One of the advantages of being self-employed is that you are your own boss, but this comes with a series of responsibilities. This includes accounting to the SAT after registering in one of its tax regimes. So, if you're considering it, you must first understand what taxes freelancers pay in Mexico and which expenses qualify for deductions.

That will be today's topic.

We’ll guide you through the types of expenses you can deduct as a freelancer, the tax return process, and the different tax regimes. At the end, we’ll offer tips for better tax management.

Freelancer Expenses: What They Are and How to Deduct Them from Your Tax Return

What Taxes Do Freelancers Pay in Mexico?

As a self-employed worker in Mexico, you have several tax obligations once you become a SAT-registered freelancer. This means registering in a tax regime within the Servicio de Administración Tributaria (SAT).

This raises the question: What taxes do freelancers pay in Mexico?

This depends on the tax regime you belong to, your income, and the deductions you can make. However, here are the main taxes:

Value Added Tax (IVA)  

IVA applies to most services you provide as a freelancer. Generally, it's 16%, although the rate can vary depending on where you are located.  

This percentage is what you will declare to the SAT. Therefore, it's advisable to charge it to the client when invoicing your freelance services.

Income Tax (ISR)  

This tax is levied on the income you earn as a freelancer and varies based on your income, ranging from 1.92% to 35%. It’s best to use a freelance tax calculator to estimate your monthly ISR. You will also need to file an annual return to adjust your tax situation.

What Expenses Can Freelancers Deduct on Their Tax Return?

There are certain expenses that freelancers can deduct on their tax return, as long as they are related to professional activities and are invoiced correctly.

Here are the two main types of deductions:

• General Deductions. These are expenses directly related to your economic activities. You can apply them in your monthly or bimonthly returns, depending on the tax regime you're registered under.

• Personal Deductions. These are expenses that any taxpayer can deduct from their income, but only on the annual return, except for those in the RESICO and RIF regimes, as they have different rules and tax benefits.

For example, if you are a web developer and purchase software, a computer, and other work-related supplies, you can deduct them from your tax return. However, personal expenses, such as vacations, cannot be deducted.

If you register under the regime of individuals with business or professional activities, you can deduct any expenses necessary for your work. However, they must be invoiced correctly and paid by card, check, or transfer.

Personal Expenses a Freelancer Can Deduct According to the SAT:

Health and Funeral Expenses  

As a freelancer or worker in general, you are entitled to reduce health-related expenses. This applies if the invoice is issued by a professional accredited by the authorities, with legitimate documentation.  

You will need to request that the amount for the medical service received is reflected, whether it was in a hospital or clinic.  

Other deductible health-related expenses for freelancers include:

• Clinical studies

• Prosthetics

• Purchase or rental of rehabilitation devices

• Hospital expenses

• Medications

• Medical insurance premiums, etc.

These deductions apply to you, and also to your parents, spouse, children, grandchildren, and grandparents. Even funeral expenses for these relatives can be deducted.  

It’s essential to have the corresponding invoice for the service.

Educational Expenses  

If you pay for the education of your children, siblings, or nephews/nieces, you can include these expenses in your tax return.  

To validate these expenses, the educational institution must be accredited by the Secretaría de Educación Pública (SEP). This applies from preschool through high school.  

You should also keep the payment receipts handy to justify these expenses in the deductions. Be aware that there are annual limits on deductions, depending on the educational level:

• Preschool: 14,200 MXN

• Primary: 12,900 MXN

• Secondary: 19,900 MXN

• Technical school: 17,100 MXN

• High school or equivalent: 24,500 MXN

It’s worth noting that enrollment or re-enrollment fees are not deductible, while school transportation can be, but only if it is mandatory.

Mortgage Expenses  

In the case of a mortgage loan, freelancers can deduct the real interest paid during the year. The payment must be made to an entity belonging to the Mexican financial system.  

Additionally, the mortgage should not exceed 750,000 UDIs (Unidades de Inversión) to be eligible.

Other Expenses a Freelancer Can Deduct

Other expenses related to professional activities that can be deducted include:

• Stationery

• Office supplies

• Fuel

• Transportation

• Training

• Office repairs

• Utilities such as electricity and internet, and office rental.

You can also deduct voluntary contributions to an AFORE retirement plan, even if you don’t contribute to IMSS or ISSSTE.

It’s essential to remember that only expenses invoiced in your name and paid electronically can be deducted. If paid in cash, they won’t apply, and you could be penalized if you try to claim them.

Which Tax Regime is Best for Freelancers in Mexico?

The ideal tax regime for a freelancer in Mexico depends on three main factors: your income, professional activities, and expenses.

Here’s a summary of the basic regimes to help you decide:

1. Individuals with business or professional activities: Suitable for those earning income from professional services or commercial activities, including doctors, lawyers, graphic designers, engineers, accountants, etc.

2. Simplified Trust Regime (RESICO): For individuals earning less than 3.5 million pesos annually. Appropriate for those engaged in business, professional activities, or renting property, such as restaurants, cafés, mechanics, mini-markets, etc.

3. Digital Platforms Regime: For freelancers earning income through platforms like Amazon, Uber, or Airbnb. If your annual income doesn’t exceed 300,000 pesos, your taxes will be withheld, simplifying payment.

Tax Tips for Freelancers

Being a freelancer means managing your entire business, whether you run a small or medium-sized enterprise. Part of your job is to handle your tax obligations correctly.

Here are some tips to help you manage your taxes:

Choose the right tax regime  

There are different tax regimes, each with its obligations and tax benefits. Make sure you understand each one to determine which is the most suitable for your situation.There are different regimes, which vary in terms of tax obligations and benefits. Make sure you understand each of them in order to find out which one is most suitable for your situation.

Don't be guided by other self-employed people, you need to opt for a tax regime that is appropriate for your professional activity and level of income. 

Keep an organized record of income and expenses  

Keeping detailed track of all the money you receive and use is essential. Not only to make your deductions the way they are, it will also help you to prepare your monthly and annual returns accurately.

It will also help you avoid mistakes that can cost you penalties.

Pay your taxes on time  

You already know what taxes a freelancer pays in Mexico, so make sure you pay them within the established deadlines.

If you comply with them, you will be up to date and in good standing with the SAT, which, of course, will avoid potential problems when you file your annual tax return.

Seek professional advice when necessary  

If you are new to this, and have doubts about what a freelancer should do for tax purposes, seek help. It can be an accountant or a reputable advisor who will answer your questions and be able to optimise your tax situation.

Apart from helping you to comply with tax laws, you may need them to help you with your freelance bookkeeping.

Hiring an accountant or tax advisor is an excellent decision for any freelancer. And if you want to save on commissions when paying for these services, DolarApp is the ideal ally. 

It doesn't matter if they charge you in pesos or dollars, their exchange rates won't affect your pocket at all.   

Conclusion

As an independent worker, you’ll always have expenses, but if you register with the SAT, you must meet the legal tax obligations. However, first, you need to know what taxes freelancers pay in Mexico.

Once you have this clarity, you can reduce your tax burden. It doesn't have to be complicated if you manage your deductions properly by recording all income and expenses, choosing the right tax regime, and paying your taxes on time.

Take advantage of available deductions, such as personal or work-related expenses, and consult a professional if you're unsure or considering registering in a SAT regime.