I have a client who lives in the US but works for a company in Mexico and pays Mexico income taxes. She does not receive a w2 from Mexico and is not a contractor. I can write off her Mexico taxes as foreign taxes paid. Would her wages be considered other income. Also she is considering becoming a contractor to avoid paying Mexico taxes. Would that benefit her?
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U.S. citizens and residents are taxed on worldwide income. I'm pretty sure you can't "write off" foreign taxes paid unless you also report the foreign income. Not sure why you are asking a question about Mexico taxes here, but maybe I'll be surprised that we have a Mexico tax expert participating."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe Howard -
If she works as an employee, her wages go on line 1h of Form 1040.
Yes, she may qualify for the Foreign Tax Credit for the income tax paid to Mexico.
If she became self employed, she would be subject to Self-Employment taxes. Depending on her situation, that might be good, bad, or indifferent. But if she wasn't subject to taxes in Mexico, she could avoid filing a Mexican income tax return. And of course she would actually need to BE a contractor - not acting as an employee, but disguising the situation as being a contractor.
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My cursory understanding (since I rarely encounter it) is that there might be choices here among:
1) Foreign Tax Credit (FTC)
2) Foreign Earned Income Exclusion (FEIE)
3) Foreign tax deduction on Schedule A
"You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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I don’t think FEIE would apply as OP says she lives in the US.
FTC is doable.Last edited by DoubleO; 01-03-2024, 07:00 AM.Comment
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Schedule A deduction is an option, but may not be best one.Comment
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