Self-employment tax for expats
January 12, 2018
Foreign Earned Income Exclusion
April 6, 2018

New Tax Reforms For U.S. Expats

Tax Cuts & Jobs Act

In late December of 2017 the U.S. passed the Tax Cuts & Jobs Act making broad changes to the US tax system.
Insofar as the most important provisions which affect taxes for US expats i.e. the Foreign Earned Income Exclusion, Foreign Tax Credits, and the Foreign Bank Account Reporting requirements, there was no material change as a result of the new act.

Changes Related to Foreign Corporations

Many of the foreign specific changes in the new tax bill relate to the relationship between U.S. corporations with their foreign subsidiaries. These provisions ultimately reduce the amount of tax paid on foreign income brought into the U.S. by foreign corporations owned by U.S. corporations and shareholders.
These provisions do not apply to U.S. Expatriates who don’t have interests in foreign corporations.

For U.S. Expatriates who do have interests in foreign corporations, there are many new provisions that need to be reviewed to see if they apply to your situation. Drop us a line at customerservice@elginroad.tax to schedule a free consultation to review requirements pertaining to ownership of foreign corporations.

New Tax Rates – Applies to all taxpayers

One of the major changes for individuals in this law is the reduction of the top tax rate from 39.6% to 37% and lower rates for all tax brackets. The new rates are as follows:

Single Rate
Not over $9,525 10%
$9,525-$38,700 12%
$38,700-$82,500 22%
$82,500-$157,500 24%
$157,500-$200,000 32%
$200,000-$500,000 35%
Over $500,000 37%

Married Filing Jointly Rate
Not over $19,050 10%
$19,050 – $77,400 12%
$77,400-$165,000 22%
$165,000-$315,000 24%
$315,000-$400,000 32%
$400,000-$600,000 35%
Over $600,000 37%

Increased Standard Deduction, loss of personal exemptions, and limits on itemized deductions – Applies to all taxpayers

Beginning in 2018 the standard deduction will increase to $12,000 for single taxpayers, $18,000 for Head of Household taxpayers and $24,000 for taxpayers filing Married Filing Jointly. This increase however, comes at the cost of the personal exemption. For tax years after 2017 there is no longer a personal exemption deduction.
Along with this change comes limits to certain itemized deductions including the loss of miscellaneous itemized deductions, limits on the amount of home mortgage interest deducted, limits on state taxes that are deductible, and limits to charitable contributions.

The increase of the standard deduction along with the limiting and loss of certain itemized deductions will significantly reduce the number of taxpayers who itemize their deductions.

Unchanged Provisions

There were many provisions that were on the chopping block when creating this act. The following provisions have remained unchanged:
• Exclusion on sale of home
• Investment interest deduction
• Student loan interest deduction
• Qualified tuition and related expense deduction

Increased Child Tax Credit

The new law has increased the child tax credit for children under the age of 17 to $2,000 and children 17 or older (or other dependents) to $500 each. The income phase-out for these credits were also increased to $400,000 MFJ AGI. Taxpayers must have an SSN for the child prior to claiming the credit.

Miscellaneous Changes

There were many miscellaneous provisions included in new tax bill some of these include:
• For divorce agreements made after 2018 there is no longer a deduction for alimony paid to former spouses
• Qualified moving expenses are no longer deductible for years after 2017
• For tax years after 2017 taxpayers who have a net operating loss can no longer carry back that loss to a prior year. All losses must be carried forward.

• Personal casualty losses are only available for disaster areas for years after 2017.
• 100% bonus depreciation on eligible property placed in service after 9/27/2017
• Like-Kind Exchanges after 2017 only apply to real property.
• No business deductions allowed for entertainment, amusement or recreation.
• Business meals are not deductible if at an entertainment setting, such as a football game.

As you can see there are many changes in this new tax law and the above represent only a few of these changes. As always consult a tax professional if you have any questions. Feel free to reach out to us at customerservice@elginroad.tax.