That's a good point about the fees potentially offsetting the rewards. My main card actually gives 2.5% back on everything for the first $10k spent each quarter, so I should still come out ahead. Did you have any issues with the IRS or your credit card company questioning the large payment? That's my main concern.

I didn't have any issues with the IRS questioning the payment. They really don't care how you pay as long as they get their money. My credit card company did temporarily flag the transaction due to the size, but that was resolved with a quick text confirmation. If you're using a card that gives 2.5% back, you'll definitely come out ahead. Just give your credit card company a heads up before making the payment to avoid any fraud holds. Large IRS payments are actually pretty common, especially during tax season, so the credit card companies are generally familiar with them.

The $600 reporting threshold only applies to goods and services payments, not personal transactions like reimbursements. As long as you're not marking these as "goods and services" in Zelle (which I don't think is even an option), you should be fine. It's just like splitting a dinner bill.

Those are helpful points, especially about the entity classification and VAT implications. I hadn't even considered the currency translation issues. Would you recommend any particular resources for understanding the basics of the US-Mexico tax treaty? I'd like to get enough background knowledge to at least ask intelligent questions when I do consult with a specialist.

The best starting point would be the actual US-Mexico tax treaty text, which you can find on the IRS website. While technical, it outlines the fundamental principles. For a more accessible overview, the IBFD has good summaries of treaty provisions that explain concepts like permanent establishment thresholds and withholding tax rates. The Tax Executive Institute also publishes good articles on US-Mexico cross-border taxation. For the currency translation issues, look at the basic rules in IRC Section 988 and Reg. 1.988, which cover foreign currency transactions. Understanding these basics will definitely help you ask the right questions when you consult with specialists who handle these matters regularly.

Would a check-the-box election help in this situation to treat the Mexican entity as disregarded? I thought that might provide some flexibility.

16 Did you have to pay a lot in penalties? That's what I'm worried about for OP. Sometimes it's better not to poke the bear if they're not already looking for you...

5 I actually didn't end up owing any penalties because I was due small refunds for most of those years. Since the IRS typically only assesses failure-to-file penalties on unpaid taxes, there weren't penalties to pay in my case. Even if I had owed, the peace of mind would have been worth it. The "don't poke the bear" approach is really risky. The IRS has been increasing enforcement efforts, and with more funding recently, they're expanding audits and investigations. It's much better to voluntarily come into compliance than to be caught later. When you initiate filing yourself, they tend to be more accommodating than if they have to track you down.

12 I used FreeTaxUSA for my back taxes from 2018-2020. They charge like $15 per previous year return (way cheaper than TurboTax). It's pretty straightforward if you have your documents. The only catch is you have to print and mail previous year returns - you can't e-file them.

That's a really good point about the different forms. My LLC is set up as a disregarded entity, so I'll need the Form 4868. I didn't realize the W-7 has to be attached to a tax return - does that mean I need to complete a full tax return even though I'm filing for an extension?

Yes, that's one of the trickier parts of this process. You'll need to complete your tax return (Form 1040-NR in your case as a foreign person with a disregarded entity LLC), attach the W-7 application, and then submit them together. The extension (Form 4868) gives you more time to file the return, but you'll still need to prepare the return to get your ITIN. It seems contradictory, but what many people do is prepare the full return, attach it to the W-7, and submit both while also filing the extension to avoid penalties. When your ITIN is assigned, the IRS will process the already-submitted return.

The EFTPS system requires an EIN though, which they might not have either as a foreign person. I think mailing a check or money order with Form 4868 is the safest option in this situation.

Do you need a separate bank account too? Or can you just use your personal account as long as you keep good records?

You don't absolutely need a separate bank account from a legal standpoint if you're a sole proprietor, but I highly recommend it. Having a dedicated business account makes it so much easier to track income and expenses cleanly, and it looks more professional when clients pay you. If you ever get audited, having separate accounts makes it much easier to prove which transactions were business-related. It's also helpful for calculating your actual profit each month. Most banks offer free or low-cost business checking accounts for small businesses, so there's really no downside to setting one up.

I've used it for 2 years for my web development side gig. Honestly it's been worth every penny. It automatically categorizes expenses, tracks mileage if you need that, and separates business from personal transactions. The best part is at tax time - it generates all the reports you need and transfers everything to TurboTax if you use that.