The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, brought significant changes to the American tax code, affecting both individuals and businesses. For US citizens living abroad, the TCJA introduced several key provisions that have implications on how expatriates are taxed and the deductions and credits they can claim.
Reduced Individual Tax Rates
One of the central changes under the TCJA was the reduction of individual income tax rates across various income brackets. While these changes primarily aimed to lower taxes for individuals residing in the US, they also affected US expatriates who remain subject to US taxation on their worldwide income.
Increased Standard Deduction
The TCJA nearly doubled the standard deduction for both single filers and married couples filing jointly. This change has made it more attractive for some expatriates to take the standard deduction rather than itemizing deductions, simplifying their tax filing process.
Changes to Deductions and Exclusions
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State and Local Tax (SALT) Deduction Limitation
The TCJA imposed a $10,000 cap on the amount of state and local taxes that can be deducted from federal income tax returns. This limitation can impact expatriates who maintain ties to US states where they may have property or other taxable assets.
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Foreign Earned Income Exclusion (FEIE)
The FEIE allows qualified expatriates to exclude a certain amount of foreign earned income from US taxation. While the TCJA did not directly change the FEIE, other provisions like changes to tax rates and deductions can indirectly affect its utility and calculation.
Repatriation of Foreign Earnings
Under the TCJA, a one-time mandatory repatriation tax was imposed on certain accumulated foreign earnings of US companies. While this primarily affects multinational corporations, expatriates who own foreign corporations or have significant foreign investments may have experienced indirect impacts on their tax planning strategies.
Qualified Business Income Deduction
The TCJA introduced a new deduction for pass-through businesses, allowing eligible taxpayers to deduct up to 20% of qualified business income from partnerships, S corporations, and sole proprietorships. Expatriates with investments in US-based pass-through entities may benefit from this deduction, subject to certain limitations and qualifications.
The Tax Cuts and Jobs Act has brought both challenges and opportunities for US expatriates navigating the complexities of US tax laws. While some provisions directly impact expatriates, others require careful consideration and planning to maximize tax efficiency and compliance.
