Tax Changes for U.S. Expats Under the Tax Cuts and Jobs Act (TCJA) of 2017

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Trump in December 2017. The TCJA ushers in a slew of dramatic changes to the U.S. Tax Code, including some important revisions to the tax requirements for U.S. expats. If you are a U.S. citizen living or working abroad, pay careful attention, because this information could directly impact your taxes this year. For up-to-date legal and financial guidance on all aspects of the reformed tax laws for expats, contact the Tax Law Office of David W. Klasing to discuss your matter confidentially in a reduced-rate consultation.

2018 Tax Filing Deadline for U.S. Citizens Abroad and Military Servicemembers Overseas

Most U.S. taxpayers were required to file a federal personal income tax return by April 17, 2018, unless they obtained the six-month extension available through Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return). However, to help accommodate the shipping and processing delays for international tax documents, the Internal Revenue Service (IRS) grants automatic 60-day extensions to U.S. citizens who live overseas. This generally includes any U.S. citizens who were on military duty overseas when their tax returns were originally due.

You do not need to file any IRS forms to obtain this extension, which occurs automatically, pushing the deadline from April 17 to June 17. However, there are two important points to take note of:

  1. In most years, the deadline to file a tax return is April 15, which means the 60-day extension would typically extend the due date to June 15. The June 17 deadline is an exception to reflect the two-day delay in 2018.
  2. The extension grants you additional time to file a tax return, but does not grant you additional time to pay your estimated tax bill, which means that regardless of the extension, interest will accrue beginning on April 17 (or, in most tax years, April 15). For more information about this tax trap and how to avoid it, see our previous article discussing tax filing extension penalties, read about the difference between failure-to-file penalties and failure-to-pay penalties, or learn what to do if you can’t pay your tax bill.

4 Tax Updates for Expats Under the New Law

Remember: even if your circumstances have not changed significantly since last year, your responsibilities may have changed due to the recent tax reforms. Toward that end, our experienced tax preparers have prepared a brief overview of what has changed for expats – and what hasn’t – under the TCJA.

It’s unsurprising that a law President Trump once called “the biggest tax cuts and reform in American history” would usher in a few changes for taxpayers overseas. But how, exactly, have the regulations shifted? Below are four examples.

  1. The moving deduction is no longer available under the TCJA. Prior to the reforms, the moving deduction allowed taxpayers to deduct “reasonable moving expenses,” provided certain eligibility requirements were met.
  2. The TCJA changed (1) the previous tax brackets, and (2) the tax rate upon each bracket. For example, before the TCJA, federal law imposed a 25% tax rate upon the $38,701-$93,700 Under the TCJA, there is a 22% tax rate upon the $38,701-$82,500 bracket.
  3. The Affordable Care Act (ACA, “Obamacare”) individual mandate no longer exists under the TCJA. The ACA itself still exists – but there is no longer a tax penalty for failing to obtain health insurance.
  4. Inflation will now be calculated using a chained consumer price index, rather than the previous method of using the regular consumer price index. This will cause lower inflation rates to be factored in when determining the Foreign Earned Income Exclusion (FEIE), which our tax attorneys will discuss in a few moments. As a consequence of this change, expats will see larger tax liabilities.

Despite making some radical alterations, the TCJA also leaves several provisions of the Tax Code intact. Unfortunately for U.S. expats, these provisions can be dangerous if not scrupulously complied with. For instance, one fact which hasn’t changed is the requirement for citizens abroad to report foreign income by, where applicable, taking the following measures:

  • Filing an FBAR (FinCEN Form 114)
  • Filing Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts)
  • Filing Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations)
  • Filing Form 8938 (Statement of Specified Foreign Financial Assets)

On the other hand, the TCJA also preserves some beneficial elements of the Tax Code for expats, notably the Foreign Tax Credit (FTC) and FEIE, both of which can reduce your tax liabilities. For detailed information about these IRS tax breaks for citizens abroad, you may be interested in the following articles:

Tax Preparation Services for U.S. Expats with Foreign Income

If you are a U.S. expat and have not filed your 2017 income tax return yet, don’t panic: you still have two months in which to do so. However, before submitting any materials to the IRS, you should review your rights, responsibilities, and records with an experienced international tax attorney, who can work to ensure that you are taking appropriate steps to comply with the law while restraining your tax liabilities to the absolute minimum. It is also essential to engage in careful tax planning for 2019, when the provisions of the TCJA will have a greater impact.

At the Tax Law Office of David W. Klasing, our versatile team of Tax Lawyers, EAs, and CPAs combines decades of experience aiding individuals and business entities with all aspects of foreign tax planning, tax preparation, and tax controversy resolution. If you need assistance preparing a tax return, reporting foreign income, navigating a tax audit, or evaluating the tax repercussions of a potential move overseas, contact us online, or call the Tax Law Office of David W. Klasing at (800) 681-1295 for a reduced-rate consultation.

Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San BernardinoSanta BarbaraPanorama City, and Oxnard! You can find information on all our offices here.

Helpful Q and A library on international taxation:

https://klasing-associates.com/topics/international-tax-law-faq/

Basics of inbound taxation:

https://youtu.be/O0jKe1uFUo8

What is a Controlled Corporation?

https://youtu.be/9tZ8faTB8Zc

Basics of U.S. International Taxation

https://youtu.be/_ez7cFNCvjk

Branch Profits Tax

https://youtu.be/W3ZECihTXbE

How is business income earned by nonresidents taxed?

https://youtu.be/LGBZxZ6ZgXQ