and, historical sites from the Mayan civilization such as the Ixchel Temple, located near the Acantilado del Amanecer (cliff of the dawn) the easternmost point in México known for being “the first part of the country to be touched by the sun”, where you can peacefully look at the spectacular view of dawn while listening to the calming sound of the waves.
The name of the island comes from a historical episode that took place when Francisco Fernández de Córdoba discovered it in 1517. In prehispanic México, Isla Mujeres was a Mayan sanctuary for the goddess of the moon, fertility, medicine, and happiness: Ixchel. According to the legend, when the Spanish conquerors arrived at the island there were only women inhabiting. These women were priestesses of the sanctuary and Ixchel’s worshippers.
Each year millions of travelers visit the area of Cancún. It is a city where there is always people, noise and parties but, for those who are looking for a more laid-back experience, that want to chill out, forget about their daily routine or in search of adventure through activities such as snorkeling and scuba diving in a less crowded destination, Isla Mujeres is the ideal choice or –as some called it- a hidden treasure.
Arriving to the island is an easy task. A ferry leaves from Cancún every 30 minutes from early morning to 11:00 pm. Likewise, you can take one of the boats leaving from several piers. Prices may vary by stand, so there surely are options for every budget. Furthermore, during the tour you will be overwhelmed by the beautiful view of the skyline.
The island is just 8 kilometers wide so you can easily explore it by foot, walking serenely and taking your time to admire every detail or, if you prefer, you can also rent a golf cart, a motorcycle, a bike or hail a cab.
In the center of Isla Mujeres you can get a meal for a low price at the Mercado Municipal (Municipal Market). This is the place where the locals usually eat so, if you’re willing to meet people, this is a good place to go. Also, in this part of the island there’s a Taller de Artesanías de Mujeres (Women’s Beading Cooperative) where you can find handmade Mexican crafts and jewels such as purses, bracelets, and necklaces, you can even take some classes, if you’re so inclined and, make your own creations, which is a perfect way of spending time with the locals and getting familiar with their traditions.
For those who are more interested in ecotourism and water sports like snorkeling and scuba diving there’s also a considerable number of activities to do. Among them we can find the MUSA (Underwater Art Museum) where you can swim across more than 500 sculptures created by the British sculptor Jason deCaires Taylor. You can as well visit El Garrafón Aquatic Park where you’re allowed to swim with the dolphins, drink a cocktail at the beach, take a walk through nature, chill out at a 35-meter panoramic pool or practice some kayaking.
While scuba diving and snorkeling in the crystal waters of the Caribbean, you can take some aquatic pictures of the coral reefs and watch a lot of diverse and colorful sea species.
One of the main attractions of Isla Mujeres is the Whale Shark Fest where the tourists swim with hundreds of whale sharks that every year come and gather around the island between the months of May and September. Whale sharks are known as the giants of the oceans because they’re the largest fish in the world. It’s an amazing animal and the experience –according to those who lived it- is totally worth it. The next annual Whale Shark Fest has been announced and will take place July 20-23, 2017 in Isla Mujeres, Quintana Roo, Mexico, a short trip from Cancun International Airport.
You can hire an official guide to take you there. And, don’t worry about the whale sharks, the local authorities have rules and regulations to keep them safe from harm. In addition, one of the purposes of the festival is to encourage the protection of these endangered species.
Above all, the island is a place to rest and appreciate life. For this reason, the goal of many of its visitors is to spend some time reading a book on the beach, visiting historical ruins at Ixchel Temple, taking long naps on a hammock, drink a few tequilas, or even meditating! There are yoga lessons in the morning and in the evening in local centers and hotels such as Casa Ixchel Hotel or Red Buddha Yoga & Wellness Center.
You can also visit a spa or get a therapeutic massage. And, if you want to taste new food, you can try the popular Tikin Xik grilled fish in Playa Norte, a whole fish marinated with spices.
Besides, there are all kinds of events and celebrations throughout the year, for instance, fishing tournaments, the carnival, the procession of La Virgen de la Caridad del Cobre and the Festival of the Virgin of Guadalupe.
One thing is certain, you will probably become one of the – as a group of foreigners in Facebook call themselves- islaholics, after visiting this delightful island and basking in its carefree vibe. You will be looking forward for your next chance to return and, you’ll cling to the fond memories of your magical stay at Isla Mujeres.
The Easter fair in Salamanca, Guanajuato is a lively affair for children and adults. There is live music every night, and lots of delicious food and treats for the kids. One big benefit is that all of the rides for small children are free as long as you pay the entrance fee.
there are lots of different games for children, and traditional rides like bumper cars, Ferris wheel, and smaller roller coasters that are appropriate for small children. The children are out of school for a few more days, So we've enjoyed this time at the fair. A few nights, we even got a sitter so that we could go listen to the band. They actually have had some very popular musical acts, including the well known Mexican rock band, El Tri.
If you would like to attend, there is still an opportunity for the next two daysto come and enjoy this fun fair with your family. The entrance fee is only 50 pesos, which translates to about three American dollars. A great deal!
Reader Question: I have been looking to several international schools online, their fees are so different then what you mention in your blog.
Manny's Answer: The main problem is that you can't really search online. There is some limited information available online, but I would never advise anyone to pick out their children's school in Mexico without actually visiting the city and going to the schools in person. It's not a decision to be made lightly.
But I can tell you that our eldest son's tuition is currently 2,900 pesos per month, and that includes a private tutor 3 days a week. That is approximately $150 American dollars at the current exchange rate (current exchange rate is 19 pesos per U.S. dollar). I will say that we spent a lot of time researching "on the ground" so to speak, because many of the private schools in Mexico advertise locally and do not have regular webpages. For example, our son's school only has a Facebook page, and even that page is not frequently updated.
People advertise by word of mouth and (sometimes) Facebook, so many of the best schools are not even online. You really have to go to the city in person and research when you get there. We researched many schools, all over Mexico, and although the prices and the quality of the schools seemed to vary wildly, we found several excellent private (bilingual) schools in every major city that we visited.
We have had great luck so far, and we could never have afforded this quality of private education in the US. Our son's private school offers lots of individual attention, the class sizes are small (12-13 students per class, versus 30 in the U.S.). The school even offers robotics and Japanese! Our son struggled with writing, language and math, but he has thrived in Mexico. Even his speech and vocabulary has improved.
For this alone, we should have made our move sooner. We do not regret our decision to expatriate one bit.
Reader Question: We are thinking of crossing into Mexico to purchase prescription medications, no controls, by foot. I do not want to take our new truck over the border. Which crossing do you find the safest foot travel with pharmacies? With all that seems to be going on between our 2 countries right now, do you think it is even safe to go into Mexico?
Manny's Answer: I assume that you want a place close to the Mexican border to purchase medications. We've gone to Mexico to fill prescriptions plenty of times, even before we decided to expatriate.
I also went to doctors several times in Mexico with great results, when I didn't want to spend (LITERALLY) thousands upon thousands of dollars for something routine, like a root canal. Dental work is very cheap down here, like $30 for a full cleaning and even fillings.
You didn't say where you lived, but we did this in southern California. Going into Tijuana to buy prescriptions is a common thing for those who live in So Cal. The Texas border also has many places where you can hop over and get cheap prescriptions.
We never took our car across the border, but there are people who do. We usually parked right near the border, there are plenty of parking lots that cater to medical tourists and shoppers. Then we would just walk across or take a bus. It was easy. Just go during the day, and don't take a purse or wallet that's easy to steal. Keep your ID and your money in a money belt or in your front pocket. Just be smart about it.
We've never had a single problem down here, and saved thousands upon thousands of dollars over the years. Our kids also go to Mexican pediatricians (last office visit was less than $45, including medications). We don't even pay for American insurance anymore.
I saw something amazing last night at our son's school--an actual Christmas play in an elementary school, complete with angels, 3 wise men, and a sniffling, grinning, Saint Joseph blowing his nose throughout the performance.
My wife and I grew up in an era (the late Seventies, to be exact--God, I feel old saying that!) where Christmas plays and Christmas pageants were commonplace. Now they have all but dissapeared from American schools.
In 2015, the year we finally decided to "pull the plug" and permanently expatriate, our eldest son's school had done away with all holiday celebrations--no Christmas trees, no Menorahs or mentions of Hanukkah, no holiday decorations would be allowed.
Some vague mentions of snowmen and candy canes were permitted, but even that was an anemic attempt not to offend the sensibilities of a few screeching parents that want to ruin the holidays for all the kids, come hell or high water.
So there were no more nativity scenes, no more Christmas plays, no more parades. The kids just went home on "Holiday Leave" and that was it.
Now, we didn't leave California because of this--we mainly left because it was impossible to afford our health care, housing, and still have enough money left over to feed ourselves. LIving on the beach was an impossible dream for us there, so we left. It was primarily an economic decision--BUT, now that we our outside California, it has become apparent how much we were missing (not just in terms of money) but of family, community, and parts of our own upbringing that we thought were lost forever.
And now we are here, in Mexico, surrounded by Christmas lights, Christmas trees, nativity scenes, and, yes, even in this predominatnly Christian country, I've even seen a few proud Menorahs!
And nobody gets offended by seeing a nativity, nobody is getting attacked for saying "Merry Christmas" and everyone is happy and glad. And best of all--the kids love it. The magic of Christmas isn't dead. It's still alive everywhere, and you just have to look to find it.
Just a middle-class dad and mom with three young kids, looking to escape the rat race. This is our journey!
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