FINANCE & LAW


Some practical impacts of Trump’s Tax Act on US expats


The Tax Cuts and Jobs Act of 2017 was hailed as a major simpli- fication of, and of course, reduction of rates in, the tax code. It was claimed that it would be so simple that it would be possible for US taxpayers to file their taxes on a post-card sized return. Most of the changes will or are affecting taxpayers from TY 2018 onwards although at least one major item was virtually retroactive for TY 2017 (considering the law was signed on December 22nd 2017). Alas, for many individuals and especially expats, the eventual outcome is not so straightforward nor all favourable. Firstly, as a practical matter it is true that the new Form 1040


for Tax Year 2018 can fit on the front and back of a (rather large) post-card. The new Form 1040 instructions claim that “many” taxpayers will be able to file their return with just that page. How many actually can or will, I would love to know! Certainly, I can guarantee that none of those taxpayers will be living abroad because to include a foreign address you need to attach one of the new numbered Schedules to the form. Most of the remainder of the previous style Form 1040 has been chopped up and placed onto these new numbered Schedules, so instead of a two-page actual Form 1040 it can now easily reach five or six pages. (That is just for the Form 1040, not in- cluding other income schedules.) Tax-wise, indeed the overall tax rates and thresholds have


moved favourably for individual taxpayers. The personal exemp- tion has been scrapped in favour of increased standard deduc- tions. The “phase-out” of itemised deductions for higher earners has also been scrapped. However, an expat taxpayer living and working in the UK is unlikely to benefit a great deal from these changes as most are unlikely to actually owe US tax on their earnings because UK tax rates were already higher on average than those in the US. On the other hand, many expat taxpayers will benefit from the more generous provisions of the Additional Child Tax Credit. The ACTC is a ‘refundable credit’ which means that even if no US tax is owed or has been paid, the IRS will actually send you a check if you have a qualifying US citizen child under the age of 17 and your earned income is between a certain range.


The refundable per-child credit has increased from $1,000 to $1,400, and more significantly, the income eligibility limit has in- creased substantially from $110,000 for a married-filing-joint couple to $400,000. Therefore, many more expats will find themselves receiving the ACTC in TY 2018. Unfortunately, life for US individuals with non-US incorpo-


rated businesses (e.g. a UK limited company) has been made considerably more complicated as a result of the major changes designed to affect the foreign subsidiaries of US do- mestic companies. They are intended to accommodate the re- moval of the previous disincentive for US companies to bring foreign profits back to the US, but the changes affect all non-US companies owned more than 50% by US persons (what we called Controlled Foreign Corporations), even those owned by individuals. The two major items are the Section 965 Transition Tax and the new Global Intangible Low Taxed Income regime (or GILTI for short!). The former is a one-off tax applicable to US shareholders of CFCs in either TY 2017 or 2018 which is taxing their retained earnings and profits at a reduced rate. For many individuals this will not have an actual tax impact. The GILTI regime, on the other hand, may well do so as it forces a US shareholder of a CFC to include in their income the earnings of the company that are generated from intangible assets, which is most service businesses these days. And only a reduced amount of foreign tax credit can be claimed, which may cause a major issue. And, overall, the information reporting requirements for a US per- son controlling a CFC have become substantially more compli- cated from TY 2018. I would not bet on returning to the days of 1913 when the entire tax return was three pages and the instructions were one page… any time soon! The above is greatly simplified and is for information pur- poses only and not intended to be nor should be construed as tax advice. For help with your specific situation, please feel free to get in touch.


www.focus-info.org © The National Trust


Daniel Jaffe is an expert on US expat taxation at Jaffe & Co LLP. He specialises in non-compliant taxpayers and renunciation situations. www.jaffeandco.com.


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