Relevant 2017 Tax Changes - What U.S. Expats Need to Know

Sep 13, 2017

In this post , the FBAR Wiz will explore some pertinent changes made in 2017 that will affect U.S. expats hailing from countries around the globe. To get started, check out the free FBAR Wiz app to see what your filing obligations are with respect to foreign assets and/or foreign accounts. Tax Rate Changes Applicable to tax year 2016, the 39.6% tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are detailed in the IRS revenue procedure, which can be accessed here. It should be noted that the tax year 2017’s rates are detailed here. FATCA Set to Beef Up 2016 was an important year in the U.S. government’s implementation of the Foreign Account Tax Compliance Act ("FATCA"). Digital information exchanges began between the United States and its partner countries. As a result, the IRS, in turn, has received more and more foreign account information from more foreign financial institutions. U.S. expats should certainly take heed of this fact, as it means an increased change in being discovered by the IRS. Many of the FATCA partner countries and their foreign financial institutions (e.g., banks) have made substantial efforts to become FATCA compliant in order to avoid potentially devastating penalties for foreign institutions with significant portfolios of U.S. investments. In this regard, the U.S. government gave a December 31 deadline for countries to implement FATCA locally or lose FATCA-compliant status. The continued worldwide implementation of FATCA is making it increasingly difficult for U.S. expats with international accounts to elude the IRS' ever-increasing reach. A Preview of Tax Changes Under the Trump Administration Although Trump has made various remarks about forthcoming changes to the United States Tax Code, it is impossible to be certain about the specifics as of the time of this post. The FBAR Wiz predicts some of the major changes on Trump’s short list include the following. It should be noted that this is pure speculation and does not constitute accounting or legal advice.

  1. The 3.8% Obamacare tax on investment income would be repealed, as would the alternative minimum tax. (This would be of particular importance to expats because the tax cannot be offset by foreign tax credits.)
  2. Reducing the tax brackets from 7 to 3, with the top bracket taxed at the rate of 33%.
  3. Repeal of the estate tax.
  4. The standard deduction for joint filers would be increased to $30,000, and the standard deduction for single filers would be $15,000. The personal exemptions would be eliminated as would the head-of-household filing status.

Retroactive Taxpayer Identification Numbers ("TINs") for the Child Tax Credit Under a new law, timing limitations were added for claiming the child tax credit by providing that a taxpayer identification number (an ITIN or SSN) can be used to claim the credit only if it was issued (not applied for) on or before the due date of the return. The major impact of this change will be felt by taxpayers using freshly-issued ITINs. The new provision disallows retroactive filing of either amended or original prior-year returns that were due before issuance of the ITIN to claim the credit.   Standard Deduction and Exemption Amounts The standard deduction amounts are as follows:

  1. Joint filers and surviving spouses: $12,600 for 2016 ($12,700 for 2017)
  2. Heads of household:  $9,300 for 2016 ($9,350 for 2017)
  3. Single: $6,300 for 2016 ($6,350 for 2017)
  4. Marrieds filing separately: $6,300 for 2016 ($6,350 for 2017)

For 2016 and 2017, the personal exemption amount is $4,050.   Foreign Earned Income and Housing Exclusion Amounts For tax year 2016, the maximum foreign earned income exclusion is up to $101,300 per qualifying person ($102,100 for tax year 2017). The maximum foreign housing exclusion for 2016 is $14,182.   If you are confused on where to get started, first check out the free FBAR Wiz app to determine what your IRS filings obligations are with respect to your foreign assets and/or foreign accounts. The app is quick, free, and anonymous and meant to help taxpayers know their rights against the IRS.