New Tax Law Changes for 2018, and How They Will Apply to US Expatriates

The President has signed the biggest tax changes in over 30 years. When you file your 2018 tax returns
— about a year from now — your tax return will look very different. And because most changes don’t happen
until then, we have some time to learn about the changes and plan for next year. Here are a few of the biggest
changes that may affect you.

Tax rate changes: Both individual and corporate rates have changed. The maximum individual rate is reduced
to 37% and the corporate rate is now a flat 21%. The rate chang could benefit you — or in some cases
cause your tax liability to go up.

Standard deduction increases:  However, there are no more personal exemption deductions allowed.
So this may help you — or hurt you.

Increased Child Tax Credit and new Dependent Credit: The credit is increased for each child to $2,000
(up to $1,400 of which is refundable for each child) and each non-child dependent can now receive a new
credit of $500. But you will have no exemption credit or deduction for yourself, your spouse, or your depenDeardents.

The phaseout thresholds for these credits are drastically increased. Married taxpayers filing a joint return can
claim the full credits if their adjusted gross income is $400,000 or less ($200,000 for all others). The credits
are fully phased out for married taxpayers filing a joint return when their adjusted gross income reaches $440,000 ($240,000 for all others). This means that many more taxpayers will be able to claim these credits in 2018 and beyond.

Disappearing deductions: Beginning with the 2018 tax year, you will no longer be able to deduct:

• State income tax and property taxes above $10,000 per year in total;
• Moving expenses (with an exception for certain military);
• Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues
• , tax preparation fees, and investment fees, among others;
• Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home; and
• Mortgage interest paid on equity debt (this is no longer deductible for any taxpayers).

Some new benefits for individuals: These new benefits include:

• The medical expense AGI threshold will temporarily drop to 7.5% of AGI for 2017 and 2018;
• The AMT threshold is increased, so fewer middle-income taxpayers will be subject to AMT;
• The estate tax exclusion has nearly doubled, to $10 million (adjusted for inflation); and
• The annual gift tax exclusion remains the same ($14,000 for 2017 and $15,000 for 2018)
• but the maximum rate on gifts is 35%.

Small business benefit: Beginning in 2018, there will be up to a 20% deduction from net business income
for a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and
rental activity. The rules are incredibly complex but there is a lot of planning that we can do to maximize this
deduction for you. More on this later

For expatriates, the foreign earend income exclusion, housing exclusion and foreign tax credits have not been changed at all.
As stated above, you will have some changes with respect to any foreign corporations you own all or part
of, but the exact nature of those changes awaits IRS interpretations and regulations.

Remember all of these changes take effect in 2018 and your 2018 tax return. All of the old rules still apply to your 2017 tax returns which you will need to file shortly.

Let us know if we can help with your 2017 return, and 2018 tax planning. Email us at ddnelson@gmail.com and visit our website at www.taxmeless.com

New U.S. tax law for owners of non-U.S. corporations – action to consider by year-end!

Posted on December 22, 2017 

By Kyle Lodder, CPA

President Trump has signed significant U.S. tax legislation into law today, namely the “Tax Cuts and Jobs Act”.

There are many favorable tax provisions that will benefit many taxpayers, for individuals and businesses. But there are also some quite unfavorable international tax provisions which may adversely impact business owners of non-U.S. corporations.

One specific new provision relates to U.S. persons who own an interest in a non-U.S. corporation.

Under prior law, U.S. shareholders generally are taxed on all income, whether earned in the U.S. or abroad. Foreign income earned by a foreign (non-U.S.) corporation generally is not subject to U.S. tax until the income is distributed as a dividend to the U.S. shareholder.

Under this new law, certain U.S. shareholders owning at least 10% of the foreign corporation generally must include in income starting in 2017 the shareholder’s pro-rata share of the net post-’86 historical earnings and profits “E&P” (i.e. accumulated unrepatriated earnings) to the extent it hasn’t been previously taxed in the U.S.  This is a one-time tax as the U.S. attempts to transition from a worldwide tax system to a territorial type of tax system.

The portion of the historical earnings comprising of cash or cash equivalents is taxed at a reduced rate of 15.5%, while any remaining E&P is taxed at a reduced rate of 8% (it works out to a bit higher rate in some cases). The lower tax rate is intended to recognize that non-cash assets are illiquid and/or in productive use in the business. Nonetheless, this could be a significant tax hit for this upcoming tax season, although there is an option to elect to defer the payment over eight years.

Another problem with this tax is that it’s on deemed income. There isn’t an actual dividend. Rather, it’s deemed income for U.S. purposes. In most foreign countries, this deemed income isn’t considered taxable income. The challenge then is that it’s taxed in the current year for U.S. purposes but not in the foreign country. And when the money is distributed in the future, it typically is treated as a dividend in the foreign country, but not in the U.S. It causes a mismatch and often the lack of use of foreign tax credits, resulting in true double taxation.

 
What to do by year-end?

If you have significant retained earnings, it’d be worth contacting us to see if there are some planning moves to be made prior to year-end. Perhaps it makes sense to withdraw money from the company before year-end to trigger an actual dividend in the U.S. and the foreign country. This will trigger income in both countries to allow for utilization of foreign tax credits. Furthermore, simply withdrawing the money by year-end will allow for us to then determine after year-end how to classify the withdrawal (as a dividend, wage or loan for example).

If there remains tax exposure after considering foreign tax credits, it could make sense to gift shares to a non-resident alien spouse before year-end to a smaller ownership percentage level to avoid this tax.

This is a very new tax concept and not a lot of time has been granted to us to plan around this matter.  Yet, it makes sense to look at this before year-end to see if any moves can be made prior to year-end to put you in a better tax position.

If you require additional information on any aspect of these complex rules, please contact Kyle Lodder CPA at 360.599.4340 or kyle@loddercpa.com.  You can also contact Don D. Nelson International Tax Attorney at ddnelson@gmail.com or 949.480.1235. Kyle works with our firm.

The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, or tax advice or opinion provided by Lodder CPA PLLC. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by a professional, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information

5 WAYS TO EXPLOIT NEW TAX BILL BEFORE YEAR END (12-31-17)

There is still time to take advantage of old tax laws that will go away under the new tax law. Time Magazine sets for five ways you can take action now before year end.  READ MORE HERE.

What Are Changes in GOP Final Tax Bill?

The final GOP tax bill is complete. Here’s what is in it. READ ALL ABOUT IN IN THE WASHINGTON POST 

THE BASICS OF CRYPTO CURRENCY FROM THE NATIONAL LAW REVIEW

The following is a very high-level discussion from the National Law Review of the consequences generally applicable to U.S. individual holders of cryptocurrencies, and will not be applicable to all taxpayers depending on their particular situation.  Failure to follow these rules will without a doubt result in future criminal and civil action by the IRS against those taxpayers that ignore these rules.   Best to amend past returns which did not take into account these rules and come forward before the IRS takes action.  Contact us if you need help.

The IRS always treats those that come forward first to correct past  mistakes, better than if they discover the taxpayer'ś error first.  READ MORE ABOUT CRYPTO CURRENCY RULES HERE

Winners And Losers in New. TAX Bill Passed by Senate

Winners and losers in the Senate GOP tax bill from the Washington Post. A little bit for middle class and a lot for the wealthy and large  corporations.  READ MORE HERE