[jmn43]

Am I still required to file a tax return in the US if I earn less than $25000 and live in mexico full time.

[kliem]

If you are a US citizen. You need to file your tax return (1040) for any income earned WORLDWIDE regardless how much you earn in the US. If you paid foreign tax, then you can get tax credit. For example, if taxes in Mexico is higher than your US tax bracket, then you should get the tax paid to Mexico government back from IRS.

[AtlantaTaxExpert]

Kliem's advice is valid.

[MukatA]

Not only the U.S. citizens, but also the U.S. residents must report the worldwide income and must file tax return if they meet the filing requirements.

[AtlantaTaxExpert]

Agreed!

[kliem]

Not only the U.S. citizens, but also the U.S. residents must report the worldwide income and must file tax return if they meet the filing requirements.

I agree with you, however, if one only holds Resident Alien and willing to forego, who cares about paying Uncle Sam! When one is a US citizen and the former citizen of one's country won't allow dual or multiple citizenship, then one will be stuck with US citizen, and has no choice but to pay the tax.

[MukatA]

You will file the U.S. tax return but you may not owe any taxes.
If you have earned income in Mexico, you can exclude income up to $85,000 by filing form 2555: Earned Income Exclusion.
You can also file Form 1116 to get credit for taxes paid in the foreign country.

[AtlantaTaxExpert]

MukatA's posting about the Foreign Income Exclusion and Foreign Tax Credit is accurate, but as long as foreign nationals retain the Resident Alien status, they MUST file a U.S. taxe return.

[kliem]

I guess we're all saying the same thing -- just different way to explain. The bottom line is that if one is a US citizen or want to continue to retain Green Card, there is no way to avoid paying US tax. At best, one can get the credit back as I indicated before, or pay more taxes if Mexican tax is lower than US tax bracket.

[MukatA]

Even if you are a resident alien for tax purpose, you must meet your tax obligation. Who cares about Uncle Sam? Uncle Sam is very powerful. They can always contact you through your foreign government under the Tax Treaty.
If a U.S. citizen or a permanent resident quits citizenship or residency, he/she may still be required to file tax return and pay taxes for 10 years.

[kliem]

You are correct. That's why IRS often uses their unlimited power to intimidate / inforce the power -- sometimes unnecessarily. It is true that Mexico is the country under the tax treaty, however, I know several Mexican citizens that gave up their Green Card and conveniently NOT paying US taxes, some had passed the statue of limitation. Some got letters but ignored them, and so far nothing have happened to any of these people. I reckoned IRS will choose whether those tax evaders are worth pursuing in the foreign country (or countries) depending the amount they may collect. IRS may use their resources to chase those dead wealthy people for their estate taxes that are more lucartive.

[AtlantaTaxExpert]

Agreed.