IL Postcard

The IRS Want Theirs, but Theirs Can Be Less

Date: 01/27/2008

January 28, 2008
Mérida, Mexico

A friend just wrote and mentioned her chagrin with “the IRS.” By the way, she asked, have you ever noticed what the words "the IRS" run together spell?

Yes, it’s that time of year again…when we need to get organized to make our case to the tax man. Unfortunately, we can’t run from him by leaving the country—the U.S. taxes its citizens (and resident aliens) on income earned anywhere in the world. So why do I bring this up? Because there are ways to improve your tax situation by moving to Mexico. Here are a few tips.

If you’re thinking of becoming a resident of Mexico, you should know that Mexico doesn’t tax any income earned outside Mexico. Of course, you’ll pay Mexican property taxes if you own a house or condo here—but they almost certainly will be lower than the property taxes you paid at home. This means more money in your pocket for all the things you enjoy.

If you earn income in Mexico, even from casual sources like room rentals in your house, you should pay Mexican taxes on it. You can get a tax ID number from Hacienda, the Mexican government’s tax department. But if you’re a U.S. citizen who lives permanently abroad and meets certain requirements, you shouldn’t need to pay any U.S. tax on that income.

Here’s why: First, the U.S. government allows you to exclude a certain amount of income earned abroad from your U.S. federal taxes (for 2007 the amount is $85,700). Second, there are a number of deductions you can take that may reduce or even zero out your U.S. tax obligation. And third, you get credit on your U.S. tax return for taxes you’ve paid in another country.

So if you’re looking to move to Mexico, don’t let taxes hold you back. Check with a tax specialist before you go, though, to see which deductions and other considerations may apply to you. One we know is Maurice (Morey) Glazer. You can e-mail him at mglazer@glazerfinancial.com or call him in the U.S. at (800) 999-8931 for information.

The most important thing to remember, though, is that if you are a U.S. citizen, moving to Mexico—or anywhere else in the world—doesn’t eliminate the need to file your tax returns. The Internal Revenue Service is developing programs to identify non-filers wherever in the world they are… the IRS wants theirs.

Best regards,

Suzan Haskins
Latin America Editorial Director
P.S. We cover U.S. taxes for expatriates in greater detail—including deductions that can help you zero out your taxes if you live abroad—in the January issue of Mexico Insider. Every month, Mexico Insider provides key information for those retiring, investing, and moving to Mexico, including real estate bargains, practical tips, and the inside view of what’s happening in Mexico. If you’re serious about Mexico, you need Mexico Insider.

P.P.S. Morey Glazer will be a featured speaker at International Living’s Ultimate Event, which will be held in Cancún May 28-31. While Cancún is no one’s idea of the "true Mexico," it’s the perfect place to hold a conference. IL correspondents from around the world will be there to tell you about their favorite expat hotspots. And a power team of financial experts will be there, too, to share their tips for surviving today’s struggling global economy. Don’t miss it. E-mail Events@InternationalLiving.com for more information.