HIGHLIGHTS OF THE LATEST REPUBLICAN TAX REFORM PLAN
On Wednesday, President Trump unveiled his latest framework for tax reform, which stems from a collaborative effort by the so-called “Big Six,” which includes members of the Trump administration and Senate and House leaders.
The following is a quick summary of some of the main provisions of the plan, which have potential consequences for U.S. expat individuals:
- Reducing the 7 tax brackets to 3 brackets of 10%, 25%, and 35%
- Raising the standard deduction to $24,000 for couples and $12,000 for individuals
- Increasing the child tax credit amount and raising phase-out income levels
- Eliminating the personal exemption and replacing it with the higher child credit and standard deduction
- Abandoning Ivanka Trump’s plan to add a tax deduction for child care in favor of an increased child tax credit
- Retaining the mortgage interest and charitable deductions, but eliminating many other itemized deductions including the deduction for state and local taxes
- Repealing the alternative minimum tax
- Repealing the death tax and the generation-skipping transfer tax
The general approach of these reforms looks quite similar to Trump’s previously-announced tax reform plans. For an in-depth look at how these provisions may specifically affect expat taxpayers, please read our previous blog that provides a detailed analysis on a reform-by-reform basis.
It’s important to also note that the plan contains a number of corporate tax and corporate international tax reform proposals that would significantly affect U.S. businesses. These include a reduction of the corporate income tax rate from 35 percent to 20 percent. The new corporate tax would be “territorial,” i.e., foreign income earned by U.S. companies would be tax-free, and all untaxed income currently held overseas would be immediately taxed at a fixed rate.
At the international level, the plan would provide for a 100% exemption for dividends paid to U.S. companies by their foreign subsidiaries. The plan would treat accumulated offshore profits as repatriated, giving rise to a one-time repatriation tax (at a “low” rate that was not specified) that is payable over five years.
As a general matter, it’s important to note that this latest plan requires the approval of the U.S. Congress, a process that is highly politically charged and will take some time. There is also no guarantee as to which of the changes will ever come to legislative fruition.
At Expat Tax Professionals, we do pride ourselves on keeping current on all of the important tax changes that may affect your tax filings. We will continue to provide you with the latest tax news affecting your expat tax filing obligations.
