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Bruce Working on 2009 Taxes Poolside, Naturally

Last year, 2009, was Bruce and Mary’s first full tax year living in México. Now Bruce is no whiz at taxes having given up that duty to his ever steadfast and painfully honest accountant Wayne, but now things have changed. Let’s see what happens when Bruce is on his own again, one on one against the taxman.

I called Wayne up over the holidays to get lined up for my 2009 taxes. Wayne had done our 2008’s, when the only income we had was the rental from our house and the short time in early 2008 when we were still living our old lives, working for Chassis Liner and Merrill Corp. As usual, Wayne had worked his magic and gotten us pretty substantial refunds. However on this call, everything changed. “Wayne, how’ya doing buddy? What’s new in Alexandria?” He proceeded to get me up to speed and to tell of a mutual acquaintance who had looked at property around booming Alex in the early 80s, just like I had, I tell Wayne. Well, the only difference was he actually borrowed the money and bought the land. I didn’t. Now, he’s splitting time, early retired, between his lake home on the chain of lakes and his condo in Hawaii. Wayne and I commiserated, but he reminds me that at least I was able to run away to México while he is still, at age 62, slaving away over taxes for guys like me. Time to get down to business. I explain my situation: We’ve lived in México all for all of tax year 2009 and our income from the Canadian outfit for which we online moderate is not huge but significant. He says to me, “Sorry Bruce, that’s ‘world-wide income while living abroad’. Don’t know a thing about it, can’t do it.” When I start whining he tells me that he understands there are a lot of tax preparers in CA that handle that sort of thing, maybe I can find someone there.

Now what?

Well I ignore it for a couple of months, it is flat out not any fun to think about, but March rolls around and when it still hasn’t gone away I start my research. Number one, do I even have to file? After all we live in Mexico and a Canadian firm pays us. We don’t drive on American roads, we have no 911 that we can call (policia protecting our butts now), and no one is going postal (Mx mail ain’t that bad) for us down here . It’s not that we’re not solid, taxpaying democrats, happy to pay for our infrastructure, it’s just that, right now, we’re not using it. Well the US of A feels like that way to a certain extent. I discovered that all Americans under age 65, everywhere, have to file a return, if you have a minimum income of $12,000 (married-filing-jointly). However, if you’re living abroad and qualify, there is schedule 2555 that gives a $91,400 exemption. I did the worksheet and we qualify, Que bueno!

So I went to the IRS website and learned about e-filing and chose a company among the many on the list, 1040Now, and got to work. After much trial and error I thought I was ready to go and low and behold, there are no taxes to be paid. But then I found an error on form 2555, I had missed a zero on our online moderation income and so I showed a negative income on my 1040 long form. What’s up? Oh yea, form 2555 only exempts my income and with the right number in there that exemption is greater than the rental income I had reported on schedule E. I still had to report our moderation income, duh. So I checked out how to do that. We received no W2 or the Canadian equivalent because we were not employees which is essentially when I realized, Doh, we’re independent contractors. So young man, go to schedule C. I did so and at least we qualified for the C-EZ and I filled it out. And that is when I discovered the good old self-employment tax. After some more googling I verified that there is no way to avoid SE no matter what you do or where you live in the world. And that nasty straight rate is about 15%, ouch!

Well, we considered, briefly, ignoring our self employed income, after all who’s to know? Our company does not file 1099s with the IRS. But then, like a little voice in the back of my head I  remembered what my insurance agent, CPA, brother Mark once told me, “They catch you fooling with your deductions, they’ll penalize you and charge interest. They catch you fooling with your income; they’ll throw you in jail.” Yea, I guess we owe, and are going to pay, a chunk of change.

So I completed the filing, filled out the ACH payment authorization and clicked “submit” and waited to see if this filing was correct and would be accepted.

The next day I checked and the filing was accepted and a couple days later I checked our GMFCU account (General Mills Federal Credit Union – love those guys, especially Gina who handles our account) and our Fed taxes had been snatched out of there. Fed taxes were a done deal, signed, sealed and delivered.

Now onto MN state taxes. I emailed the state revenue site and stated our circumstances and found that although we wouldn’t owe taxes we still had to file. And that is how these free tax outfits like 1040Now make their money. They charge for the state return. So I filled out the return, payed the $16.95, and clicked submit. The next day I logged in and saw that it had been accepted.

And that, my friends, is how we handled “Living Abroad While Earning World-Wide Income”.

Thanks for visiting gentle reader. If you have any questions about the above, please comment. Bruce is not a tax accountant but he does play one on TV. Hasta la vista, baby!

This entry was posted on Saturday, May 1st, 2010 at 6:26 pm and is filed under Life in Merida. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.