Baja Tax and Accounting

14/09/2022

Things U.S. Expats Living in Mexico Should Know About U.S. Income Tax Reporting

This is the second in a series of informational posts that should be of interest to all U.S. Expats and digital nomads living in Mexico.

4. You can use deductions and exclusions to avoid most double taxation.
The US has put several important deductions and exclusions in place to ensure you aren’t taxed twice on the same income. Most expats are able to offset all of their foreign earned income with the following:
• FOREIGN EARNED INCOME EXCLUSION
• FOREIGN TAX CREDIT
• FOREIGN HOUSING EXCLUSION
You must qualify as an official expat and have foreign earned income in order to use these money-saving exclusions, and you must file your tax return in order to prove that you are eligible for these benefits.
5. Reduce or eliminate US taxes with the Foreign Earned Income Exclusion
Reduce your US tax liability. For 2021, you may be able to exclude up to $108,700 of foreign earned income from US taxation with the Foreign Earned Income Exclusion (FEIE)! You might also be able to exclude certain housing expenses, such as rent and utilities, using the Foreign Housing Exclusion.
6. The Foreign Earned Income Exclusion isn’t automatic!
You must qualify to use the Foreign Earned Income Exclusion (FEIE), but you must also elect it by filing Form 2555.
Once you use the FEIE, it remains in effect and you will include it on your tax return each year thereafter. However, should you decide that you no longer want to use it, you cannot claim the exclusion for the next five tax years without the approval of the IRS.

11/09/2022

September is here, which means the tax extension filing deadline of October 15 is not far away. Now is the perfect time to kick off the filing process if you haven’t already.

Are you worried about not being able to make the extension filing deadline, or missing something in your filing that might cost money in penalties and interest? We at Baja Tax and Accounting are here to provide professional accurate income tax preparation services and ensure that the entire process is smooth and painless as possible.

Don’t wait. Get started now by messaging Frank Headrick at Baja Tax and Accounting on Facebook, email him at [email protected] or call him at 949-297-6752.

01/09/2022

Things U.S. Expats Living in Mexico Should Know About U.S. Income Tax Reporting

This is the first in a series of informational posts that should be of interest to all U.S. Expats and digital nomads living in Mexico.

1. You must file if you have income
If your worldwide income exceeds the filing threshold (which varies by filing status), you must file a US Federal Tax Return each year. Some examples of income are:
Wages
Interest Income
Dividend Income
Rental Income
(If you are self-employed, the threshold is $400, regardless of filing status)
2. Expats receive an automatic filing extension until June 15th

US taxpayers living outside the US on the tax deadline of April 15th receive an extension until June 15th to file.
**However, any US taxes owed are due by April 15th to avoid penalties and interest. If you move back to the US, you may still be eligible to use certain US expat deductions and exclusions that year, but you’ll need to file by April 15th because you are now a US resident.
3. You can amend a previous return if you made a mistake
Mistakes happen. If you find that you have failed to report some income on your return, or if you didn’t take all the deductions allowed, you will need to file an amended return for that tax year using form 1040X. Filing an amendment before the IRS catches a mistake is the best option,

26/08/2022

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http://bajataxandaccounting.com

24/08/2022

What Is an Expat for Tax Purposes: How to Qualify for Expat Tax Deductions & Exclusions?

As an American living abroad, you have the burden of filing taxes in both your home and host country. Thankfully there are deductions and exclusions available to help you offset your expatriate tax liability. Baja Tax and Accounting will explain how you qualify as a US expat in order to maximize your expat tax deductions. So, let’s go on to learn what is an expat for tax purposes?

Americans abroad often ask how to define “expat” because they want to know how to qualify for expatriate tax deductions like the Foreign Earned Income Exclusion and the Foreign Tax Credit. What is an expat in the eyes of the IRS, means your tax home has to be in a foreign country. Meaning, your regular place of business, where you work, the main place you live, needs to be in a foreign country. You also should have foreign earned income if you want this earned income to be excluded under the Foreign Earned Income Exclusion, or you need to be paying foreign tax if you want it to be excluded under the Foreign Tax Credit.

How to qualify for the expat tax credits and exclusions.

To qualify for the Foreign Earned Income Exclusion or the Foreign Tax Credit, you need to meet one of two tests:

1 - The Bona Fide Resident Test

The Bona Fide Resident test says that you must live in a foreign country for at least one full calendar year, that’s January to December. You must have established residency in that country, and you must intend to stay in that country indefinitely. If you’re on a contract assignment somewhere for two years, something like that, you’re not going to qualify as a bona fide resident. Even if you plan on extending your contract, you probably still won’t qualify because the IRS will say that when the contracts up you should be coming back to the U.S. or they would expect somebody to come back to the U.S. in that case.

2 - The Physical Presence Test

The other way you can qualify is known as the Physical Presence test, and this is much looser. To meet the rules of the Physical Presence test, you just have to be physically present inside a foreign country for 330 days in a 365 day period. This doesn’t have to be in a calendar year, January to December, it can be May to May or September to September. This is much more flexible and first-year expats will always qualify under the Physical Presence test, even if you are moving someplace permanently because the rules of the Bona Fide Resident test say that you have to be abroad for one full year before you can even be considered for the Bona Fide Resident test. That’s all for today, please keep the questions coming we like getting them and we like answering them for you. Thank you very much.

23/08/2022

22/08/2022

Here at Baja Tax and Accounting we are as confused and unsure how the money earmarked for the IRS in the Inflation Reduction Act of 2022 will affect us here in Baja as we are sure you are. The following was excerpted from Wikipedia.
The $737 billion Inflation Reduction Act of 2022 will raise $737 billion and authorize $369 billion in spending on energy and climate change, $300 billion in deficit reduction, three years of Affordable Care Act subsidies, prescription drug reform to lower prices, and tax reform.[1] Some changes were made to the tax provisions after negotiations with Senator Kyrsten Sinema (D-AZ).[3] The law represents the largest investment into addressing climate change in United States history.[4] According to several independent analyses, the law is projected to bring the U.S. significantly closer to Biden's goal of reducing greenhouse gas emissions to 50% below 2005 levels by 2030.[5] It also includes a large expansion and modernization effort for the Internal Revenue Service.
The Taxes and Distributional Impact:
Excerpts from the nonpartisan Joint Committee on Taxation (JCT) indicated that the legislation might lead to increased payments on personal taxes for Americans of all incomes (an increase in $16.7 billion for taxpayers earning less than $200,000 a year, $14.1 billion for taxpayers earning between $200,000 and $500,000, and $23.5 billion for taxpayers earning over $500,000). This calculation was based on the assumption that companies would indirectly pass on parts of the minimum corporate tax to employees, an assumption that was criticized by Steven M. Rosenthal, a senior fellow at the nonpartisan Tax Policy Center (TPC).[45] Economist William G. Gale, who is also co-director of the TPC, comments that it is important to consider that the calculations by the JCT did not take into account the provisions in the bill that would extend premium tax credits for health plans for low- and middle-income taxpayers, provide households with tax credits for making their property more energy-efficient, and lower the price of prescription drugs.[46]
The Tax Policy Center estimated that the bottom 80% tax filers by income would receive a net benefit, if ACA premium tax credits (subsidies) are included. The 80th-99th percentile would incur a small cost (0-0.1% increase in average federal tax rate) while the top 1% would incur a 0.2% increase. The costs mainly are imposed indirectly as corporations facing higher taxes may reduce the wage increases or levels for workers; individual tax rates were not changed.[47]
The Treasury has estimated additional funding for the Internal Revenue Service will enable the hiring of an estimated 87,000 IRS employees.[23] Treasury Secretary Janet Yellen directed IRS Commissioner Charles Rettig to not use the new funding allocated in the bill to increase the rate of audits of those making less than $400,000 a year above historical levels, but to instead focus on "high-end noncompliance."[48]
The Treasury and Internal Revenue Service published guidance on eligibility for electric vehicle owners to claim tax credits worth between $3,500 - $7,500, including outlining a requirement for the vehicle to have a final assembly in North America. The Department of Energy and the Department of Transportation also published resources identifying vehicles that will likely meet all requirements for tax credit.[49][50] The Department of Energy indicated that their list of eligible vehicles is not a guarantee for credit, and states that the Vehicle Identification Number (VIN) will give full manufacturing details and locations.[51]Those qualified will receive the tax credits, known as the Clean Vehicle Credit, previously called the Qualified Plug-In Electric Drive Motor Vehicle Credit. The US Treasury Department has also stated that owners who purchase eligible vehicles previous to August 16th, 2022 but did not possess the vehicle until after that date, also qualify for the Clean Vehicle Credit.[52]
Additional tax credits were presented in the bill for energy efficiency in buildings, expanding current incentives in a tier-based system beginning in 2023.[53] The bill specifies that commercial buildings must update efficiency by 25%, compared to a reference building, to qualify for $0.50 per square foot of tax credit for the first tier, increasing to a maximum of $5.00 per square foot for the final tier. The tax credits also extends to single and multi-family housing, requiring 50% less annual energy consumption compared to similar units.[50] Vincent Barnes, a senior vice president from Alliance to Save Energy in Washington, D.C, stated that these policies were meant to reduce energy costs and demand on the power grid.[54]
Stay tuned to Baja Tax and Accounting for more details about this new law as they become available.