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The TCJA and how it affects Americans overseas

Tax Cuts and Jobs Act of 2017

· expat,tax,TCJA,FATCA,PL 115-97

A lot of the people we know have been asking what to expect from the Tax Cuts and Jobs Act of 2017 and how it affects them as overseas residents. The answer is the TCJA can be a blessing or a curse, depending on your main source of income.

Let’s start by saying that US-based businesses will do very well under the new tax plan, but this is a subject unto itself, not affecting most overseas Americans.

Sadly, our employed friends and family back home (who actually had quite a good thing going) will lose, or find limited, many of the deductions they’ve grown accustomed to. Despite the lost deductibility of employee business expenses, investment expenses, foreign property taxes, and alimony, among other deductions, we can at least comfort ourselves with the fact that our congressmen found it within their prudence to preserve the deductibility of federal lobbying expenses. Merry Christmas!

For Americans abroad, little has changed. Enforcement will be stepped up by a number of groups created to monitor foreign residents, but reporting requirements will remain the same. We’ll still have the foreign earned income exclusion, the foreign housing exclusion, and the foreign tax credit--all of which have a much greater impact on tax liability than any deduction. Americans living overseas, in high-tax jurisdictions, can still expect to pay little to no American income tax.

One bright spot is that the child tax credit will now be available to more people, and those that already receive it will find that their benefit has increased.

The gift and estate tax exemption has also been temporarily increased to $11.2 million per spouse.

Many changes to the business tax code will be set in motion by the new law. I won’t mention the ones that don’t bear on Americans overseas but those with foreign companies should take into account two major issues. First, a forced repatriation and taxation of retained CFC income is underway. Second, 100% of foreign dividends will soon be deductible by US corporations with foreign subsidiaries (after two years of ownership under the new rules).

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