If you are a “United States person,” which for the purposes of taxation of individuals means any United States citizen or alien admitted for permanent residence in the United States, then there are some things you should know or do before the April 17 tax return deadline this year as a result of tax reform in the U.S.
With regard to the repatriation of profits, as mandated by U.S. tax reform legislation:
If you are a U.S. person who owns a non-U.S. company, act promptly.
Wait for additional guidance. The IRS has not issued significant guidance, but more information is being issued soon. With additional guidance, you will be able to make plans to minimise the new tax.
Get started based upon current interpretations. Determine an estimate of the additional tax on the accumulated earnings.
Pay and extend. Pay an estimate in excess of the tax before April 17, 2018, and extend the time to file. The excess can be refunded to you or credited to next year’s tax. If you don’t pay enough, there will be penalties.
Review day-to-day and long-term operations for potential changes to your non-U.S. company. For each move by the IRS, you should consider countermeasures to minimise the new U.S. tax.
Other tax changes that affect you:
Tax brackets, exemptions and deductions have been modified. If your income is the same, you likely will have less tax to pay going forward unless you own a
New mortgages are limited to $750,000 for deductible interest. Previous mortgages are grandfathered. Before getting a new mortgage, you should evaluate the potential tax consequence.
Information reporting requirements are generally unchanged. You will still have to file your forms 1040, Schedule B, 5471, 8938 and FBAR, if you meet the threshold filing requirements.
Foreign earned income exclusion will be $104,100 for 2018. The standard deduction will be $12,000 for single and married filing separately, $18,000 for head of household and $24,000 for married filing jointly. There is no longer an additional exemption for dependent children or family.
The amount for annual and lifetime gifts has been increased to $15,000/year ($152,000 to a non-U.S. spouse) and approximately $11.2 million/lifetime. You may wish to give away more assets in order to avoid the U.S. taxation on the investment income.
Patrick Hackenberg is a former resident of the Cayman Islands who provides U.S. tax preparation and advice to clients here and around the globe.