FBAR and US Taxes for Expatriates - Intercam Presentation , Ixtapa, Mexico

Don D. Nelson, Attorney at Law , Certified Public AccountantKauffman Nelson LLP

www.TaxMeLess.com / www.expatattorneycpa.com

• ALMOST EVERYTHING YOU NEED TO KNOW ABOUT US -IRS REQUIRED MEXICO FINANCIAL & BANK

ACCOUNT REPORTING • and

• US TAXES IN MEXICO

IRS REQUIRED FORMS CAN BE SIMPLE AND EASY

Current Status of International Taxes and the US Internal Revenue Service

• - Virtually every country in the world have agreed to participate in FATCA – this includes most countries which previously were “secrecy havens.”

• - US now has other agreements with over 60 countries to exchange tax information (going both directions) and the list is growing daily. Mexico has signed one of these agreements.

• - A US Citizen or green card holder must file a US income tax return each year and report their worldwide income to the IRS even if they also pay and file taxes in their country of residence.

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How Mexican taxes effect your US tax return:

l * US Taxpayers get a dollar for dollar credit for any income taxes paid in Mexico against their US income taxes on the same income. Therefore NO DOUBLE TAXATION.

l *Taxes withheld from your Intercam Account on Interest and Dividend income can be used to offset the US taxes on the same income.

l * BE CAREFUL ABOUT: The Hacienda in many parts of Mexico is now forcing Americans renting their taxes to pay Mexican Income Taxes on the Income and IVA (16%) on the gross rental receipts.

l * IVA is deductible on your US tax return as a rental expense and the Mexican Income taxes can be claimed as a foreign tax credit offsetting your US tax on the same income.

FBAR – FORM 114– Report of Foreign Financial and Bank Account FBAR – FORM 114– Report of Foreign Financial and Bank Account Information to IRSInformation to IRS

• Due June 30 following end of calendar year• Cannot be extended – filed on line separate from your tax return• Must file on line or your tax return preparer can file on line for you.• File if combined highest balances of accounts you sign on exceed $10,000

US at any time during calendar year• Foreign accounts include stock brokerage accounts, safe deposit boxes,

etc.• Must file for all accounts you sign on even if do not own account• Filed in additional to form 8938 (if that form is required)• Statue of limitations on FBARs is 6 years• Penalties for not filing or filing late can be $10,000 or more up to greater of

$100,000 or ½ highest balances for year.• Criminal penalties for not filing can be up to 5 years in prison.• Must answers questions on FBARs at bottom of Schedule B on your

personal tax return.

Information Required for Form 114 for on the internet:

Web address to enter FBAR (FORM 114) data on line: http://bsaefiling.fincen.treas.gov/main.html

- Your name, address, social security number and birth date

- Name of foreign bank or financial institution and its mailing address

- Your Account Number

- Highest balance in US dollars during the calendar year

- You can use to exchange rate for end of year form www.Oanada.com.

- Name and address of any other signer on account and their social security number.

- If you sign on an account owned by another, you need to put their name and address and your relationship to them.

- When filing on line must use adobe acrobat reader which is free to download.

-Get the numbered receipt for filing so you have proof the FBAR was filed.

-If you file jointly with spouse must also fill out Form 114A and keep with your tax returns for 5 years.

INTERCAM Will send you all Data to use for your FBAR (form 114) and Form 8938 on the following form:

• Form 8938 - Report of Foreign Financial Assets (REQUIRED SINCE 2011)

l Must filed with personal tax return if (a) file as US single resident with $50,000 or more in foreign financial assets; (b) file as US resident with $100,000 or more in foreign financial assets; (c) Living abroad with foreign financial assets of $200,000 or more if filing single or $400,000 or more if filing jointly.

l Foreign financial assets include bank accounts, stock accounts, contracts to receive payment, foreign stocks, foreign bonds, foreign promissory notes, foreign partnership or trust interests, gold held by another in your behalf, foreign pension plans, etc.

l Real estate is not included in definition of foreign financial asset unless held in foreign corporation, trust, partnership or foreign LLC

l $10,000 penalty for failure to file

When You must file Form 8938 with Your Return

Filing Situation Value on last day of the tax year is at least this amount:

Or, at any time during the tax year, the value is greater than:

Single or Married Filing Separate taxpayers living in the U.S.

$50,000 $75,000

Married Taxpayers filing jointly living in the U.S. $100,000 $150,000

Taxpayers not filing jointly who are living outside the U.S. and would qualify for the foreign earned income exclusion

$200,000 $300,000

Married Taxpayers filing jointly who are living abroad and would qualify for the foreign earned income exclusion

$400,000 $600,000

- Same data for foreign financial accounts as included on FBAR form 114.

- Also include number of on forms 5471, 8865, 3520 also included in returns

- Do not have to list foreign real estate held in your own personal name (but do have to list if title held in foreign corporation, partnership, trust, etc.

- List other foreign financial assets such as foreign stocks, promissory notes, bonds, etc.

4 METHODS TO SURFACE WITH THE IRS FOR PAST UNFILED

RETURNS OR UNFILED FOREIGN ASSET REPORTING FORMS

1.STREAMLINED ROGRAM (BEST)

2. VOLUNTARY OFFSHORE DISCLOSURE PROGRAM ( NO

CRIMINAL PROSECUTION)

3. FAQ 17 FOR FBARS AND 5471 FORMS (NO PENALTIES AT ALL)

4. REGULAR DISCLOSURE (GAMBLE)

• Other Special IRS Reporting Forms Possibly Required

l Mexican corporations ( Form 5471)

l Foreign trust forms (Forms 3520 and 3520A) no longer have to be filed for MexicanFideicomiso's effective 6/6/13 per Revenue Ruling – still required for other foreign trusts and foreign pension plans

l Mexican Partnerships (Form 8865)

l Passive Foreign Investment Companies (8621) These include all foreign mutual funds. Money market funds, and foreign corporations that just invest in passive investments.

l Failure to file any of these forms can result in adverse US income tax consequences and huge civil and criminal penalties which are now being assessed by the IRS.

• Great US tax Benefits of US Expats Living and working in Mexico

l Foreign Earned Income Exclusion on US return of $97,600 for 2013 for wages and self employment income.

l US foreign tax credits for income taxes paid in Mexico

l Foreign Housing Exclusion or Deduction (if earning income through work – and earnings exceed foreign earned income exclusion.

l Using a Mexican corporation to avoid paying US social security taxes of self employed.

l Electing for US tax purposes flow through benefits for Mexican corporations will eliminate double taxation and allow you to take tax credits - a must for Mexican real estate held in a Mexican corporation

INCREASE IN IRS AUDITS OF US EXPATRIATES

l

--Big increase in audits due to GAO discoveries of inaccurate claims by expats-Usually done by mail-You will be required to provide written documentation for deductions and income-IRS often does lifestyle audits to determine if your assets and lifestyle match your reported income. You do have opportunity to explain other sources of assets including gifts and inheritances-IRS does have a tax treaty and other agreements with -exico to exchange information with each other and cooperate.

BEST WAY TO AVOID AUDITS:

-Report all foreign assets and income as required and if anything unusual is on return, attach a written explanation.-Stay within statistical guidelines for your income level with respect to charitable contributions, and other deductions.

Questions Received from Americans in Mexico

1. Do I have to report my rental income in Mexico on my US tax return?

2. How do you suggest I file if I have a Mexican spouse?

3. I am a dual US-Mexican Citizen. How does that benefit me for US taxes?

4. Do I have to pay US gift or estate taxes on my assets in Mexico?

5. If I have not filed US taxes in many years, what will happen when I cross the border back into the USA?

6. What happens on my US tax return when I sell my personal residence in Mexico?

Questions Received from Americans in Mexico

7. How does the IRS audit me here in Mexico?

8. Can I deduct business and other allowable expenses on my US tax return if I do not have a factura?

9.

IS US CITIZENSHIP SURRENDER – THE ULTIMATE SOLUTION?

First Need Citizenship in another country- such as Mexico

Can be done without exit tax consequence if have net worth of less than $2 million US and paid less than $157,000 average income taxes in the past 5 years

Must be current on all required IRS Tax Filings

No guarantee the State Department will later allow you to get visa or Citizenship after surrender.

Cannot be done for Tax Avoidance purposes

In 2013- 2,999 Citizens surrendered their citizenship.

•Hey Gringo – Uncle Sam Wants Your Taxes

• We can help you control Uncle Sam, defend your legal rights, and reduce your taxes

• Don D. Nelson, Attorney at Law, CPAKAUFFMAN NELSON LLP

• Websites: TaxMeLess.com & ExpatAttorneyCPA.com• Email: [email protected]

• More about Don

l Don D. Nelson is a California Attorney, Certified Public Accountant who has assisted Americans with their US taxes in Mexico for over 23 years. As an attorney he offers his clients the complete confidentiality and legal protection of “aattorney client privilege.” He is a partner in Kauffman Nelson LLP – Expatriate and International Tax CPAs

l Don is a graduate of the University of Southern California Law School, and has been with Ernst & Young, Price Waterhouse Coopers and Deloitte Touche. He has taught at UCLA and was an Assistant Professor at California State University Los Angeles.

l Websites: TaxMeLess.com ExpatAttorneyCPA.coml l Blogs: usexpatriate.blogspot.com / us-mexicantax.blogspot.coml US Phone in Mexico (949) 860-9606/ (949) 481-4094 / skype: dondnelson

l Email: [email protected] & [email protected]

● Don can be reach by phone, email or skype at any time. All tax services are provided by phone, skype, email, fax, and internet.