u.s. expat tax guide – mexico
Who needs to file an FBAR while living in Mexico?
US citizens, green card holders, or residents living in Mexico must file an FBAR if their foreign financial accounts exceed US$10,000 at any point during the year. This includes accounts where you have signature authority or joint ownership.
What’s the difference Between FBAR and FATCA?
Both FBAR and FATCA serve to report foreign assets, but they have different thresholds and requirements. FBAR focuses on foreign bank accounts, with a threshold of US$10,000, while
FATCA requires you to report broader financial assets if they exceed US$50,000 for expats. FBAR is filed with FinCEN (Form 114), while FATCA is filed as part of your IRS return (Form 8938).
Is there a tax on FBAR?
No, filing an FBAR does not mean you owe taxes. It’s an informational report. However, income earned in those foreign accounts, such as interest, must be included on your US tax return, and taxes may be due.
What types of accounts are included in FBAR?
You must report all foreign financial accounts, including:
- Foreign bank accounts (checking, savings)
- Joint accounts with a non-US person
- Accounts where you have signature authority (even if you don’t own them)
- Certain online payment accounts like PayPal, if they meet the threshold
- Foreign investment accounts, including brokerage and pension accounts
What happens if you transfer money between accounts?
Transferring funds between foreign accounts still requires you to report the highest balances for each account during the year. For example, moving US$7,500 between two foreign accounts, even temporarily, would require reporting both, as the total amount would exceed US$10,000 at some point.
Which banks in Mexico are popular among expats?
Many expats in Mexico use the following banks:
- BBVA Bancomer: Offers solid digital banking options.
- Banorte: A well-known Mexican bank with strong local ties.
- Citibanamex: A branch of Citigroup, offering international services.
- Santander México: A global bank with extensive personal and business banking options.
- HSBC México: Known for international banking and wealth management.
- Scotiabank México: Offers personalized banking services, especially for Canadian expats.
Should you report investment accounts?
Yes. You must report any foreign financial accounts, including investment or pension accounts, on your FBAR if the total balance exceeds US$10,000. This includes foreign mutual funds, brokerage accounts, and retirement savings plans.
When is the FBAR filing deadline?
The FBAR is due by April 15 each year. If you need more time, there’s an automatic extension until October 15, so no additional application is necessary for this extension.
What are the consequences of not filing FBAR?
Penalties for not filing the FBAR can be severe. Non-willful violations can result in fines of up to US$10,000 per year. If the violation is willful, penalties can be much higher, potentially 50% of the account balance or even criminal prosecution.
What should you know about foreign investment accounts?
Foreign investment accounts, such as brokerage or retirement accounts, must be reported if their combined balance exceeds US$10,000. This reporting is crucial to avoid penalties and to remain compliant with US tax laws.
Can you reduce US tax liability through foreign taxes?
Yes, you can use the Foreign Tax Credit (FTC) to offset US taxes by claiming credit for taxes you’ve already paid in Mexico. This helps prevent double taxation. For example, if you paid taxes on interest earned in a Mexican bank, the FTC may reduce your US tax liability.
Why should you hire a tax professional?
Given the complexities of reporting foreign accounts, hiring a tax professional who understands both US and Mexican tax laws is highly recommended. They can ensure compliance with the IRS and help you avoid costly mistakes, especially with FBAR and FATCA reporting.
Do you need to file FATCA?
If your foreign assets exceed US$50,000 (for expats), FATCA filing is required in addition to the FBAR. Form 8938 must be included with your IRS tax return, covering a broader range of foreign assets than FBAR.
Is FBAR filing necessary for joint accounts?
Yes, even if you share an account with a non-US spouse or another foreign individual, if the account balance exceeds US$10,000, you must file an FBAR. This applies even if you only have signature authority but don’t technically own the account.
Can FBAR penalties be avoided?
It depends. To avoid penalties for non-compliance, ensure that you file your FBAR on time and accurately. The IRS can impose steep penalties for late or incomplete filings. If you’ve missed previous filings, the Streamlined Filing Compliance Procedures may help you catch up without heavy penalties.
