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Changes U.S. Expats Need To Know About Trump’s New Tax Reform

President Trump’s much-anticipated "Tax Cuts and Jobs Act" bill goes into effect in 2018. That means when you file in early 2019, your tax return will reflect these changes, the most sweeping reform the U.S. tax system has seen in over 30 years. If you’re living abroad, what do you need to know? Can you expect to pay more or less or get a bigger refund? Let’s see . . .

 

Income Tax Rates

The Tax Reform Bill retains the current 7 income tax brackets but lowers tax rates for 5 of these brackets. The highest bracket is reduced from 39.6% to 37%, while the 33% bracket is reduced to 32%, the 28% bracket is reduced to 24%, the 25% bracket is reduced to 22%, and the 15% bracket is reduced to 12%. The  10% and 35% brackets remains unchanged.

 

Standard Deductions

The Tax Reform Bill increases the standard deduction to $12,000 for single filers (up from $6,350) and $24,000 for married couples filing jointly (up from $12,700).

However, the Tax Cuts and Jobs Act eliminates many itemized deductions such as the employment-related moving expenses, tax-preparation fees, investment expenses, union dues, and unreimbursed employee expenses. The bill  caps the deduction for SALT (state and local taxes) at $10,000 and limits mortgage interest deductions (for new loans taken out after December 15th) to $750,000 of debt (reduced from $1,000,000 previously). The charitable contributions deduction and the student loan interest deduction remain unchanged. 

Personal Exemption

The $4,050 personal exemption is eliminated under the Tax Cuts and Jobs Act.

Child Tax Credit

The child tax credit jumps from $1,000 to $2,000 per child, $1,400 of which is refundable even if you owe no U.S. taxes. The phased out level has also been significantly increased from $110,000 in 2017 to $400,000 under the new law for married taxpayers filing jointly taxpayers.

Corporate Taxes

Expats with American corporations will benefit under the new tax law. The final corporation tax rate drops to 21%. That is 14% lower than the current rate.

The Foreign Earned Income Exclusion (FEIE)

This exclusion remains untouched, except the threshold is raised slightly. If you earned income overseas, you may be able exclude up to $102,100 if you qualify.

In Summary

The new changes, especially the higher standard deductions, will make filing much less burdensome to many expats. Parents of children under 17 will benefit from the $1,400 refundable credit and corporation owners stand to earn greater profits with the lower tax rate. It’s the most sweeping tax reform in over three decades, and it appears many will benefit.