How the Trump Tax Plan will affect U.S. Expats
With the release of the tax plan, president Trump started a discussion about how this affects Americans. US expats are curious, too. Here are some key areas for expats to watch.
1) FEIE – Foreign Earned Income Exclusion
- Changes are not mentioned.
- Expats will continue to earn about $100,000 and use FEIE.
- Should adjust annually.
2) Foreign Tax Credit
Some countries have higher taxes.
- If an expat works there they save some taxes paid in that country.
- When they return they use that amount as tax credits.
- With lower US taxes the difference is greater, so the credits are worth more.
3) Affordable Care Act
The repeal of the Affordable Care Act (Obamacare) eliminates penalties for lack of insurance. This is better for expats who:
- Are not exempt from mandated coverage.
- Have health insurance in their new country.
- Purchase an international policy that doesn’t comply with Affordable Care Act regulations.
4) FATCA – Foreign Account Tax Compliance Act
- There is no reported change.
- Foreign banks will still need to report accounts held by US citizens.
- The difficulties with offshore banking will not be made easier for expats.
5) International Tax Laws
The changes proposed have to do with taking jobs out of the US and bringing goods in.
- This will not impact entrepreneurs living abroad who do not import to the US.
Companies that import into the US but have no location in the country could be required to pay taxes.
- Expats selling and shipping into the US would be subject to taxes and reporting requirements.
7) Payroll and Self-employment taxes
Changes are not mentioned.
- Offshore restructuring should continue to benefit offshore entrepreneurs.
8) Standard Deduction
The plan is to increase the standard deduction and eliminate itemized deductions. Click here for a summary of the changes.
- Expats do not usually itemize deductions.
- The doubling of the standard deduction is better for most.
9) Tax Brackets
The plan is to reduce tax brackets from seven to three. Click here for a full description of the brackets.
- With the FEIE, if you make over $102,100 the tax rate is 25%. Over $112,500 the tax rate it is 33%.
- The plan lowers the highest tax rates from 39.6% down to 35% which is good for those highest earners.
10) Gift and Estate Taxes
The limit for estate taxes being doubled from $5.49m up to $10.98m benefits wealthy expats.
- The $10.89m limit is phased out by 2023.
11) Expatriation Taxes and Gifts
Expats with a net worth over $2m, or anyone who has not filed taxes, pays exit taxes when they leave.
- Under the new plan they give some of their money away up to the maximum of the Estate tax.
12) Simplified Tax Preparation
Changes are not mentioned for expats. Click here for more details about the tax preparation changes.
- The tax plan wants to simplify tax preparation for Americans. We can hope that this applies to expats.
13) Family Tax Relief
The Child Tax Credit is increased to $2,000.
- If an expat uses FEIE it likely makes no difference without a Child Tax Credit.
14) AMT – Alternative Minimum Tax
The AMT requires a calculation of taxes using different formulas and paying the higher amount.
- High earners would pay the high AMT amounts. For singles AMT starts after income $70,300 and $109,400 for married couples.
In summary, those who pay taxes each year, pay less. Those claiming Foreign Tax Credits see an increase in their credit amount. Those using foreign corporations probably have even more complicated reporting. Most US expats though will not find any real change with the new tax reform plan under the Trump administration.
Please, contact us with your questions in relation to U.S. Expats Taxes.
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