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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7462
Experience:  15years with H & R Block. Divisional leader, Instructor
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I live full time in Mazatlan, Mexico. I telecommute to my job

Resolved Question:

I live full time in Mazatlan, Mexico. I telecommute to my job in Carlsbad, CA, therefore I earn USA wages. I am not am employee of the company, but file a 1099 tax form as an independent contractor. I have been told and read a few things on the internet that if I earn less than $74,000/year I do not have to pay taxes on that income. Is this true? I use Turbo Tax. Is there someone in your office who can help me prepare my taxes in order to take advantage of this tax break, if it is indeed true?
Submitted: 3 years ago.
Category: Tax
Expert:  Robin D. replied 3 years ago.

Robin D :

Hello and thank you for using Just Answer

Robin D :

I can not help you prepare your return but I can advise on the SE income and using the Foreign Income Exclusion

Customer :

That would be great. I appreciate your help!

Robin D :

I will try and start with the basics

Robin D :

The maximum amount of the Foreign Earned Income Exclusion under section 911 of the Internal Revenue Code is now indexed to inflation ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011). In addition, Section 515 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) amends the computation of the Maximum Housing Amount Exclusion under Section 911 of the Code.

Customer :

To clarify, I do not earn a foreign income. I earn income in the USA, but live in Mexico

Robin D :

You are doing the work in Mexico not the US

Robin D :

You are physically out of the country

Customer :

Yes, I am physically out of the country, but the company I telecommute to is in the USA

Robin D :

I interpret that you are not in the US. You are doing work for a company that is in the US but you are doing the work in Mexico

Customer :

correct. i have an office here in my home in Mazatlan, Mexico

Robin D :

OK, no matter how good the internet is, it cannot physically place you in another country. The tax rules say in another country physically.
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings

Robin D :

You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 qualifying days do not have to be consecutive. The physical presence test applies to both U.S. citizens and resident aliens. You meet this test.

Customer :

I do

Robin D :

Even when you are self employed and file a Schedule C you can exclude. You can not get rid of SE Tax though, so that will still remain.

Robin D :

You use Form 2555 to exclude the income.

Customer :

okay............I would guess this form is available on Turbo Tax, since that is what I use?

Robin D :

It is. You will need to mark that you have foreign income.

Customer :

Robin, do you know if I can file some sort of amended tax return for last year, since I also lived here and paid big $$$ in taxes?

Robin D :

I just looked at Turbo Tax and they advise the following:
For best results, however, use TurboTax Deluxe.

Robin D :

Yes you can amend for last year

Customer :

Okay, thanks so much for your advice. Is this advice session now closed, or if I find I have further questions can I sign back to this?

Robin D :

You can come back after you click ACCEPT if you have a specific question about this subject

Customer :

okay great, thanks so much. will i recv a transcript of this chat for my reference?

Robin D :

Make sure you save this and you should have access

Customer :

Thanks Robin, Have a great day!

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7462
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 5 other Tax Specialists are ready to help you

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