I've considered that approach too. How do you calculate your quarterly payments? Do you use tax software, or is there some formula you follow? And do you ever worry about underpayment penalties if your estimates are off?

I use last year's total tax as my safe harbor amount (which avoids penalties as long as you pay at least 100% or 110% of prior year tax, depending on your income level). I take that amount, subtract what will be withheld through our regular paychecks, and divide the remainder by 4 for each quarterly payment. I track it in a simple spreadsheet. For example, if last year's tax was $52,000, and I expect about $40,000 to be withheld through payroll, I'll make quarterly payments of $3,000 each ($12,000 ÷ 4). This approach completely eliminates underpayment penalties as long as you hit that safe harbor amount.

This is exactly right. I'm a payroll specialist and see this all the time with higher-income couples. The withholding system was really designed for single-income households or situations where one income is significantly higher than the other. When you have two high earners, the tables just don't work correctly.

Thanks for confirming! My accountant also mentioned that the 2020 W4 redesign was supposed to help with this, but most people don't know how to fill it out correctly for dual-income situations. Apparently there's a special worksheet for two-income families that many people skip.

Thank you so much for the insider perspective! The letter my dad got has almost all of these warning signs you listed. They're definitely using scare tactics with all the talk about "immediate action required" and "avoid asset seizure." Would the IRS ever send letters through third parties like this? Or is that alone enough to know it's not legitimate?

The IRS will never initiate contact through a third party. That alone is a huge red flag. All official IRS communications come directly from the IRS on their letterhead with official seals and usually include your tax ID number. The only time third parties might legitimately contact you about taxes is if you've already hired them, or in rare cases if you've been assigned to a private debt collector - but even then, the IRS would contact you first to tell you they've assigned your case to a private collection agency.

This happened to my mom too! These scammers specifically target older people who might not know how to verify if tax issues are real. They got her for $3,200 claiming they would "settle her tax debt" which turned out to be completely made up.

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.

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.